March 2017 - Phoenix Real Estate Market


Articles

1)  STAT Newsletter

2)  Top Questions Real Estate Professionals Are Asked

3)  Arizona Property Taxes Are Due 

4)  Phoenix Unloading Hundreds of Properties

5)  Phoenix Job Growth Project to Double US Average

6)  Tales From the Trenches -  How cheap and easy is it to split a small lot in Apache Junction?


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1) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market

(Note the numbers are reported one month behind.)  STAT is produced monthly by the Arizona Regional Multiple Listing Service.  This is the database realtors use to list homes for sale and the source for historical sales. ©ARMLS 2017


There’s an old adage in local real estate - “As March goes, so goes the year.” Whether this is a tried and true aphorism or something I’ve made up and convinced myself is a thing, it tends to hold its weight. While we’re waiting for March to offer scintillating insight as to how 2017 will unfold, I thought it would be the perfect opportunity for me to share a potpourri of personal notions and market observations. Welcome to this month’s hodgepodge of STAT news. 


An early theme for 2017 is that sales are up and inventory is down. January home closings were up 15.6% year-over-year. February sales were up 12.5%. MLS sales for the first two months of 2017 are 14% higher than 2016, which is a nice start to 2017 indeed. If March is truly a bellwether month, the table will be set for a very good year. Anecdotally, we’re seeing reports of properties selling quickly. The personal accounts we’re hearing are supported by our data primarily for homes priced under $200,000 where constricted inventory levels continue to fall. The Listing Success Rate, published by the Cromford Report, is the percentage of listings that closed with a sale rather than expiring or being canceled. The Listing Success Rate for properties listed for $200,000 or less is around 87%. Our entry level buyers are coming face to face with a full-blown sellers’ market. 


Let us look at the apartment boom we’ve witnessed in Phoenix the last several years. It’s nice to see beautiful structures on the previously vacant corners throughout central Phoenix, but knowing our history, did we overbuild again? My guess is that we most likely have. We’re Phoenix! It’s our birthright so it’s what we do. If you can finance it, we will build it and they will come eventually. The move from renting to owning should pick up making the demographics for apartments are much less favorable than six years ago. The 20 to 29 year old age group (a key age group for renters) will be moving into the 30 to 39 age group (a key for ownership).   In addition more apartment inventory is coming online all over the greater Phoenix area. Slowing demand and more supply for apartments is why I think growth in multi-family starts will be flat or slow further this year.  


Sales Prices

Last month STAT projected a median sales price for February 2017 of $228,000. The actual median sales price was $230,000, 0.009% higher than the $228,000 projected by our mathematical model. In 2016 our mathematical projections tended to be lower than the actual results for most of the year. Looking ahead to March, the ARMLS Pending Price Index projects a median sales price of $229,000, a slight decline from February 2017. I suspect our model may be reverting to its 2016 pattern and I expect the median sales price in March 2017 to eclipse our mathematical model. 


MLS sales volume in February 2017 was 6,435, 12.5% higher than the total of 5,718 last year. This accounted for 232 more sales than our projected total of 6,200. Sales volume for the first two months of 2017 is 14% higher than 2016. We begin March 2017 with 7,104 pending listings, 4,323 UCB listings and 452 CCBS giving us a total of 11,879 residential listings practically under contract. This compares to 11,783 of the same type of listings at this time last year, suggesting that sales volume in March 2017 will surpass the volume of 8,412 in March 2016. STAT is projecting 8,950 sales in March 2017. 


Click here for the latest Stat Report


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2)  Top Questions Real Estate Professionals Are Asked

John Bergman, Owner, On Q Financial Inc, March 2017 with commentary from Pat Hune, Broker, 1st Southwest Realty


The top questions every real estate professional is asked are: Is it a good time to buy? Is it a good time to sell?  Are prices going to go up or down? Are mortgage rates going up or down? There are many factors that impact the real estate market both globally and locally.  

One opinion from John Bergman, Owner of On Q Financial Inc, is there are four key factors: 1) Tax reform as lowering corporate taxes stimulates the economy and promotes growth of investments, 2) Deregulation, 3) More countries exiting the EU including Germany and France, and 4) China’s National Debt which is 264% of the gross domestic product. John stated "I want to emphasize that if the Republicans cannot pass tax reform it will have an material impact on the economy. Watch out if this happens! Look for extreme financial market volatility in stocks, bonds, currencies, and commodities. Investors will flock to the safety of US Treasury bonds and mortgage rates would drop significantly.”  Click on the link below to read the entire article.


