May 2017 - Phoenix Real Estate Update


1)  The Greater Phoenix Real Estate - These are the Best of Times

2)  STAT Newsletter

3)  Hiring Picks up at Valley’s Largest Private-Sector Employers 

4)  Arizona State University Graduates Courted by Silicone Valley Employers  

5)  Zillow Faces Lawsuit Over House Calculation Tool Called Zestimate

6)  Tales From the Trenches - Do you know about the hidden cost of solar panels?


1)  The Greater Phoenix Real Estate - These are the Best of Times

Bill Gray, AZ Real Estate History Board, May 2017

Just a few years ago the Arizona real estate market was in turmoil. Neighborhoods were riddled with foreclosures and short sales, while property values plummeted. Investors, seeing opportunities, purchased residential properties in bulk turning once owner occupied properties into rentals.  New home builders stopped building, lenders stopped lending, home equity loans were frozen, a once thriving real estate economy came to a grinding halt with no end in sight.  Much of the labor force left Arizona seeking better opportunities elsewhere.


Like all markets, the Arizona real estate industry began to recover; however, this recovery was painfully slow leaving many with damaged credit and reduction of net worth.

The market in 2017 is entirely different. Those who had damaged credit are now back in the market.  Foreclosures and short sales are a thing of the past.  Homes that had no equity are now in positive territory.  Investors no longer dominate the metro market and most homes are purchased with new financing and are owner occupied. New home builders are now building. New jobs are being created and a once stagnant state is beginning to grow.  The rental market is strong and there is a rebirth of urban living.


The median price of a home in the Phoenix metro area was $110,000 in 2011; in 2017 the median price is $225,000. With an affordable median price and low property taxes the Phoenix metro area is one the hottest real estate markets in the U.S. The highest demand for housing is in the $200,000 to $450,000 price range.  Although demand is great, the housing supply in this price range is limited. On the other hand, houses in the upper price range have not seen the same type of sales activity.

Pride is back in the neighborhoods, homeowners are remodeling and contractors are busier than ever.  It now makes economic sense to spend money on property improvements since such improvements have reflected an increase in property values. The residential rental market remains very strong.  Affordable rental housing in good locations are in demand and the base rental prices continue to climb.  Many potential home buyers are delaying purchasing a home and have opted to rent. This could be due to poor credit, lack of down payment or simply not wanting the responsibility of homeownership.

New home builders are seeing a resurgence of buyers interested in their communities. Builders are struggling to compete with the prices of resale homes. The cost of land and the severe shortage of labor have added to their challenges. Builders have been forced to do value engineering. Concentrating on high density communities that are well designed, featuring walkability and community activities. Infill lots are still the new home builders’ properties of choice. However, these projects have proven to be out of most buyers’ price range.

The Market Ahead

As with any strong market, we will face challenges in the future.  Higher interest rates along with an increase in housing prices will price some buyers out of the market.  The possible elimination of FNMA and FHLMC could result in higher qualifying loan ratios, higher interest rates and shorter loan terms.

The Arizona economy is not solely based on real estate and construction.  Our state is now considered one of the fastest growing hi-tech areas in the U.S.  Arizona has been through many economic cycles, each one different, posing new challenges. However, at this moment in 2017 — These Are The Best Of Times.


2) 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

Sales volume in April 2017 was down 4.9% from March 2017. But, if you read the projections from last month, a month-over-month decline was expected as March had 23 business days while April only had 20. When we compare April 2016 to April 2017, sales volume this year was 4.5% higher. Our biggest concern is and remains the supply of homes below $200,000. In Maricopa County we currently have only 3,229 listings for homes below $200,000. In April, 2,546 homes listed below $200,000 sold. 

Last month STAT projected a median sales price for March of $233,000. The actual median sales price was $234,000, $1,000 higher than the mathemati- cal model projection. Our mathematical projections have been trending slightly lower than the actual results. Looking ahead to May 2017, the PPI projects a median sales price of $239,900. With limited supply and steady demand, particularly at the lower price points, the median sales price will definitely increase in May.

