September 2016 Phoenix Real Estate Update

1st Southwest Realty Real Estate Update

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Pat Hune



Equal Housing Opportunity

Market Overview

Commentary from Pat Hune, Broker, 1st Southwest Realty and various sources

The greater Phoenix real estate market continues at a brisk pace with 8,412 sales in August, up by 47.1% from the prior month sales of 7,630.  The big increase was primarily due to more working days in August than July. Year over year sales have increased 6.5%. Inventory has increased over the past 12 months by 6% but the number of sales have kept pace.  The months supply of inventory held steady at 3.10 for July and 3.02 for August.  The highest months supply occurred in February 2016 at 4.79.  Year over year new average list prices are up 4.6% and the median price is up 6.4%. Average days on market dropped to 81, down 11 days year over year.  The supply of houses under $200,000 remains low and the competition is fierce for the buyers in this price range.  Foreclosures are down with only 8 properties sold per day at Trustee’s Sale. New construction is coming back as builder confidence grows.  New construction sales are up 36% year over year.  

Phoenix was ranked number 2 on Bankrate’s list of top US cities for homeowners.  Bankrate used several indicators including appreciation, property tax costs and foreclosure rates to compare housing market. Metro Phoenix has had higher than average increases in home values and has some of the lowest property taxes in the country.  Phoenix’s low foreclosure rate also propelled it toward the top of the list. 

Bankrate Article

Phoenix has started to attract big tech companies due to the low cost of housing and overall good weather.  Google is getting in on the action by making Chandler its next testing ground for self-driving cars. This influx of IT jobs, and startups has made the Valley one of the top five growing tech hubs in America.  Other industries are finding Phoenix attractive.  Finland-based food packaging firm, Huhtamaki North America, acquired a 750,000-square-foot rail-served manufacturing and distribution facility in Goodyear.  Huhtamaki produces foodservice packaging and retail tableware. This will create approximately 300 new jobs.  Arizona’s unemployment rate dropped 0.2 percentage points in August, putting it at 5.8 percent.  Hopefully as more high tech and other companies move into the valley the unemployment rate will drop even lower.

High Tech Moves to the Valley


1)  STAT Newsletter

2)  Rental Market

3)  Multifamily and Commercial Real Estate Trends

4)  Institutional Investors Ignore High Prices and Keep Buying Single Family Rentals 

5)  Will Fiesta Mall Rise From The Ashes?

6)  Tales From the Trenches -   Why is full disclosure so important in real estate?


1) STAT Newsletter Link - Commentary by Mike Orr, Founder of 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 2016

Just as predicted, August sales were strong thanks to its 23 working days and fully made amends for the shortfall in July, which only contained 20 working days. Until now, 2016 has been quite similar in market behavior to 2015 for the majority of the market. However, 2015 started to lose some momentum in August. At the moment we are seeing no similar loss of momentum in 2016. Instead, we are getting very small shifts that are moderating some of the larger trends we saw during the first half of the year:

  • A little more supply is coming along in the lower price ranges giving some relief to buyers competing for the very few homes listed.
  • The luxury market has seen a substantial fall in inventory since June with a lot of listings canceled in the last 3 months. This has helped sellers because they face less competition. However luxury pricing remains weaker than in 2015.
  • New homes continue to gain market share at the expense of re-sales.
  • Buyers still have the worst of negotiations in most market segments because supply is not keeping up with population growth. 
  • Life is hardest for buyers with budgets under $200,000. 
  • Those looking for larger single-family homes under $200,000 may want to consider the Southwest Valley with 50 percent of all sales occurring under $185,000 and an average size of 1,929 square feet. 
  • If you can stand the commute Pinal County provides the largest single-family home for the money with an average sale at 2,057 square feet and a median sales price of $154,000.
  • The Southwest Valley (which includes Southwest Phoenix, Buckeye, Goodyear, Litchfield Park, Avondale, Tolleson and Laveen) has seen the sales price per square foot for single family homes rise 9.4 percent since this time last year.  Again most of these areas require a long commute as I-10 is the only freeway.  ADOT may build State Route 30 as a  “relieving freeway” running from State Route 85 in Buckeye to the Durango Curve (this is where I-17 curves east and eventually becomes I-10.)  Bad news is this is probably going to be a toll road.  Click on this link for more information.
  • Pinal County (which includes Apache Junction, Gold Canyon, San Tan Valley, Florence, Casa Grande and Maricopa) has only seen a 2.6 percent increase due to more competition from new home subdivisions.  Builders are taking advantage of small infill parcels as they sell faster and at higher prices.
  • Life is easier for buyers who are looking for homes over $200,000, but not by very much. There is more supply, but demand is still high in relation to it until the budget gets over $500,000 where the market is more balanced.

