October 2017 - Phoenix Real Estate Update

Previous

Articles

1)  The Greater Phoenix Real Estate - Multifamily Market is on Fire!

2)  STAT Newsletter

3)  Three Arizona Cities Named Best Places to Buy a Home Big Enough To Raise a Family

4)  Jefferson Street Warehouse District Named Top 12 Up and Coming Neighborhoods

5)  Hottest Intersections in Phoenix 

6)  Tales From the Trenches - Should a seller fix up a property or sell as is?


************************************


If you have not paid your Property Taxes they are over due! Second Half Property Taxes are due on October 1 and becomes delinquent after November 1. 


************************************


1)  The Greater Phoenix Real Estate - Multifamily Market is on Fire!

Pat Hune, Broker, 1st Southwest Realty, October 2017


If you bought a multi-family property in the greater Phoenix area during the bottom of the downturn in 2010-2011 you are a very happy camper today.  Anyone watching the multi famiy market for the past three to five years have seen the prices skyrocket.  Stockbrokers refer to this as a melt-up phase when stock prices go significantly higher in a very short time as they have in the past year.  Investors in the stock market are a bit nervous. I could not get my stockbroker to say the stock market was overheated. But he did advise me to look at my portfolio and rebalance to limit exposure to a downturn.   Just like the stockbrokers, multi family investors are looking at the melt-up and trying to decide if they should hold or sell.


It is very difficult to time the market.  After the peak in 2005-2006 some investors started buying when they saw prices dropping by $50-$60K thinking they were getting a bargain.  Prices continued to slide and properties that sold for $380,000 at the top dropped to $100,000 at the bottom.   If the property is located in the Southeast Valley (South Scottsdale, Tempe, Chandler, Gilbert and parts of Mesa) the prices have recovered and in some cases even exceeded the 2005-2006 prices. Some areas of Phoenix have not recovered anywhere close to the top of the market sales prices and may never like Palomino Pointe and Sunny Slope.   How long with the melt-up last?  Some analysts say it will last quite awhile because Phoenix has a shortage of apartments which has resulted in increased rents and low vacancy rates.  Others say there is about a year or so left before the prices will level off or start to decline. Statistically speaking 95% of the of investors buy high and sell low.  It is up to the individual investor to look at their portfolio and decide what is the best financial decision for them - lock in the gains or ride the market a bit longer.


Before selling two important things to consider are capital gains and depreciation recapture. These two can result in a big income tax bill.  One way to defer capital gains taxes is to do a 1031 exchange. A 1031 allows the exchange of one investment property for others while deferring taxes.  You should consult with your accountant before putting a property on the market.  The 1031 Exchange was on the chopping block during the recent tax reform action.  According to IPX 1031 President, John Wunderlich, “The Senate has indicated they are looking at 1031 Exchanges as something they can go after as part of the tax reform i.e. a way to get more tax money. The details of the tax reform bill have not been released. We need to protect our progress in the House and we need to move the Senate to protect this vital tax policy.” John suggests sending a letter (see link below) to both your Senators and Representatives to let them know how important 1031 exchanges are to our economy."  The reason 1031 exchanges are important is it allows investors to continue to pump money into investment properties which creates jobs versus just handing the money over to the government to be squandered. Luckily 1031 exchanges were spared this time . . . but who knows about the future.


The next question is what to buy?  A safer investment might be a single family home or a townhouse provided the HOA dues are reasonable for what they cover.  Single family housing tends to be more stable even though it also crashed during the down turn.  There are not any fabulous bargains but some condo’s and townhouses have decent cash flow.  The best advice I can offer is to stick to good rental areas near Arizona State University, the community colleges, big employers and hospitals. If you are thinking about buying or selling give me a call before doing anything so we can discuss all the options.


