Phoenix Real Estate - Fairly Priced? Or Over Priced?

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Xổ số vuông hôm nayPhoenix real estate values have increased by a 114% - more than doubling - over the last 10 years according to data from Zillow. That's the third highest-growth rate of any metro in the US, propelling the average price in the metro area up to $315k.

But we've seen this story in Phoenix before, with values climbing only to fall precipitously. Values declined by 60% during the GFC from 2007-12.

Fortunately, I think the fundamentals in Phoenix look to be in better shape this time around. Most notably, the permitting and construction of new homes/apartments is much lower today than it was in 2005. At the same time, population in the metro has grown by 1 million in that span.

What are your thoughts on the Phoenix market? Do you think it's fairly valued right now? Or do you think the market is too hot?

Thanks Nick,

Xổ số vuông hôm nayAppreciate the post. I'll let the experienced pros handle this. It's definitely a seller's market. Low supply and high demand. The affordability of housing is relative in the Phoenix, AZ metro.

Think it's starting to become overpriced, but still affordable from my perspective based from my move from Greater Los Angeles, CA. Hope it doesn't continue to rise too much quicker or else it'll price many people out of the market. Looking forward to some thoughtful replys.

Thanks,

DAG

as we learned in the recession, you can't go wrong in the areas closest to metro Phoenix so long as it's Class A and B areas. What helped build the 60% decline in home prices were the outskirt properties where the communities were more Class C or less communities. That's the real talk because those were the communities of people who were most taken advantage of (includes this Latina - I ended up short selling).

Xổ số vuông hôm nayI think prices are where they should be from a demand perspective in the non-outskirts areas. Phoenix and surrounding cities have a lot to offer economically and people can live here and even work remotely without needing insane amounts of salaries. That's my 2 cents.

The pricing of housing goes up and down over the years. If something is overpriced is relatie. I find it best to just analyse the prospective purchase and if you cash flow along with putting aside 5% for vacancy and a % for maintenance (this amount varies between diff investors but I figure in at least 800.00 per property min a yr to put aside). If it cash flows, I go with it. If the interest rates are high I just refi when they go down if it makes sense. That way I can hold onto any property when the price is good or bad. I don't get caught up in emotional bidding wars either. I found some new construction homes that worked for me and the rents are really good right now all around the Phx Metro area so the higher prices are being balanced with the higher rents available at this time. 

I’m not sure it’s conveying the full picture when saying the values have increased 114% in the past 10 years because that’s going back to the cratered values of the recession (down 60% from 2007-2012). So if the values came down 60% and from there went up 114%...there has been appreciation but no where near the 114% if that makes sense.

Having invested since 2005, one of the main differences between now and back then is financing. Stated income and banks pushing loans back then had everyone buying homes they knew they couldn’t afford. Many thought they could just sell in 6 months and make a quick 15%.

Today has many more checks and balances before being able to qualify for a home/investment property. 

I could go on, but I think with good weather/no natural disasters, cheap but more stringent financing, a hot job market, and seeing a number of Californians moving here (along with other out of state buyers), we won’t see anything similar to 2007-12 maybe only a slight decline or flat appreciation if there is a national dip.

Nick , with this economy, interest rates, and everyone moving here. Almost 320 more people than leaving.  It will be a great market here for at least 2-4 years!

Xổ số vuông hôm nayI ready to get those jobs, investors, and people that want part of the action here!!!

It certainly is a crazy market right now, but since the housing crisis there has been a lot more regulation on the lending side as mentioned above. A lot of businesses have moved here which has created more jobs, and so more people. And now with Covid and work from home being the new norm, we are seeing a large inflow of people coming from all over because it is affordable and the weather is nice. Interest rates have also added to the large buyer demand. Although appreciation has been through the roof, people are more concerned about their monthly payment than the price tag.  

Xổ số vuông hôm nayHaving said that, most of what I have read and heard is that 2021 will be another strong year for sellers with such large buyer demand, low inventory, and interest rates will continue to be at historic lows.  However, all the stimulus packages will come with a cost and I think we will see inflation moving on past 2021, but what is the best hedge against inflation? Assets that have been locked into a low interest rates. So if you are wanting to buy, get busy, because the best time to buy was yesterday. 

Xổ số vuông hôm nay I would argue with current economic climate, the A or B areas are undervalued. There is a high amount of population leaving California due to outrageous taxes, strict mandates regarding stay at home orders, and cost of living. It also helps that many companies allow employees to work from home. In Maricopa county, most homes are less than half the price for comparable homes in most parts of California.

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Originally posted by :

I’m not sure it’s conveying the full picture when saying the values have increased 114% in the past 10 years because that’s going back to the cratered values of the recession (down 60% from 2007-2012). So if the values came down 60% and from there went up 114%...there has been appreciation but no where near the 114% if that makes sense.

Having invested since 2005, one of the main differences between now and back then is financing. Stated income and banks pushing loans back then had everyone buying homes they knew they couldn’t afford. Many thought they could just sell in 6 months and make a quick 15%.

Today has many more checks and balances before being able to qualify for a home/investment property. 

I could go on, but I think with good weather/no natural disasters, cheap but more stringent financing, a hot job market, and seeing a number of Californians moving here (along with other out of state buyers), we won’t see anything similar to 2007-12 maybe only a slight decline or flat appreciation if there is a national dip.

Xổ số vuông hôm nayJoe - thank you for this thoughtful response!

