The Arizona Republic
Mar. 6, 2007 02:00 PM
First Vice President
Desert Heritage Mortgage
This year’s prognosis:
2007 looks to be a year of continuing the readjustment toward a balancing of supply and demand in the housing market. The resale market is adjusting gradually as seller’s reduce their expectations from the price levels of last year. As buyers and sellers psychologically adjust to the new reality, we believe the market will normalize in an evolutionary way over the year.
Have we hit bottom? The “bottom” of the market really looks much more like a long and relatively flat period rather than any sharp “bottoming” with any short-term noticeable “recovery.” Rather, we believe the market will gradually digest the oversupply and then return to a modest strengthening with historic growth trends moving the market methodically.Is there a market wild card?One, if there were a big change in interest rates, which we do not expect, our market could be impacted along with the balance of the country. Second, if the national home builders were to even more significantly cut production, it could shorten the normalization process considerably.How does the Valley’s housing market compare to the national market?
Nationally, there are significantly weaker markets than the Valley. We enjoy strong job growth, a strong local economy, and a history of growth throughout the years, giving people an inherent optimism about the future.
Arizona will lead the way in the “recovery” period, although this will be a gradual change rather than anything dramatic.
Has metro Phoenix lost its affordable edge for housing?
Phoenix is less affordable than in the past, when price increases, interest rates, and median income are considered; however, we are still one of the more affordable markets in the nation, and compare especially favorably with neighboring California. Many of the most affordable markets in the country are less desirable places to live; therefore, we don’t see the change in the affordability index to be more than a small factor in the local market. Entry-level housing seems to have gravitated toward some mix of smaller, more remote single family homes as well as significant condo conversions.
What advice/tips do you have for home buyers and sellers?
Our advice for Home Sellers is to consider they will have the look for the home to replace their current home for sale. Price the home to sell aggressively and pay particular attention to the condition of the property. It must be sharp. Then, enjoy the Buyer’s market as a purchaser. The savings over last year’s prices witll more than offset the perceived reduction in sales price of the home they sold. Buyer’s and Seller should relax, take their time, and concentrate on moving to a home that is beautifully located an attractively priced so as to have the best home possible for their family.
Chris Mozilo, CMB Area Sales Manager, Countrywide Home Loans
President – Arizona Mortgage Lenders Association
This year’s prognosis:Last year, the number of resale transaction slowed demonstrably and some cities in Maricopa County saw modest decreases in the median price of homes sold. As is the case at a national level, the Valley’s housing market is expected to continue to present challenges this year. I believe we will continue on a path toward a more “normalized” market in which there’s balance between buyers and sellers.
Have we hit bottom? In any market environment, we can never know for certain that a market has hit a bottom until it stabilizes and starts to show gains. The Valley’s housing market is very diverse, so the timing for achieving stability and showing gains will be different depending on the specific neighborhood. For example, the market in the West Valley, known for new home sales, will have a different experience than more mature, centralized neighborhoods.
Is there a market wild card? Homes purchased by investors over the past few years-a portion of which sit vacant as investors attempt to rent or find buyers-will continue to have a downward effect on housing, as a larger inventory of homes for sale can temper price appreciation.
How does the Valley’s housing market compare to the national market? The macroeconomic factors that impact housing markets look bright in the Valley. At the end of 2006, Moody’s ranked the Greater Phoenix area as eighth in the nation in employment growth among major metropolitan areas, and they forecast an “up” trend. In fact, Arizona recently beat out Nevada for the first-place ranking with the fastest state population growth. Both of these factors help our local housing market considerably. At the nation level, macroeconomic factors are also solid, but all housing markets are local. In some places the local markets will see tough times, with those markets dampening the national housing market performance.Has metro Phoenix lost its affordable edge for housing?
While Phoenix has lost some of its edge in affordability, it’s important to note the relative affordability of Phoenix and elsewhere in Arizona. Compared to home prices in California and other parts of the nation, we have attractive home prices. The significant influx of Californians and others who are moving here find housing to be very affordable compared to the markets they are leaving.What advice/tips do you have for home buyers and sellers?I encourage homebuyers to shop not just for a good rate, but for a good loan officer as well. They should look for someone who will guide them through the loan programs and options, and help them make a well-informed decision about financing. To home sellers, I would suggest that we are moving into a much more balanced market and home prices listings should reflect today’s reality rather than the past.
Sullivan Group Real Estate Advisors This year’s prognosis?
