Real estate experts predict the Valley’s years-long housing glut is reaching its end and, as early as this spring, could stun home buyers by transforming into a shortage.
The crunch is expected to be more pronounced in the East Valley, where some subdivisions are approaching build-out and other builders are raising prices.
The prediction may seem outlandish given how gloomy real estate news has been for years, said Mike Orr, director of the Arizona State University Center for Real Estate Theory and Practice.
But a growing demand and shrinking supply has driven home prices up in recent months, he said. Orr thinks that’s gone unnoticed to people who will enter the market this spring, in what is typically the peak time for sales activity.
“They’re going to be surprised that it’s so hard to buy a house. They’ve been hearing for so long that there’s a glut of homes,” Orr said. “They’ll go out and find there’s not a lot to choose from and every time they bid, there’ll be three or four other offers.”
The shrinking supply is a mirror image of what happened in 2006, when there was a lag before the public realized the number of new homes had ballooned into a problem, Orr said. About 58,000 homes were on the market by late 2007. The long-term average is about 33,000 homes listed at any given time.
That’s down to 25,000 now or 19,000 when accounting for homes that have deals pending, Orr said. The unusually short supply will continue to shrink.
“By the time we get to 2013, it’s quite likely that we’ll need a lot of new homes,” Orr said.
A short supply should trigger price jumps for existing homes this year, said Jim Belfiore, president of Belfiore Real Estate Consulting. Prices went up 3.1 percent last year, but he argues they should have rose 20 percent in response to a 41 percent drop in real estate listings.
He expects that 20 percent jump will happen in 2012, starting with a 6 percent to 11 percent rise by March.
Belfiore’s company surveys each of the Valley’s 400 active subdivisions on a regular basis to gauge prices and sales activity. Belfiore predicts shortages will grow as 2012 goes on because 34 percent — or 136 subdivisions — will be sold out in a year.
Sales are especially strong in Queen Creek, where a jump in sales has allowed eight of 20 subdivisions to raise prices.
“The East Valley is a top performer,” Belfiore said. “In Gilbert, there are 58 subdivisions that are active today. It might be the most active submarket in the southwestern United States. Builders are pining for new lots. There’s a land shortage in Gilbert. Chandler is the same deal.”
The number of permits issued last year was a 40-year low, at about 7,000, Belfiore said. He expects that will grow to 10,400 this year, 15,800 in 2013 and 23,200 in 2014.
The construction should further boost the economy. Each new home creates 2.5 jobs for three months, Belfiore said.
Belfiore expects a strong 2012 because of falling unemployment, exceptionally low prices and record low interest rates. The market could be especially strong if employment gains continue and banks relax their lending standards, he said.
This year’s real estate market should be the best in five years, Orr said. It will take several years to resemble a normal market and any increases will be far short of what created the bubble, he said.
“I don’t think there will be the same speculation there was, but there might be a lot of people who do want to buy a house in the next two years, thinking, ‘If I don’t buy now, I might miss out,’” Orr said.
The number of foreclosures and short sales remains high but will be less of a factor in the market as time goes on, said Bob Bemis, CEO of the Arizona Regional Multiple Listing Service. Distressed homes are mostly the target of investors. Families tend to focus on new homes or traditional resales, he said.
The market showed signs of returning to health last year, he said. Median sale prices rose 6.5 percent to $117,000, and average sale prices were up 3.5 percent, to $162,000. He expects a burst of activity at some point in 2012.
Bemis said he expects potential buyers could dismiss a real estate professional’s rose-tinted predictions, given how they are known for saying there’s never been a better time to property. But he said skeptics should give weight to Orr, whose role at ASU divorces him from having any skin in the game.
“We’re very close on agreement on where we’re headed,” Bemis said. “It’s just a matter of degree.”
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