People watching metro Phoenix’s housing market appear to be most concerned about rapidly rising home prices sparked by bidding wars and the potential for another housing market bust.
Metro Phoenix’s median home price is poised to hit a record $400,000 in June, up almost $100,000 from a year ago.
Here are some of the questions and answers from readers during an azcentral.com Q&A with me Wednesday.
Question: Do you think the metro Phoenix housing market is currently in a bubble?
Answer: I talk to housing experts about this all the time. After the crash of 2008-11, it’s an important gut check. I don’t think we are in a bubble because of the many differences between now and then.
One big difference is the Valley’s housing market isn’t being driven by speculators like it was during boom of 2004-06. Then, almost 40% of all homes were bought by investors, and now it's much less.
Also, the bad subprime loans of that boom are long gone.
Q: How many owner-occupied buyers are there versus investors?
A: Owner-occupied buyers were behind about 70 to 80% of metro Phoenix home sales during the past year. That’s a good thing for the market. Many are paying cash or buying with big down payments.
In May, institutional investors were behind about 5% of Valley home sales. During the crash, those big investors bought the majority of bargain foreclosure homes, but that’s not happening now.
Q: Will bidding wars continue? Am I stuck in this one-bedroom apartment forever?
A: It's a tough time for first-time buyers. The forecast is for Valley home prices to possibly moderate next year. If prices climb too high and too many buyers are priced out, then the bidding wars will slow or go away.
Q: How can Arizona say that homes are affordable when the median home price is near $400,000? The median home price is $400,000 – a 46% increase – and median incomes are currently reported at $79,000 – only a 14% increase.
A: Our housing affordability is a growing concern. The best answer I hear is wages must climb in metro Phoenix. One good trend is Valley homebuilders are constructing less expensive homes. For the first time ever, the median price of new Valley home is lower than a resale home. I am watching this trend closely because it will impact Phoenix’s growth and housing market.
Q: What do you think the future holds for the rental market?
A: Metro Phoenix ranks in the top 3 for U.S. areas with the biggest rent increases during the past year, and apartment analysts don’t see that changing any time soon. The Valley’s population growth is driving the increase. There is the wild card of what will happen with evictions after the national ban ends on July 31.
Q: How much will home prices decrease when Lake Mead dries up?
A: Water is an issue. What a shortage will mean for housing is the multi-billion dollar question for not only Arizona but many areas in the West. Now some new developments in Colorado don’t have the water needed for homes that have already been built. Watching what happens there to see what could happen in metro Phoenix.
'Our own survival is at stake': Arizona is using up its groundwater, researchers warn
Q: Are there any areas of the Valley that have exceeded home price expectations?
A: Price increases in luxury areas, including Paradise Valley, Arcadia and north Scottsdale, have definitely exceeded price expectations during the past year. Those areas are seeing prices climb faster than many other parts of metro Phoenix, and million-dollar home sales have tripled.
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