There will be an uneven but notable improvement in the Valley’s housing market in 2007. The areas with the most unsold supply will struggle until the “supply hangover” is burned off. The luxury market should continue to expand. Have we hit bottom? The market has not yet hit bottom. Along with the oversupply of unsold units, some homebuilding companies are still “right-sizing” to the market. With a continued slowing in the pulling of permits and sales that chug along, we are heading in the right direction.Look for the bottom to be signified by a flattening in prices. Let’s say, 7/7/07 for luck.
Is there a market wild card? The economy and comparative home affordability is a trump card. Depending upon how the public homebuilders respond to buying lots going forward and how quickly lots being entitled can be fully serviced, we may actually see a shortage of buildable, fully serviced lots over the next year or so. While there is plentiful land available for future development, the key is where that land is located and when (and if) it can be readily serviced with water and sewer.
How does the Valley’s housing market compare to the national market? While we are going through some pain, the key is to recognize that this is a correction, not a housing bust. Vital to this is the major job growth that is projected for our region going forward (over 60,000 per year in the next four years) and population growth that is projected to be among the fastest growing in the nation (100,000 plus people per year over the next four years). Our economy is solid. Housing just needs to normalize. We still have a deep and diverse housing market. And going forward, perhaps the best market in the country.
Has metro Phoenix lost its affordable edge for housing?
There is no doubt that we have lower affordability since home prices effectively doubled from 2002 to 2005. Prices softened in 2006 and incomes continued to move up so we gained back a little ground. But perspective is vital here: homes in the Valley are still half of what they are in San Diego and one quarter of what they are in
Orange County, California. So relatively speaking, we are still a bargain.
What advice/tips do you have for home buyers and sellers?
For buyers: do it now.If you are a patient seller, wait six months. If you must sell now, present the best home possible (new paint, clean walls and operational kitchens and plumbing) and be willing to negotiate.
President, DMB Associates
This year’s prognosis: The signal for a healthy real estate market is a balance between supply and demand. We still have an oversupply of inventory in the Valley. My concern is that a significant number of permits could be issued in 2007, causing a year to pass without correction to the oversupply in the market. Worse, if some of the predictions for new supply are correct, we could actually add to the current imbalance. If this happens, the market may not reach equilibrium until sometime in 2008 or later depending upon the national economy. Have we hit bottom?
It is bumping along the bottom. The imbalance of supply and demand will determine how long it will remain there. An unknown variable is an oversupply of units that will not be whittled away if a significant number of permits are introduced in 2007. This oversupply is in much less conspicuous places than in past market cycles. This “hidden” supply needs to be taken into consideration.Is there a market wild card?By their nature, wild cards are hard to predict, which is why we should focus on those elements that can bolster our overall economy. One of the most important influences on the strength of the housing market is job growth. To ensure future growth, we need to invest in the initiatives that will fuel our future knowledge-based economy. That means supporting educational initiatives in science and math, research opportunities at our universities and hospital systems, and venture capital investments that will grow innovative companies.
How does the Valley’s housing market compare to the national market? Substantial job growth ensures that our market will work through this housing slowdown. Has metro Phoenix lost its affordable edge for housing?There are myriad factors to consider when comparing affordability. Land, materials and labor costs are most significant, and their importance to the mix varies based on location, governmental regulations and labor markets. Is the metro area better off by having slightly more expensive housing if the quality of the housing is substantially improved in terms of land planning, amenities, human interaction and diversity of product? Affordability indexes are based on broad assumptions and averages. Is cheaper better? I believe a comparison of the quality of life in one location over another is a very difficult thing to quantify.
What advice/tips do you have for home buyers and sellers? History has borne out that a well-maintained home in a good neighborhood will likely appreciate over time. Buyers should look for homes in those communities that have built in elements of enduring value: thoughtful land planning and architecture, a strong sense of community, desirable amenities, an attractive, interesting physical setting. These are attributes of classic communities that have thrived over time, that prosper and appreciate in value for both homebuyers and sellers.
Marshall VestDirectorEconomic and Business Research Center at the University of Arizona’s Eller College of Management
This year’s prognosis: The correction under way will continue through the year as excess inventories are worked off and houses are priced more reasonably. Look for reduced home-building activity. Some consolidation and “right-sizing” will take place in sectors that rely on growth such as real estate brokerage, mortgage brokers, title companies, engineering firms, and homebuilders. 2007 will be a tough year for housing.
Have we hit bottom? The biggest portion of the correction is probably behind us, but the bottom is still a few months off. The bottom will come at different points for various sectors, however.
