September 2017 - Phoenix Real Estate Update

Articles

1)  The Greater Phoenix Real Estate - Good News for Buyers and Sellers

2)  STAT Newsletter

3)  Gilbert Named Most Prosperous City in the US

4)  Can you purchase a home when you have student debt and limited funds?

5)  Phoenix Needs Over 150,000 Apartment Units - Can We Build Them In Time? 

6)  Tales From the Trenches - Are accurate rent rolls important when selling a property?


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Property Taxes are due! Second Half Property Taxes are due on October 1 and becomes delinquent after November 1.


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1)  The Greater Phoenix Real Estate - Good News for Buyers and Sellers

Tina Tamboer, Senior Real Estate Analyst with The Cromford Report ©2017 Cromford Associates LLC and Tamboer Consulting LLC


For Buyers:

Supply between $150K-$200k continued rising in August.  However the $150K-$175K range had a more dramatic rise.  While still 26% below last year, it rose 17% since the beginning of June, a strong departure from the weekly decline this market experienced in the first half of 2017.  For buyers in the rest of the market over $200K, nearly all price ranges are running lower than last year with the exception of the top tiers.  For those buyers who have seen every listing available and still haven’t found a match, late September usually sees an increase in new listings across the board.  This makes the 4th quarter a good time to be a buyer.   

For Sellers:
When do we know the Phoenix residential real estate market has “recovered”?  Many people assume when prices have returned to 2006 peak levels then the market has recovered.  However understandable, especially for those who purchased during that time frame, that’s not necessarily the case.  Average sale prices per square foot are still 27% away from the peak of 2006.  However, the market could arguably be considered recovered once prices reach the range that corresponds to the long term average rate of inflation, which from 2000-2016 in the United States is 2%.  In 2000, the average sales price per square foot for MLS resales was $96. Had the bubble and crash never happened, and annual appreciation stayed between 2-3% per year as normal, then prices would land between $134-$158 per square foot today.  Currently they’re running at $149, which equates to averaging nearly 2.6% annually and a 55% total gain since the year 2000. 



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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 $242,000. The actual median sales price was $245,000, missing the mark by 1.2%. Looking ahead to September, the ARMLS Pending Price Index anticipates the median sales price will fall in September, projecting a median sales price of $239,900. I expect the median price will be lower in September but not as much as our model suggests. It’s not unusual for the median sales price to fluctuate downwards in the fall months as seasonal patterns take hold.


Sales volume in August was 8,113, roughly 3.4% higher than the 2016 total of 7,843. Sales volume for the first 5 months of 2017 was 7.6% higher than 2016, with 65,147 sales in 2017 compared to 60,564 for the first 8 months of 2016. We begin September with 6,203 pending contracts, 3,581 UCB listings and 521 CCBS giving us a total of 10,305 residential listings practically under contract. This compares to 10,498 of the same type of listings one year ago. Even with fewer “pending” listings this year compared to last, I expect September sales to be higher than the volume of 2016. We reported 7,328 sales in August of 2016. Sales this September are expected to be in the 7500 range.


August 2017 STAT Report


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3)  Gilbert Named Most Prosperous City in the US

AZ Big Media, September 2017


Gilbert, Arizona is the most prosperous city in the country according to the Economic Innovation Group (EIG). Gilbert is touted as being a “young up-and-comer” with 99.9% of the population living in prosperous zip codes.  “It’s an exciting time in Gilbert as our community is transitioning from a small town to a strong and booming community,” said Gilbert Mayor Jenn Daniels. “The work of generations of community leaders and our smart financial planning has set Gilbert on a path of success and we are proud to be recognized as the most prosperous city in the country.”  The top 100 largest cities were ranked on seven criteria: housing vacancy rate, adults not working, the poverty rate, median income ration, change in employment, and change in business establishments.


Gilbert History - In 1902, the Arizona Eastern Railway asked for donations of right of way in order to establish a rail line between Phoenix and Florence. A rail siding was established on property owned by William "Bobby" Gilbert. The siding, and the town that sprung up around it, eventually became known as Gilbert. Gilbert was a prime farming community, fueled by the construction of the Roosevelt Dam and the Eastern and Consolidated Canals in 1911. It remained an agriculture town for many years, and was known as the "Hay Capital of the World" until the late 1920s. Gilbert began to take its current shape during the 1970s when the Town Council approved a strip annexation that encompassed 53 square miles of county land. Although the population was only 1,971 in 1970 the Council realized that Gilbert would eventually grow and develop much like the neighboring communities of Tempe, Mesa, and Chandler. 


Gilbert has experienced a rapid transition from a historically agriculture-based community to an urban center and suburb in the Phoenix Metropolitan Area. In the last two decades, Gilbert has grown at a pace unparalleled by most communities in the United States, increasing in population from 5,717 in 1980 to over 237,000 in 2016. 


The downtown Gilbert area has enjoyed tremendous growth due to the efforts of the city to make it a destination location.  Called the Heritage District the core of downtown Gilbert is now flush with popular restaurants like Oregano’s Pizza Bistro, Postino Wine Cafe East, Zinburger, Lo-Lo’s Chicken & Waffles and SoCal Fish Taco Company among many others. The Arizona Wilderness Brewing Company was Gilbert’s first brewery and was ranked number one of the ten best breweries in the world.  Though the nightlife is still lacking some restaurants are adding live music on the weekends.  