************************************


2) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market and Contributions from the Cromford Report

(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


Last month STAT projected a median sales price for August of $239,900. The actual median sales price was $241,700, missing the mark by less than 1%. We had projected home closings in the 7,500 range. The final sales volume was 7,328, a difference of 172 sales. There was one more business day in September 2016 than September 2017. Looking ahead to October, the ARMLS Pending Price Index anticipates the median sales price will be $245,000. It’s not unusual for the median sales price to stabilize in the fall months as seasonal patterns take hold. Our median sales price hit its high watermark for the year in June at $245,000. 


Sales volume in September was 7,328, the same as the 2016 total of 7,328. Sales volume for the first nine months of 2017 was 6.75% higher than 2016, with 72,475 sales in 2017 compared to 67,892 for the first nine months of 2016. Like September, we enter October with fewer residential listings practically under contract. We begin October with 5,860 pending contracts, 3,363 UCB listings and 460 CCBS giving us a total of 9,683 residential listings practically under contract. This compares to 10,134 of the same type of listings one year ago. Even with fewer pending listings this year compared to last, I expect the October sales to be higher than the 2016 volume. ARMLS reported 6,981 sales in October of 2016. 


September STAT 


************************************


3)  Three Arizona Cities Named Best Places to Buy a Home Big Enough To Raise a Family

Orion Investment Real Estate, October 2017


Finding the right place to buy a family home can be difficult. Families with more than one child need enough space to live comfortably. But larger homes can be tough to find, especially large homes which are affordable. Below SmartAsset looks at these and other factors to find the best cities to buy a home big enough to raise a family.  In order to rank the best cities to buy a home big enough to raise a family, SmartAsset looked at data on six metrics. We looked at the 5-year change in median home values, 5-year change in median rent costs, average effective property tax rate, the percent of houses which have at least two bedrooms, median housing cost as a percent of income and the percent of homeowners who are housing cost-burdened.


Key Findings

•  Red-hot Arizona homes – Homes in Arizona have appreciated faster than homes almost anywhere else. In particular homeowners around the Phoenix metro area – in cities like Chandler, Gilbert and Scottsdale – have seen their home values increase by over 40%. This makes it a great spot to be a homeowner. Combine that with the large number of multi-bedroom homes and you have a great market to find a family home.


•  Bigger cities tend to be worse – Los Angeles, Chicago and New York all rank in our bottom 20. In general, these places to tend be full of smaller apartments and lack the space a family may want for the family home.


•  Buying may not always be better – While raising a family you may want to own your home so that you are in complete control of your living situation. However, financially speaking, owning may not always be the best idea in every city. In some Midwest cities, namely Cleveland, Milwaukee, Detroit and Cincinnati, home values dropped from 2011 – 2015.


1. Chandler, Arizona - According to our data, Chandler – a large city in the Phoenix metro area – is the best city to buy a family home. Our data shows that from 2011 to 2015 the median home value increased by a whopping 45%. While that trend may not continue at such a breakneck pace in the future it is still a good sign for potential homeowners.  Other than appreciating home values, the housing stock here is also favorable for people family-home hunting. Our data shows that over 91% of homes in Chandler have at least two bedrooms. For both metrics, home appreciation and percent of housing stock with at least two bedrooms, Chandler ranked in the top 10.


3. Gilbert, Arizona - The second of three Arizona cities to crack our top 10, Gilbert scores well in many of the same metrics Chandler did. Home values in Gilbert are rocketing up. The average home increased in value by just under 47% from 2011 to 2015. Gilbert also has the largest portion of its housing stock which is built with families in mind in the study. Over 96% of homes here have at least two bedrooms.


8. Scottsdale, Arizona - Scottsdale combines rising property values (up 27.25% from 2011 – 2015) with low property tax rates (0.55%) to make for a great place to buy a family home.  Make sure you don’t take out a mortgage you can’t afford, however. Our data suggests some people in Scottsdale may have bought more home than they could afford. According to our data, just over 33% of homeowners here are housing cost-burdened.