Click here for the latest Stat Report


3)  Hiring Picks up at Valley’s Largest Private-Sector Employers

AZ Central, May 2017

Job fairs have replaced long lines at unemployment offices as Arizona’s largest private-sector employers pick up the hiring pace.  Led by hospitals, the state’s biggest non-government employers added about 14,000 people to their payrolls over the past year and now collectively count more than 532,000 workers — a 2.8 percent annual increase, according to The Arizona Republic’s annual tally.

The uptick coincides with other signs of economic momentum. If anything, hiring might have been even more robust, if not for the inability of some companies and non-profits to find all the qualified workers they need.   Banner Health, Arizona’s private-sector employment leader, became the first company or non-profit to push above 40,000 statewide jobs. It now counts more than 43,000 workers in Arizona, extending its lead over second-place Walmart Stores. Companies ranging from Kroger, which operates Fry’s supermarkets, to Tucson missile-manufacturer Raytheon also have been hiring, joining State Farm and Dignity Health among entities that reported more than 1,000 net new positions over the past year.

The 532,000 jobs at Arizona’s 100 top employers account for nearly one-fourth of the state’s 2.3 million private-sector payroll positions overall. The big-company employment numbers mirror hiring gains across the state and nationally.  “I haven’t been this encouraged by our local economy for a long time,” said Benito Almanza, Bank of America’s market president in Phoenix. Business decision-makers have “moved off the sidelines,” he said, with more company acquisitions, investments in equipment, real estate expansion and other signs of growth. Bank of America now ranks metro Phoenix near the top of its growth markets. “There’s more certainty and direction” to the economy compared to a year ago, Almanza said.


4)  Arizona State University Graduates Courted by Silicone Valley Employers  

Phoenix Business Journal, May 2017

Think you need an Ivy League degree to score a top job in Silicon Valley? Think again.  Of the top 10 universities that send the most graduates on to careers in Silicon Valley, none were Ivy League institutions, according to a new analysis by online recruiting company HiringSolved. The survey employed data from more than 10,000 public profiles for tech workers hired or promoted into new positions in 2016 and the first two months of 2017.

Two Bay Area schools topped the list, followed by elite private engineering schools and several public universities including Arizona State University. Most of the schools that cracked the top 10 are large universities, which allow recruiters to scout hundreds of applicants with each visit. The first Ivy to make the cut is Cornell at No. 15, with MIT following close behind at No. 20.  According to the report, Silicon Valley recruiters are also looking for specific skills rather than Ivy League credentials. Python, C++ and Java ranked among the most in-demand programming languages.

“Our research suggests that in addition to specific skills and educational backgrounds, Silicon Valley is looking for a strong fundamental understanding of the basics of technology in their new hires” HiringSolved CEO Shon Burtonsaid in a statement. “Often what separates say, a good engineer from a great one, is a knack for understanding the baseline ‘how’s’ and ‘why’s’ of how things work – the physics of the technology.”

New recruits at tech firms are most likely to find themselves working in software, either as an intern or an entry-level engineer. Other popular positions include business development consultants, research interns and product specialists, per the report.  So if Facebook, Apple and Google are not hiring primarily from Harvard, Yale, Princeton and Brown, where are they looking for new recruits? 


5)  Zillow Faces Lawsuit Over House Calculation Tool Called Zestimate

Kenneth Harvey, Washington Post, May 2017

It was bound to happen: A homeowner has filed suit against online realty giant Zillow, claiming the company’s controversial “Zestimate” tool repeatedly undervalued her house, creating a “tremendous road block” to its sale.  The suit, which may be the first of its kind, was filed in Cook County Circuit Court by a Glenview, Ill., real estate lawyer, Barbara Andersen. The suit alleges that despite Zillow’s denial that Zestimates constitute “appraisals,” the fact that they offer market-value estimates and “are promoted as a tool for potential buyers to use in assessing [the] market value of a given property,” shows that they meet the definition of an appraisal under state law. Not only should Zillow be licensed to perform appraisals before offering such estimates, the suit argues, but it also should obtain “the consent of the homeowner” before posting them online for everyone to see.

In an interview, Andersen told me she is considering bringing the issue to the Illinois attorney general because it affects all property owners in the state. She has also been approached about turning the matter into a class action, which could touch millions of owners across the country.