Economic Update and Mortgage Rate Predictions


If mortgage rates go down and the economy continues to improve then it will both a good time to buy and sell.  The move up seller priced under $300,000 should have plenty of buyers.  If the interest rate is lower than the seller’s current loan they may be able to trade up to a bigger home with little increase in monthly payments.  


If buyers see interest rates drop (and now they know interest rates can go up) they will want to lock in the lower rates as soon as possible.  


A strong economy gives people more confidence in continued employment.  Lastly, as Tom Ruff noted in the STAT Report, "The 20 to 29 year old age group (a key age group for renters) will be moving into the 30 to 39 age group (a key for ownership).” 


As John Bergman said "There are a lot of moving pieces in 2017. Let’s keep a close eye on these events and how they will affect the global economy and mortgage rates."


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3)  Arizona Property Taxes Are Due 

Maricopa County, March 2017


Second half property taxes were due on March 1.   The second half property taxes are delinquent is not paid by May 1.  If your mortgage company pays the taxes on your behalf then you don’t have to send a separate payment. If you own your property free and clear with no mortgage or if your mortgage company does not pay the taxes on your behalf then you need to pay the taxes by May 1 to avoid late fees. To see if your property taxes have been paid you need your parcel number.  You can search by address on the County Assessor’s Office website for the county were the property is located.  The link to Maricopa County Assessor’s office is below.


Maricopa County Assessor


If you cannot afford to pay your property taxes there are some programs available to assist you.  In Maricopa County (see link below) there is a Seniors Valuation Program that freezes the full cash value of the primary residence based on income and age.  There is a Widows/Widowers/Disabled Exemption that exempts a personal residence from taxation but has some limitations.  Elderly Assistance Fund (EAF) was established to reduce the property tax of qualified elderly taxpayers.  Check the website of the county where your property is located to see if they have assistance programs.


Property Tax Assistance Programs


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4)  Phoenix Unloading Hundreds of Properties

AZ Central, March 2017


Phoenix plans to dramatically shrink its portfolio of city-owned real estate after an internal review found the city doesn’t need at least 656 pieces of land that it owns.  That number includes hundreds more excess properties than officials previously acknowledged, and comes after an Arizona Republic investigation revealing widespread concerns about Phoenix’s land-management practices.  Among The Republic’s findings: The city owns vast swaths of vacant land — about 1,400 individual properties covering 2.3 square miles with a combined assessed value of more than $150 million.  The Republic’s report last fall detailed how the vacant lots are a scourge in neighborhoods from south Phoenix to Sunnyslope. Residents complain the empty dirt parcels create problems with illegal dumping, dust and weeds. Some accuse the city of violating its own blight codes.  Developers also criticize the city for sitting on prime land in the urban core. They said Phoenix has stiffed opportunity in some areas, particularly as it experiences a construction boom.


City officials now are ramping up efforts to dispose of the excess properties by selling the land or, if the parcel carries no value or shouldn’t be on the city’s rolls to begin with, transferring it to a different owner.  The city’s updated list of unneeded properties includes hundreds of vacant dirt and gravel lots, some of which have sat idle for a decade or longer with no planned use on the horizon. It also includes properties the city should have relinquished years ago.


The city also recently launched a new website showing all of its for-sale properties — something real-estate investors said was needed given the difficulties they have encountered inquiring about city land sales.

As of mid-March, Phoenix was in negotiations or under contract to sell 132 properties. It has about 38 other parcels listed for sale and plans to list 43 more in the near future, according to city officials.  But that’s just the beginning. The city is figuring out how best to dispose of 417 additional properties. And city officials still are reviewing land owned by the Aviation Department: The airport owns about 800 vacant lots, which it acquired by buying and demolishing homes near runways using federal money for noise remediation.  With airport land included, the city’s list of excess properties could top 1,500 parcels, or more than a quarter of its total land holdings.


Two properties that the city owns but shouldn’t, according to Jami Spear, the city’s assistant real-estate administrator. One lot is a water-infrastructure property that actually belongs to the city of Glendale. The other is a road in Scottsdale.  Others include:  131 parcels that should be dedicated as public roadways, a process that removes them from the county assessor’s property-tax rolls. Some streets were built years ago “but for whatever reason, that (dedication) did not happen,” Spear said.  A boarded-up home near 27th Avenue and Van Buren Street. The home was bought using federal money for first-time buyer assistance, but the city foreclosed on the property in 2008. It has sat vacant since then and the Housing Department has no plans to redevelop it. The property is one of several structures that have sat unused for years.  Click below for the full article.


