The “tsunami” of foreclosures Arizona has seen since 2007 is subsiding to normal levels, but the Valley’s housing shortage could keep potential buyers away from their dreams for a while, one housing expert said this week.
A report last week out of the W. P. Carey School of Business at Arizona State University shows foreclosure starts on single family and condo homes in the Valley dropped 15 percent between April and May. Foreclosure starts are down 67 percent from a year ago. The number of completed foreclosures is down 53 percent from May 2012.
“Over the last four years or so, people writing loans have been very much tighter on their standards,” said Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “They want to be lending to people with high credit ratings who can document everything. So the delinquency on those loans is very low. The bad loans were pretty much confined to the period between2003 and 2008. In 2009, there were higher standards of loans.”
“The bad loans from 2003 to 2008 have already been wiped out,” he said.
Since 2006, 300,000 homes have gone through a foreclosure or short sale in the metropolitan Phoenix area.
“It kind of means we’re out of fuel now,” he said.
The housing market story continues to be the shortage of homes available for potential buyers, Orr said. While demand for homes is “normal,” Orr said the number of homes available is not.
Current homeowners are sticking are waiting for prices to rise or to feel better about their economic footing before selling their homes, meaning more competition for houses that are on the market.
“It’s a hard time to be a buyer. It’s also gotten hard recently because interest rates have gone up, so the payment on the home you’ve wanted has gone up quite a bit just in the last four weeks and of course home prices have been going up for nearly two years. If you were buying two years ago, you had a great chance for a bargain and now you’re paying considerable more for the same house,” he said. “However, it’s still far cheaper than renting in most areas. I still see a lot of people pushing for homeownership if they can qualify.”
The median Valley home sales price (re-sale, new and foreclosures all included) rose 2 percent from April to May, from $181,399 to $185,000. It's up nearly 26 from a year ago.
The average price per square foot of a "normal" resale home rose from $122.45 in May 2012 to $130.53 in May 2013, an increase of 6.5 percent. The average price per square foot of a new home sale rose from $103.45 in May 2012 to $118.73 in May 2013, an increase of 14.8 percent.
With the competition for existing homes, it’s made the new home buying experience more appealing, Orr said.
New home sales have increased their market share from 8 percent of sales to 9 percent of sales, according to the report. But that's still far below the normal range of 25 percent to 30 percent of sales.
While the new home pricing has not increased to levels of existing homes, Orr said he’s seeing larger prices on lot premiums.
“I’ve seen some communities in Mesa with premiums over $100,000,” he said.
The East Valley is seeing several large new home communities develop this year as Eastmark opened in June in east Mesa and The Bridges will open this fall in Gilbert. Eastmark could become home to several thousand homes over the next decade or two. The Bridges is planned for more than 1,600 homes.
More than 1,000 homes are still planned for development in Gilbert’s Morrison Ranch as well.
With interest rates starting to rise slightly, Orr said lenders may ease on the tight standards they’ve had for the past few years. That could mean more buyers to the market.
“The East Valley is one really well placed. Even the somewhat remote areas of the East Valley are no longer considered – like Queen Creek – they’re no longer regarded as far out. It’s gotten a pretty good reputation and is generally pretty well rated. They are communities with relatively low crime. I think the prospects for the East Valley have ignited pretty good for the next several years, which is only fair because it’s gone through some pretty terrible times.”
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