Back in the dark and dismal days of the financial crisis, Arizona was one of the first and hardest-hit housing markets. House prices declined over 30% in one year, wiping billions of dollars off of the residential property market. There were massive layoffs in the construction industry, contributing to the further slowdown of the state economy and leading to a downward spiral.
However it appears that the doom and gloom may finally be over, providing significant new opportunities for investors – as well as those who are looking to move into a new family home. For instance, the price of housing in Phoenix has risen slightly over 30% since Q1 2012, far outstripping the national average rise of 11.3%. That sort of growth is worth a second look for anyone who is serious about increasing the returns on their investment portfolio.
Based on data fromMichael Orr, the director of the Center for Real Estate Theory and Practice at the W.P. Carey School of Business at Arizona State University, it appears that the fundamentals of the Arizona housing market are becoming strong, indicating that the recent dramatic rise in prices is not just a repeat of the previous bubble in 2007. For example, sales of single-family homes have been on the rise, and more of them are being purchased by homeowners rather than investors – which indicates that end-user demand is strong and prices are not being artificially inflated by speculation. Furthermore, while the housing inventory (the number of houses for sale) has been rising, it is still at historic lows, which supports continued price increases.
One of the barriers to further expansion of the housing supply in Arizona is a lack of skilled construction workers. Many of these workers retrained for other industries or moved out of state when the financial crisis struck, so that employment in the sector remains at levels not previously seen since the mid-1990s. While this does limit investment opportunities, it also means that supply is unlikely to outstrip demand in the short term – boding well for continued price growth. It also means that real-estate projects that already have new homes built, such as Eagles Nest Living near Scottsdale, are particularly interesting investments.
Another encouraging sign is that, despite the recent rises, property prices remain below the long-term trend. Looking over the 10 year period from 1989 to 1999, prior to the housing bubble, the annual growth rate was 3.1%. If you project that through to the current day, it suggests that the market is undervalued still by 15% to 20%. That is plenty of headroom for a canny investor, especially when you consider that financing remains extraordinarily cheap – vastly increasing the investment leverage.
There are a number of other factors that suggest the Arizona housing market is on its way to recovery. Foreclosures are down 60% in the last year, and bank sales of distressed properties are down by 53%. House purchases by rental firms are also low, indicating that the demand is real and not another bubble. All of this is encouraging for anyone who is considering investing in the Arizona real estate market.