Click here for full article


************************************

4)  Jefferson Street Warehouse District Named Top 12 Up and Coming Neighborhoods

Matt Meltzer, Thrillist, October 2017


The Warehouse District in downtown Phoenix is about to get “crazy popular,” according to the Thrillist. The lifestyle website included the Warehouse District, which sits south of Jefferson Street, as one of “12 up and coming Neighborhoods across America that are about to get crazy popular.”


The short blurb about the WHD cites the influx of tech companies to the area over the past few years for its up-and-coming status, which is something the Phoenix Business Journal has been covering for awhile now. The area south of the central business district has been a popular landing spot for tech startups and other creative ventures, who are converting or adapting old warehouses and other buildings in the area.


“With tech giants like WebPT and Galvanize have come the young, creative employees that every city covets,” according to the Thrillist. “Plans to house them are in the works, including a three-city block project with 275 residential units and the forthcoming Studio Lofts, an all-brick structure with 31 loft spaces. A 21,000-square-foot building purchased this summer is rumored to be the area’s first entertainment development. San Francisco South it’s not, but for a sprawling city like Phoenix that’s never had much of a hip core, it’s a start.”


Thrillist Up and Coming


************************************


5) Hottest Intersections in Phoenix 

AZ Big Media, September 2017


If But Camelback Road and Central Avenue, the heart of Phoenix's uptown area, is back as a thriving hub for popular restaurants, cool boutiques, office space, light rail and historic neighborhoods.  It's now the Valley's most popular intersection, according to a new poll among real-estate and growth experts.


Urban Land Institute Arizona members recently voted the central Phoenix spot the “hottest intersection” in metro Phoenix. It beat out Phoenix's Camelback and 24th Street, an area that garnered the title the last time the group voted a decade ago.  “Camelback and Central has old buildings with great design, diversity and very supportive neighbors," said Craig DeMarco, restaurateur and a founder of Upward Projects, at the Urban Land contest last week. “It's the only intersection in the entire Valley with four historic neighborhoods surrounding it."


Camelback and Central didn’t even make Urban Land’s top 10 list for hottest intersections in 2007.  A lot has changed since then. A boom and bust, light rail and a move toward an urban lifestyle by more Valley residents have shifted our growth.  Plus, DeMarco’s group has opened five restaurants, including a Postino, Windsor and Federal Pizza, around Camelback and Central over the past decade.


Other rankings on Urban Land’s top 10 list:


Downtown Tempe’s Mill Avenue and Rio Salado Parkway was voted No. 2 in the hot-intersection contest. The popular urban hub moved from third a decade ago. Matt Mooney, managing director of Cousins Properties, pointed out that Tempe led the nation for filling existing office space with tech firms from 2014-16.


Scottsdale and Camelback roads came in at No. 3, after hitting No. 2 the last time. Real-estate attorney Jordan Rose, who has an office at this Scottsdale intersection, said people can shop, eat, work, vacation, get their hair done and even buy a Tesla at Camelback and Scottsdale.


Chandler’s bustling Arizona Avenue and Chandler Boulevard tied for fourth. Danny Plapp of LGE Design Build pitched the area for its $70,000 median household income, office space, new apartments and jobs. "A younger, richer and hipper generation wants to live in new suburbs like Chandler,” he told the crowd. “Just look at San Tan Brewery’s sales at this intersection.”

Phoenix’s 24th Street and Camelback intersection tied for fourth. The area is still a hot spot of offices, hotels, shopping and eateries but has a lot more competition now.


At No. 5 is the Scottsdale Road and Greenway Hayden Loop area, near the city’s popular airport. Danielle Casey, Scottsdale economic-development director, said there are often “celebrity sightings” at the airport and in the area. The intersection didn’t make the list the last time.


Downtown Phoenix's Central Avenue and Roosevelt Street ranked No. 6 after not making the list a decade ago. The area, known as Roosevelt Row, has recently emerged as a hub for new apartments, condos, cool restaurants, historic renovations and light rail.


