Final numbers are out on the Phoenix-area housing market for 2014. Mike Orr, director of the Center for Real Estate Theory at the W. P. Carey School of Business at Arizona State University, will discuss the new figures.
Ted Simons: Coming up next on "Arizona Horizon," we'll look at the final numbers for the 2014 Phoenix housing market. And we'll get an update on the legislative session from minority leadership at the state capitol. Those stories next on "Arizona Horizon."
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Ted Simons: Good evening and welcome to "Arizona Horizon," I'm Ted Simons. ASU's W.P. Carey School of Business is out with the final figures for last year's Phoenix area housing market. Here now to crunch of the 2014 numbers and look ahead to this year is Mike Orr, director of the Center for Real Estate Theory and Practice at the W.P. Carey School.
Mike Orr: Thank you for having me.
Ted Simons: Glad to get you in here because today you guys released the final numbers for 2014. Before we get too deep in the weeds here, overview thoughts.
Mike Orr: 2014 was a bit of a quiet year, a bit disappointing but it ended with a little bit of a fizzle. December was probably the best month of year with signs of the market getting a little more interesting.
Ted Simons: And it seems like it probably get a little more interesting?
Mike Orr: I'm pretty confident that 2015 will be a busier year, a little better to be a seller in.
Ted Simons: Let's talk about 2014. Median single family homes 2014, sales price up 5.5%?
Mike Orr: A 5.4% median price increase over the 12 months. That's a little flattering to the market, because the mix moved upmarket a bit. With fewer cheaper homes in the market the median trends up, even if house prices are stable.
Ted Simons: Fewer cheaper homes, what's that all about?
Mike Orr: Fewer on the market and fewer selling. The midrange and luxury market is dominating homes selling now. Three years ago it was all low end, under $150,000 was dominating. The median was way down at 110, 120,000 in 2011, and now we're up to $215.
Ted Simons: Were those homes purchased by investors?
Mike Orr: A lot of those were homes being foreclosed and sold by banks. They are really very small numbers now.
Ted Simons: As far as single family homes from $204,000 to $215,000, average price for square foot up, as well?
Mike Orr: Yes, but not by an enormous amount. A couple years ago we had 19%, 20%, now 3, 4, 5% it's much more back to normal.
Ted Simons: And that's really understandable.
Mike Orr: It was really the townhouse and condo market where we saw more of an increase. That's what really caught my eye in December.
Ted Simons: I want to get to the townhouse and condo market in a second. But sales volume.
Mike Orr: Sales volume was just up about 3% year over year. It was an improvement but not very significant.
Ted Simons: What does it all say now about the single-family home market?
We've been waiting for demand to actually show some signs of life. December suggested we may be seeing a little bit. We've seen things like the reduction in the interest premium for FHA loans, we've seen lower down payments introduced by fanny and Freddie but they haven't come into effect until this year. Not expecting to see the results until we get February numbers.
Ted Simons: Now let's get to townhouses and condos. Median price up 15%?
Mike Orr: That was rather more impressive than the single family. The first reason for that is Scottsdale town homes and condos were a big part of December's numbers. When Scottsdale is doing well, the whole number gets better, they are selling for higher prices than the rest of the Valley. The overall quantity of sales was up more. Basically a really good month for the attached home market.
Ted Simons: That sales volume was up, as well, not just in Scottsdale?
Mike Orr: Not just in Scottsdale across the board, but Scottsdale had the largest increase.
Ted Simons: So why are we seeing this? Is this baby boomers wanting to lock and leave? Millennials finally finding their first place, but they don't want to rake leaves?
Mike Orr: A little bit of both I think. Certainly baby boomers, many of them similar age to me, kids having left, gone to college, no longer at home, you don't need a big family home anymore. Particularly if you're not feeling quite as fit as you were you don't want to rake leaves or do the maintenance work yourself. One of the advantages of a condo is it's far less maintenance due. You probably have to pay an HOA fee but you don't have to do it yourself.
Ted Simons: Basically the whole downsizing thing we saw and continue to see, downsizing in single family homes, that's now hitting the townhouse and condos?