For sellers who own a condominium or townhome, the shortage of single family supply under $200,000 is good news. Sales of condos and townhomes are up 6.1 percent and the median sale price is up 12.5 percent from $137,750 last year to $155,000 as of September 7th. The average sales price per square foot is up 5.3 percent from $131.85 to $138.87 with the average sized unit purchased at 1,267 square feet.

Over the past month, 72 percent of all purchases have been under $300,000, which is why this price point dominates Phoenix metro overall statistics and projections. Sales between $300,000 and $500,000 are up 27.8 percent over last year, up 8.5 percent between $500,000 and $1 million and are exactly the same for sales over $1 million. 

Appreciation rates are not as strong in these price points because supply grew alongside demand, keeping the market in a balanced state. However, the strongest sales growth is concentrated in the price ranges from $300,000 to $500,000.

The annual, average sales prices per square foot for various price ranges compared with the average for 12 months earlier. This data is for single family homes only. We can see that inexpensive homes between $125,000 and $175,000 have increased in price the fastest while prices have declined for homes priced between $1 million and $3 million.

Click here for August STAT


2) STAT Rental Market Link

The July median lease was $1,350 as compared to the August median lease of $1,325. The July average lease was $1,512 as compared to the August average lease of $1,499.  The July average days on market was 27 as compare to the August average of 28 days on market.  July and August are typically a slower months for rentals as schools start and the weather is extremely hot making it painful to move.

August Rent Check


3) Multifamily and Commercial Real Estate Trends

Multifamily vacancy rates are at the lowest point in decades while multifamily prices are the highest.  The supply of multifamily housing has increased by 17.0% year over year in the Phoenix metro area.  Prices continue to go up with an increase of 14.5% year over year.  Multifamily properties are in high demand and as prices go up more investors may decide to sell.

Loopnet Commercial Trends


4)  Institutional Investors Ignore High Prices and Keep Buying Single Family Rentals 

National Real Estate Investor, September 2016

So far this year, institutional investors have bought more single-family homes than in 2015. In the first half of 2016, institutional investors bought 2.9 percent of all of the single-family homes bought and sold in the U.S. That’s up from 2.6 percent in 2015, according to RealtyTrac, which identifies an “institutional investor” as an entity that buys more than 10 rental houses a year.  “There will be a handful of entities that will stay in the single-family rental business for the long-term,” says Daren Blomquist, vice president for data firm RealtyTrac. “They will look to buy portfolios from tired investors.”

Investors are paying more for single-family homes, Blomquist notes. Prices for single-family rentals have been rising faster than the rents, driving down the yields investors receive from their assets. There are now 45 markets where the average cap rate on a single-family rental is less than 6.0 percent.  “Anything over 6.0 percent is a market you should at least consider. Below 6.0 percent, if you are going after cash flow, you are going to want to avoid that market,” says Blomquist.

A new set of property brokers now arrange transactions to buy and sell single-family home rentals. That’s a big change. In the past, most residential brokers would not attempt to sell a single-family house with a renter living in it. “When someone wants to sell 25 houses, the broker usually says: ‘Great. Just make sure the homes are vacant and ready to sell,’” according to one broker.  

Investors can save a lot of money by selling tenant-occupied single-family rentals. The ‘friction cost’ of asking rental tenants to move out, fixing up the house and then leasing the house again after a sale can equal 8.0 percent to 12.0 percent of the cost of the properties,  (Editor’s note:  Though selling this way potentially saves the seller money it may also leave money on the table.  Typically a single family rental home will be a lower priced property.  The demand for entry level housing is so strong sellers may be able to do minor repairs and sell for a much higher price to a desperate owner/occupant versus an investor.)