Xổ số vuông hôm nayI agree that using 2010 as the starting point is a bit deceiving with Phoenix. It's average value today is actually still lower than it was back in 2006!

That's great perspective on the financing side of the equation. Good to see that the market is much healthier in that respect!

 

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Originally posted by :

Xổ số vuông hôm nay@Nick Gerli as we learned in the recession, you can't go wrong in the areas closest to metro Phoenix so long as it's Class A and B areas. What helped build the 60% decline in home prices were the outskirt properties where the communities were more Class C or less communities. That's the real talk because those were the communities of people who were most taken advantage of (includes this Latina - I ended up short selling).

I think prices are where they should be from a demand perspective in the non-outskirts areas. Phoenix and surrounding cities have a lot to offer economically and people can live here and even work remotely without needing insane amounts of salaries. That's my 2 cents.


Xổ số vuông hôm nayThank you for the response Ingryd!


Below is a map using data from Zillow to highlight the ZIP codes with the most value loss from 2007-12 (redder = worse). I believe it confirms what you're saying.


The areas to the Southeast (Florence, Casa Grande) got hit very hard (-60%). Glendale/Peoria and Tolleson/South Mountain were also badly impacted. 

Scottsdale seemed to to be the least impacted (-30%). 

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Originally posted by :

Xổ số vuông hôm nayIt certainly is a crazy market right now, but since the housing crisis there has been a lot more regulation on the lending side as mentioned above. A lot of businesses have moved here which has created more jobs, and so more people. And now with Covid and work from home being the new norm, we are seeing a large inflow of people coming from all over because it is affordable and the weather is nice. Interest rates have also added to the large buyer demand. Although appreciation has been through the roof, people are more concerned about their monthly payment than the price tag.  

Having said that, most of what I have read and heard is that 2021 will be another strong year for sellers with such large buyer demand, low inventory, and interest rates will continue to be at historic lows.  However, all the stimulus packages will come with a cost and I think we will see inflation moving on past 2021, but what is the best hedge against inflation? Assets that have been locked into a low interest rates. So if you are wanting to buy, get busy, because the best time to buy was yesterday. 

Mick - thank you for the response!

Xổ số vuông hôm nayYou bring up a great point about inflation. Between low interest rates and the prospect of an economic re-opening demand surge sometime this year, inflation could finally rear its ugly head. 

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Originally posted by :

@Nick Gerli I would argue with current economic climate, the A or B areas are undervalued. There is a high amount of population leaving California due to outrageous taxes, strict mandates regarding stay at home orders, and cost of living. It also helps that many companies allow employees to work from home. In Maricopa county, most homes are less than half the price for comparable homes in most parts of California.

That's an interesting point regarding locational differences Michael! 

Xổ số vuông hôm nayWhat I find in the data is that, in most markets, the Class A areas tend to underperform everywhere else. This is likely because they're so pricey that not many people can afford to move-in.

However, if a lot of the inward migration is a certain higher-income demand segment, then maybe the trend could change course in coming years.

 

to clarify more on my class A/B properties, my thesis is based on most homes under $400k have a big opportunity to move up.

My primary residence I purchased in June of 2020 has gone up 15% (mine is in the $200-300k range).

Xổ số vuông hôm nayI would agree that some other price points higher than that in class A would under perform.

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Well ... there is Phoenix, there is Tucson and then there is everyone else. PHX and TUC have so far been the big winners of the Covid era. The pandemic has pushed forward California migration 5-10 years by some estimates. Maricopa Co in the last 6 months has had 25% more inflow from CA than the 2019 monthly average. Arizona never implemented the draconian measures that have failed CA and has generally remained open for business meaning one of the lowest unemployment rates in the nation. Maricopa county is one of the few counties in the nation that has continued to experience construction growth. This has made us the current epicenter of the global pandemic BUT what its done for RE, both SFR and MFR has been nothing sort of shocking.

I closed on an empty class B, 168 unit multifamily conversion in Phoenix on Nov 30. I estimated that it would take me the entire year 2021 to lease up and get to stabilized occupancy. By year end 2020, I was 50% occupied and currently at 70%. I would estimate 60% of my tenants are transplants. 

Xổ số vuông hôm nayThe issue buying in PHX is valuation. We have new out of state interest that was not here at these levels pre pandemic. Listen to any podcast and you will be told that PHX and TUC are top markets. The secret is out:) But there are issues. Rent growth has outgrown wage growth and the gap is back to pre-recession levels. There is very little value add inventory in Maricopa Co and sellers are very reluctant to sell. Buyers are literally all chasing the exact same asset.  Bad debt is a real issue although it is largely ignored in current valuations (in my opinion).  As such, all of the optimism is already priced into the market. 

SFRs and small multifamily are now completely disconnected from cash flow. Expect revenue to equal. .5% of purchase price. I guess somewhere along the line the 2% rule became the .5% rule:) I would classify Metro PHX as a buyer beware.

You hit the nail directly on the head. We are seeing a huge influx of people moving from California, as well as investors coming into the area as well, all chasing the same properties. Supply and demand have surged the market to all-time highs in values, and record low inventory. At some point, you'd figure things would even out but I don't have a magic crystal ball to predict when that will happen.

The 1% rule has gone out the window years ago. The last 3 years here have been crazy, with the COVID surge really pushing things out of reach for a lot of investors, especially in the MFRXổ số vuông hôm nay space. I've seen C and D class MF properties on market for 100+ days and the seller refuses to budge on price. Crazy times we're in.