Mike Orr: I think so. Also you mentioned the millennials. If they are starting to move out of rentals, many are having kids much later in life. So a small condo would be attractive particularly if it's well placed next to restaurants and good shopping, that sort of thing.
Ted Simons: Is there a thought there may be a rush away from some of those places once millennials do start families?
Mike Orr: I think they'll be replaced by younger ones. I think younger people cycle through. Once you start the family you find the apartment is too small, you want to move out to where you can have your kids run around in the back, and people can keep pets. It's not like single family homes will go out of style. But they will probably start moving out in their mid 30s and be replaced by the younger still.
Ted Simons: I want to get to the rental market in a second here. Are there a lot of apartments and rentals out there will some of these apartments especially be tempted to turn into condos? We saw that before.
Mike Orr: That was not such a great experience, a lot of those projects were happening just as the recession really bit, and they ended up only half complete. Trying to shut down one of those things in the middle is difficult legally and financially. People are not going to rush into creating condos in a hurry this time. The people selling attached homes in great location resource finding lots of buyers and they selling very quickly. I think everyone's going to start looking at what's going on and say, maybe I should get a piece of that.
Ted Simons: As far as the townhouses and condos, is it mostly in urban areas?
Mike Orr: Mostly, yes. If you go into Pinal County, just a very small handful of attached homes there, mostly single family or mobile homes. In Tempe, Scottsdale, Phoenix and Fountain Hills for example, they are all areas where you see quite a lot of apartments and condos.
Ted Simons: The rental market still strong?
Mike Orr: Market for rentals is extremely strong. In fact December was the lowest vacancy now for multifamily that we've seen in Phoenix ever. So you know, if you're looking for a rental there's not a lot of choice. And a lot of competition which is forcing rents up, of course.
Ted Simons: How much?
Mike Orr: Somewhere between 5% and 8%. I measure it month to month, compare it with the previous year and it bumps up and down. But I would say you need to allow for at least 5% when you come to renew your lease. That's what the landlord's likely to be asking for.
Mike Orr: If you are thinking of getting out of that rental and are there so many foreclosures, are there not that many foreclosures.
Mike Orr: No. The foreclosures down. The supply is adequate for the current level of demand because of demand is low. If demand picks up this spring as I suspect it will, supply could pick up quickly, I'm sure.
Ted Simons: What is the Canadian factor on our real estate market?
Mike Orr: For many years the Canadians have been buying up our real estate, doing more than their fair share really. They were attracted here because they do like the sunshine, particularly in the winter. B, the Canadian dollar has been strong until very recently. You've got a lot of home for your Canadian money. That's changed in the last four months. The Canadian dollar along with just about every other currency except for the Swiss Frank has really dived compared to the U.S. dollar. We have become much more expensive to Canadians than we were just the middle of last summer.
Ted Simons: So we're not seeing sales are we?
Mike Orr: The demand is down. It's not down as much as you might think. But you'll find a few of the existing Canadian owners may say, time to cash in and sell that home I got a few years ago, it's appreciated quite nicely, and when you convert to it Canadian dollars, it'll appreciate even more.
Ted Simons: So that's something we might see in 2015. What are you foreseeing?
Mike Orr: I'm thinking we'll see a significant increase in demand at the sort of lower, midrange than we had last year. We had a pretty disappointing year mainly because there didn't seem to be that many buyers. There were plenty of lookers, people going see the new homes, subdivisions, walking around the sales office but not signing the contract. And it looks to me like people are getting a bit more serious, lots of activity in credit repair. Once you get through credit repair, loan applications I think will be up and then records of people signing contracts to buy. We will see an increase. The question is will it be a big one or just a moderate one.
Ted Simons: All things considered here, is this a healthy market?
Mike Orr: I think we're getting back to healthy. We're pretty balanced at the moment but a little lightweight. If we just get back to just 10 or 15% more volume, we'll have a very normal and ideal market. Let's hope it stays that way for a while.
Ted Simons: All right, good to have you.
Mike Orr: Thank you very much.
Mike Orr:Director, Center for Real Estate Theory and Practice at ASU's W. P. Carey School of Business;