Institutional Investors


5)  Will Fiesta Mall Rise From The Ashes?

Orion Investment Real Estate, September 2016

Mesa City Council is trying to fix the area around Fiesta Mall in southwest Mesa that is filled with vacant buildings and abandoned shopping centers.  The area around the Fiesta District West Mesa has been deemed “blighted”.   The council voted in unanimously to create the Southwest Redevelopment Area on September 12, 2016. The Southwest Redevelopment Area totals just under 1 square mile. It spans Country Club Drive from Broadway Road to U.S. Highway 60 and along Southern Avenue between the Tempe Canal and Country Club Drive. It also includes the shopping centers south of U.S. 60 at Alma School Road and Isabella Drive.

As many as 52 percent of the parcels in the area were found to demonstrate at least one factor of blight, according to the council report. In addition to deterioration of site or other improvements were improper or obsolete subdivision platting, 23 percent; dominance of inadequate street layout, 15 percent; and diversity of ownership, 9 percent.

Scott Jackson, representing Verde Fiesta 1 LLC, supports the plan so that the area can utilize the Government Property Lease Excise Tax in order to encourage investment in the Southwest Redevelopment Area.  The GPLET is a government incentive program that uses an excise tax as opposed to real property tax, effectively lowering the cost of operation to help redevelop struggling areas.  The goal is “to bring business back and make Mesa more competitive” with neighboring cities, according to Mr. Jackson.

Arizona law requires a one-year waiting period before the city can begin providing economic aid. The period is set to expire on Sept. 12, 2017, according to the council report.

Fiesta District Mesa


6)  Tales From the Trenches - Why is full disclosure so important in real estate?

Attorney Chris Combs, Combe\s, Gottlieb & MacQueen, P.C., September 2016

Question: We owned a home in Phoenix for 12 years. When we listed our home for sale, my wife, with the help of our real estate agent, completed the seller's property disclosure statement ("SPDS"). I just signed the SPDS one night when I came home from work. Although we had done several repairs to the roof, my wife forgot about these roof repairs when she filled out the SPDS.

We sold the home 3 months ago. We received a letter from the buyer's attorney this week saying that the buyer has had major problems with the roof. The buyer's attorney also said that, after we moved out, the buyers found some old roof repair bills in the garage. The buyer's attorney claims that we committed fraud by not disclosing these roof repairs, and that we now have to pay the buyers $12,000 for the cost of a new roof.  Under the standard purchase contract for our home, the buyers were told that they should have a roof inspection. Why are we responsible to pay for the buyer's new roof when my wife just forgot that the roof had been repaired a few times, and the purchase contract told the buyer to get a roof inspection?

Answer: You are correct that the standard purchase contract says that the buyer should have a roof inspection. If you and your wife failed to disclose the roof repairs in the SPDS, however, a judge would likely rule that you and your wife committed fraud.  In the parlance of a card game like bridge, fraud "trumps" negligence. In other words, even though the buyer may have been negligent in not having a roof inspection, your fraudulent nondisclosure of the roof repairs should make you liable to pay for the buyer's new roof.  

Attorney Aaron Green had another example.  The seller provided the SPDS, answered the question if there were or ever had been any roof problems as no since the roof had been replaced, said yes there was a roof warranty because a new roof had been installed.  They did not attach the receipt to the SPDS showing the roof had been replaced along with the warranty.  They did give a copy of the receipt to the buyer’s realtor but had no proof it had been received.  A few months after closing the roof developed a problem.  Since the roof was still under warranty the problem was fixed at no charge to the buyer. But the buyer still sued for lack of disclosure stating the seller had committed fraud.  Even though the seller would have probably prevailed it was cheaper to pay money to make the nuisance lawsuit go away rather than incur attorney fees.  


So how do seller’s protect themselves?  Disclose, disclose, disclose.  Complete the Seller Property Disclosure form in as much detail as possible.  Include additional sheets if necessary. Give the listing realtor every receipt you have for a major repair or construction project completed on the house.  I have started incorporating the receipts as attachments to the SPDS and putting a place to initial so the buyer is forced to acknowledge it was received.  At the end of the day when you get to court he or she who has the most paper wins.