Is there a market wild card?Credit quality is a major concern as interest rates reset on nontraditional loans, such as interest only and negative amortization ARMs. Some of these homes may come on the market at deeply-discounted prices. How does the Valley’s housing market compare to the national market?
There really isn’t a national market – all housing markets are local. Compared to many other markets,
Phoenix became much more “overbought,” and therefore faces a larger correction.Has metro Phoenix lost its affordable edge for housing?Compared to the Midwest, the answer is definitely yes. But compared to
California markets, housing locally is even cheaper today than five years ago. For example, housing prices in Los Angeles have increased 136.5% over the past five years compared to 99.1% for
Phoenix. Austin, Dallas and Denver have seen increases in the neighborhood of only 20%. These data are from the Housing Price Index compiled by the Office of Federal Housing Enterprise Oversight (OFHEO).
What advice/tips do you have for home buyers and sellers? Sellers still think that their house is worth far too much. The gap between the median price of listings and the median price of “solds” is about $100,000. Normally the gap is $35,000 or so. Homes that are reasonably priced are selling. If you don’t have to sell, take the house off the market and wait for a more favorable pricing environment. If you do, work with an agent who has experience in markets like this – and price accordingly. Be willing to walk your asking price down.Buyers believe that prices are falling and therefore are not motivated to “pull the trigger.” In reality, prices are not falling (only seller expectations). Mortgage rates are currently low and are likely to move upward. So, if you can afford to buy, do it now. But don’t expect a return of double-digit price increases any time soon. The recent run-up in prices was a “once-or-twice-in-a-lifetime” event. Think of home ownership as providing a flow of services rather than as an investment. Avoid non-traditional loans – amortize the debt. Plan to live in the house at lease five years. If you can’t buy, rent. There are good deals now for rental housing. Get a long lease.
President and CEO Prudential Arizona Properties
This year’s prognosis? The gap between buyers and sellers expectations will continue to narrow as buyers gain confidence in the long term viability of the housing market and sellers accept that in order to sell in today’s real estate market, they must view the competitiveness of their asking price through a buyer’s eyes and not the rose colored glasses of 2005.Have we hit bottom? Yes. The realization that the frenzied market of 2004-2005 is really over occurred in 2006. 2007 will continue to see the absorption of a larger than normal inventory with homes priced competitively selling at a steady pace fueled by the stream of people moving to the Valley.
Is there a market wild card ?
Foreclosures are increasing and everyone is keeping a watchful eye on how that may affect the overall market. Other than something out of our control such as a spike in mortgage rates or an event that would slow our job growth and inbound migration, the Valley’s housing market has a bright and healthy future.
How does the Valley’s housing market compare to the national market?The Valley had a huge spike in home values and activity in 2004-2005 resulting in a significant and necessary correction. Other areas of the country have also experienced a slowing but for other, longer lasting reasons such as loss of jobs. Phoenix Metro enjoys extremely strong economic drivers allowing for an above average absorption of the excess inventory and paving the way for a healthy housing market for years to come.Has metro Phoenix lost its affordable edge for housing?It is true that Phoenix can no longer boast the least expensive median home price west of the Mississippi as it did in 2000, but with a median price of approximately $260,000, Phoenix still remains in the top 3 most affordable major metropolitan areas in the western states. Los Angeles, Orange County, and San Diego are all near or well above a median price of $600,000 which explains the steady influx of Californians to our beautiful Valley.What advice/tips do you have for home buyers and sellers?Choose your Realtor carefully. Look for a real estate professional with a proven track record of successful representation to ensure that the valuable asset of your home’s equity is protected if you are selling; and that you are guided and informed completely by a knowledgeable market expert so that your investment in a home is secure for the long term when buying.Mark UptonExecutive Vice President, Technical Olympic USA, Parent Company of Engle Homes This year’s prognosis:It will be a recovery year, selling excess inventory. Market comes into balance in the secondhalf of the year.When will we hit bottom?We’re very close to the bottom.Is there a market wild card?Builders starting too many speculative units.How does the Valley’s housing market compare to the national market?Similar to many markets.Has metro Phoenix lost its affordable edge for housing?Not at all still, very affordable compared to most.What advice/tips do you have for home buyers and sellers?Patience.
Representing Buyers and Sellers throughout Arizona, all I ask is for the opportunity to earn your business one transaction at a time.
Andrew Holm, ABR Sterling Fine Homes & Land
The Holm Group Office: 480-767-2738 Cell: 480-206-4265