In the future Gilbert wants the light rail to connect to the downtown area. The Mesa light rail extension from Main Street and Mesa Drive to Main Street and Gilbert Road is scheduled to be completed in late 2018.  It appears Gilbert is going to wait until the extension is completed before beginning construction on the connection to downtown Gilbert.  Though the light rail connection may be several years in the future it will help the downtown Gilbert growth.



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4)  Can you purchase a home when you have student debt and limited funds?

Chris Rosner, Renaissance Lending Group, October 2017


Last June, I sat down with a young couple with substantial student debt and limited funds for a down payment. They were hopeful about their future, but believed buying a home to be nearly impossible given their financial situation. 


This scenario is more common than you might think. The truth is that mortgage options for this sort of situation are plentiful, if you know where to look. Take the example of this young couple. Their credit report detailed the total amount owed and the monthly payments for their student loans.  We were able to address the student debt with the help of a recent change in the Fannie Mae guidelines: the new guideline allows the actual documented payment rather than 1% of the total student debt to be used as the monthly qualifying payment.  This change reduced the debt ratio significantly allowing the couple to qualify, whereas, they would not have qualified under the old rule.  Identifying this subtle change brought them one big step closer to qualifying for a home mortgage.


Their second concern was that they had limited funds for a down payment.  Fortunately, a number of low down payment mortgages were within their reach.  We reviewed the following loan programs to explore what might fit their needs:

  • FHA Loan – 3.5% down payment with mortgage insurance

  • VA Loan – 100% financing but must be a veteran, no monthly mortgage insurance

  • USDA Loan – 100% financing but geographically restricted with mortgage insurance
  • HomeReady™ Loan - 3% down payment with mortgage insurance

  • Conventional 97 Loan - 3% down payment with mortgage insurance

  • Conventional Loan with Equity Kicker – 1% down payment, 2% equity gift and no mortgage insurance

Ultimately, they decided upon the USDA loan and are living happily in Queen Creek, AZ.  I encourage you and your loved ones not to feel discouraged if your situation does not match that of the stereotypical homebuyer.  If you are looking to pre-qualify for a loan or have any questions, please Chris Rosner at 480-227-6944 or email at chrisrosner@cox.net.



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5)  Phoenix Needs Over 150,000 Apartment Units - Can We Build Them In Time? 

AZ Big Media, September 2017


If you think too many apartment complexes have been built or are under construction in the greater Phoenix area think again.  Phoenix will need to add 10,736 apartment units per year on average in the coming years to meet this projected demand, according to a study released by the Arizona Multihousing Association (AMA) and National Apartment Association (NAA).  The Phoenix area’s accelerating population growth, a rising number of Baby Boomers opting for the lock-and-leave lifestyle that apartments offer and Millennials staying in apartments longer are fueling this expected demand, says Courtney Gilstrap LeVinus, interim president and CEO of AMA.  


“I think people are generally surprised there is such a need (for apartments),” Gilstrap LeVinus says. “When you go in and look at the numbers, and really recognize the demographic shift that we’re seeing, it starts to make sense.”  


Arizona is growing, especially Maricopa County. In March, the U.S. Census Bureau announced that Maricopa County was the fastest growing county in the country last year, adding 222 people per day.  A link to the full article appears below.


Phoenix Apartment Demand


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6)  Tales From the Trenches - Are accurate rent rolls important when selling a property?

Pat Hune, Broker, 1st Southwest Realty


Recently I listed several rental properties my brokerage does not manage. I requested copies of the leases and the current rent rolls.  The rent roll typically contains the tenant deposit, lease expiration date and the monthly rent paid by the tenant.  When I tried to correlate the rent rolls to the leases and the income on the owner statement there were a few that did not add up.  For example the property manager was charging an additional $75 administrative fee each month if the tenant did not sign another 12 month lease.  The lease did not indicate who received this fee, i.e. the owner or the property manager.  When I looked at the owner statement it was not clear. When I questioned the property manager the response was some of the administrative fees were kept by the property manager and some were split with the owner.  However the leases did not reflect this.  When trying to figure out the cash flow and CAP (capitalization rate) the higher the income the better. I felt some money was being left laying on the table because the true income was not reflected in the leases.  The actual income was higher based on the owner statement.  


It has been my experience if an investor is interested in a property the first they will do is try to confirm the income.  To do this they will ask for the rent rolls and leases.  They may also ask for an owner statement.  When the numbers don’t match they are going to ask why.  As the listing agent I better be able to answer this question. If I am representing an investor buyer I would look through the leases and rent rolls to confirm the information was accurate.  Again if the numbers don’t match I will ask why. 


Another complication comes during the escrow process. The buyer makes an acceptable offer and escrow is opened.  The title company will take the leases so they can do the rent prorations on the settlement statement.  If the leases do not reflect the actual numbers the prorations will be wrong.    


The bottomline is it is very important the leases accurately reflect the true income.