Phoenix Area Hottest Intersections



************************************


6)  Tales From the Trenches - Should a seller fix up a property or sell as is?

Pat Hune, Broker, 1st Southwest Realty


Recently I listed two properties.  Both of them needed work albeit most of the work needed was cosmetic.  Both were in very different price ranges and communities.  Both sellers asked for my advice as to whether to fix up or sell as is.  I always want a property to be presented in the best condition possible while spending the least amount of money.  I can’t remember how many times I have had a seller put in new carpet only to drive by the house a month after the sale to see the carpet sitting on the curb and new flooring being installed.  However I needed to keep in mind the budget and goals of the sellers.  In this case I adopted two very different strategies. 


The Tolleson house had been a rental for 11 years.  It was 2518SF, 5 bedrooms, 3 full baths, small lot at 4045SF and no back landscaping. Though the house was not completely thrashed it definitely needed some repairs, paint, carpet and an extra heavy duty cleaning. The last time the house was vacant the AC condenser units were stolen. The seller decided to only do the minor repairs, clean the interior, clean up the landscape to avoid an HOA fine, spray for the infestation of scorpions and put cages over the condenser units. The roof was leaking and it was repaired out of concern that it would be required by the FHA or VA appraiser.  The house needed a full interior paint including some ceilings and all interior flooring replaced.  The seller wanted a quick sale with minimal expense. The cost to get the house ready to sell was was $5,000 including the $1,800 roof repair.  The cost with the full interior paint and new flooring would have been an additional $8,000 to $15,000 depending on the grade of vinyl and carpet. The total would have been $15,000 to $20,000. The tenants moved out on September 2nd.  Work started on September 6th and was completed on September 19.   I reviewed the recent sales. Move in ready houses were selling for around $220,000.  We priced the house at $200,000 as is.  Six days later we were under contract at full price and closed 34 days later.  This dog hunted quickly and with minimal out of pocket expense for the seller.   The seller was very happy.


The Gilbert house had been owner occupied for 14 years. It was 3554SF, five bedrooms, 3.5 baths, nice lot at 9835SF that was fully landscaped with a gorgeous pool and spa. The cabinets were maple, all counters were granite, porcelain tile in kitchen, baths and entry.  It needed work for mostly normal wear and tear items, i.e. paint, carpet, cleaning, landscaping in front, light bulbs and a myriad of miscellaneous items.  The seller had moved out, traveled a bunch so handed the project over to me on July 5.  I got the bids for all the interior cleaning and repairs for the seller to approve. The seller handled the landscaping, pool repairs and exterior window and screen cleaning. The houses in the area were selling in an average of 49 days. One sold in 13 days and one sold in 104 days.  The highest sale was $465,000 that sold in 43 days.  The average sales price is $453,000. The house was listed for sale on August 29 at $489,900. It looked beautiful inside.  The painters did a great job on the painting as well as touching up the cabinets and painting the inside of the drawers making them look like new. The interior clean up cost was $11,000 plus the outside expenses that was probably about $3,000 for a total of $14,000. The house went under contract after 29 days on the market for $475,000.  The sale was completed 20 days later as it was a cash sale. The only repair the buyers asked for was treating those pesky termites.  The money spent to get this house ready to sell was well worth it. Not only did it sell quickly it sold for more and faster than neighboring houses.


The moral of this story is selling a house as is makes sense in some situations depending on the seller’s finances and the location of the house.  Keep in mind the project management I did is usually an extra fee.  Though I spend hours going through the house looking for repairs that are needed, getting estimates, measuring flooring, supervising the workers, etc I have not charged for this service.  Most realtors will look at the house, tell the seller what to do and show up with the sign and lockbox when the work is done.  If you are looking for a full service realtor who goes the extra mile give me a call, send an email or text.