Phoenix Excess Properties


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5)  Phoenix Job Growth Project to Double US Average

Phoenix Business Journal, March 2017


Phoenix is expected to see 2.8 percent job growth this year up from 1.5 percent in 2016.  U.S. job growth is expected to be 1.4 percent this year after posting 1.5 percent gains last year, according to the Marcus and Millichap report.  Orlando (4.5 percent), Fort Lauderdale (4.3 percent), Oakland (3.1 percent), Seattle (3.4 percent), Salt Lake City (3.4 percent), Sacramento (2.9 percent), Dallas (2.9 percent) and Raleigh (2.9 percent) have higher growth projections than Phoenix.  That puts Phoenix with the ninth best projected job market among the largest U.S. metro areas.  The Phoenix region has been slow to recover from the last recession and real estate crash but has been seeing some technology and other gains in the East Valley and more economic activity in more urban areas such as Old Town Scottsdale, north Tempe and downtown and central Phoenix.


Intel Corp. (Nasdaq: INTC) announced an additional $7 billion investment and expansion of its semiconductor fabrication footprint in Chandler. McKesson Corp. (NYSE: MCK) is also moving into a new campus on the Salt River Pima Maricopa Indian Community and plans on adding jobs.  According to the MMI projections, Phoenix has better job growth prospects than New York (1.4 percent), Washington D.C. (1.7 percent), Los Angeles (1.1 percent) and Silicon Valley (2.7 percent)


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6)  Tales From the Trenches -  How cheap and easy is it to split a small lot in Pinal County?

Pat Hune, Broker, 1st Southwest Realty


The short answer is definitely not cheap nor easy as I recently found out.  My client had a five acre lot in Apache Junction (Pinal County) zoned General Rural he was interested in selling. The seller was not interested in putting a lot of money into the property. The question was would it be better to split the lot and sell smaller lots or sell the entire five acre parcel.  I called Pinal County and they said to call Apache Junction since the lot was located in Apache Junction.  Apache Junction has a complicated lot split process.  The minimum lot split size is 1.25 acres per lot.  However if one owner tries to split a lot four ways then it is considered a subdivision and has to follow all the subdivision procedures.  If the lot split is only three ways (called a simple lot split) then the cost and process is much easier and cheaper.  I decided to research both types of lot splits.


Subdivision Lot Split - The first step for a subdivision is to have an engineer prepare a preliminary plat that includes grading and drainage, utility design, road design, etc.  The engineering cost to do this will be very high (I didn’t bother to get an estimate) and in addition there are city fees of $1,575 plus $21 per lot.  Once the preliminary plat is approved then there has to be a final plat.  The cost for a surveyor to do the final plat is estimated at $3,330.  There are more city fees of another $1,575 + $21 per lot.  Total so far was $6,648 plus engineering costs and did not include the cost for the utilities.  This was already way too complicated and expensive for the seller to even consider so we abandoned the subdivision split.  


Simple Lot Split - The minimum lot split size is still 1.25 acres per lot. A simple lot split requires an owner to have the property surveyed, have the survey recorded and then have the individual lots deeded to the owner.   If the lot can be split again then there has to be a second survey, the survey is recorded and the individual lots deeded to the owner.  The catch is it has to be going to a completely unrelated person.   This sounded a lot easier and cheaper than a subdivision split.  The seller decided to have a survey to identify the boundary markers because the property had been in the family since the 1940’s.  He was concerned neighbors may have built fences, driveways or buildings on his property.  He also wanted to make sure the property had proper ingress and egress and confirm the easements.  The seller opted to have the first lot split done as part of the boundary survey as he felt it would make the property more attractive to a buyer.  The survey costs was the same so there was no additional expense for the seller.  


In the meantime I researched the costs to connect to the sewer, electric and water.  The cost to connect to sewer is $3,825 for the permit and $4,000 to $5,000 to run the physical connection for a total of $8,825 per house. SRP charges $3,500 per house for a 300AMP meter plus the cost for any additional lines required.  Arizona Water Company charges an off-site facilities fee of $1,500.  To install one service connection is $495 and 1 meter is $155 for a total of $650 plus the $1,500 for a total of $2,150.  There may be additional charges depending on the location of the property.  Once the plans are drawn for the house then there will be building permits and inspections required.  


The simple lot split is the cheapest and easiest way to split a small parcel if the property is located in Apache Junction.  For the small builder this is great information to have as there is still a lot of vacant land in Apache Junction. This area is booming since the addition of the  202 Red Mountain Freeway made it more accessible.