In the suit, Andersen said that she has been trying to sell her townhouse, which overlooks a golf course and is in a prime location, for $626,000 — roughly what she paid for it in 2009. Houses directly across the street but with greater square footage sell for $100,000 more, according to her court filing. But Zillow’s automated valuation system has apparently used sales of newly constructed houses from a different and less costly part of town as comparables in valuing her townhouse, she says. The most recent Zestimate is for $562,000. Andersen is seeking an injunction against Zillow and wants the company to either remove her Zestimate or amend it. For the time being, she is not seeking monetary damages, she told me.

Emily Heffter, a spokeswoman for Zillow, dismissed Andersen’s litigation as “without merit.” A publicly traded real estate marketing company based in Seattle, Zillow has been offering Zestimates since 2006. At present, it provides them for upwards of 110 million houses, whether for sale or not. Type in almost any house’s street address, and you’ll probably get a property description and a Zestimate. The value estimates are based on public records and other data using “a proprietary formula,” according to Zillow.

The Zestimate feature is the cornerstone of Zillow’s business model because it pulls in millions of house shoppers, allowing the company to sell advertising space to realty agents. Zillow makes big money with the help of its Zestimates: In the first quarter of this year, it reported $245.8 million in revenue — a 32 percent jump over the year before — including $175 million in payments from “premier” agents, who pay for advertising.

But there’s a flip side to Zestimates. Homeowners, realty agents and appraisers have been critical for years about the valuation tool, citing estimates that too often are far off the mark — sometimes 20 percent or 30 percent too low or too high — and misleading to consumers. Zillow itself acknowledges errors. Nationwide, according to Heffter, it has a median error rate of 5 percent. Zestimates are within 5 percent of the sale price 53.9 percent of the time, within 10 percent 75.6 percent of the time and within 20 percent 89.7 percent of the time, Zillow claims.

A Zestimate “is not an appraisal,” the company says on its website, but instead is “Zillow’s estimated market value” using its proprietary formula. Another way of looking at the Zestimate error rate: Roughly one quarter of the time, the value estimate is off by 10 percent or more of the selling price, and wrong by 20 percent or more 10 percent of the time. The 5 percent median error rate may sound modest, but when computed against median sales prices, the errors can translate into tens of thousands of dollars — hundreds of thousands in high-cost areas. Also, in some counties, error rates zoom beyond the 5 percent median: 33.9 percent, for example, in Ogle County, Ill., and 10 percent to 20 percent in a handful of counties in Ohio, Maryland, Florida, Oklahoma and Illinois. Some appraisers are cheering Andersen’s suit and welcomed the idea of state-by-state legal challenges. “They’ve been playing appraiser without being licensed for years, and doing a bad job,” said Pat Turner, a Richmond appraiser. “It’s about time they got called on it.”


6)  Tales From the Trenches -  Do you know about the hidden cost of solar panels?

Pat Hune, Broker, 1st Southwest Realty

Recently at a realtor meeting one of my colleagues told the group about an issue her buyers were having. The house they were buying had leased solar panels.  The first issue was the buyer did not want to assume the solar lease as most of the benefit, i.e. tax write-off, had been realized by the seller. The seller solved this problem by paying off the 18 years left on the 20 year lease at a cost of around $10,000. 

The next issue is the inspector said the roof had reached its expiration date and recommend evaluation by a licensed roofer. Sure enough the roofer said the roof needed to be replaced.  The seller agreed to replace the roof at a cost of $11,000.  Now those pesky solar panels would have to be removed and reinstalled.  When the seller called the solar company to arrange for the panels to be removed and replaced he was told it would cost $6,000!  The realtor said the buyer and seller were still negotiating but needless to say this deal is potentially dead.  No one can blame the seller for being reluctant to put more money into the house to get it sold. 

One realtor suggested having someone else handle the solar panels.  While it might seem like a good idea there is probably language in the solar lease that if someone else messes with the panels it will void a warranty or violate the lease terms.  

The moral of this story is think about the roof before adding solar panels. Perhaps solar roof tiles instead of solar panels such as the ones from Forward Labs or Tesla (see links below) would be a better option.  If you already have solar panels installed be prepared when you sell to potentially throw lots of money at the house to make it go away.

Forward Labs

Tesla Solar Roof Tiles