A report issued by the W.P. Carey School of Business at Arizona State University indicates the recent upswing in home prices has come at a steady, sustainable pace, meaning homeowners should not expect another bubble to burst.
In a housing report released Monday, Mike Orr, director of the Center for Real Estate Theory and Practice at the Carey School, wrote the median prices of homes in the Greater Phoenix Metro Area — encompassing the East Valley, West Valley and Pinal County — made a year-to-year jump from $140,000 to more than $180,000 in April. That 29.6-percent was accompanied by a 23.5-percent increase in the average price per square foot, which he said is a less volatile and more reliable indicator.
But the bump in home prices that have come since the market bottomed out in September 2011 were made in a fashion that doesn’t portend a potential real estate bubble like those that hurt the Phoenix market in the 2000s.
“What we have is a recovery,” Orr said. “I think what will happen is prices will go up, but more slowly.”
The reasons Orr cites for the price increase in the report vary, but are highlighted by the lack of houses available on the market. One reason for that trend is the relative dearth of homes that have been built over the last few years, which has limited buyers’ options.
Orr said the building snarl is rooted in three factors that have stopped builders from adding new homes to the market: the demise in the number of construction positions in Arizona; difficulty finding attractive land to build upon; and a general satisfaction from builders with the state of the market.
“The builders like it where it is,” he said.
Another contributor to Orr’s projections is the type of sales being made at the moment, as the number of new home sales went up during the April year-to-year stretch as the percentage of investor flips and short sales both decreased during the same time period. Orr expects the short sales and investor flips to continue to decrease in the coming months as well.
The decrease in the number of investor flips, or properties that are bought and then sold in short order, is one of the reasons Orr predicts the current real estate environment will not develop into a bubble. Orr said one of the causes of the bubble back in the mid 2000s was consumers’ ability to purchase multiple homes at a time in order to to sell them quickly, which essentially turned houses into a completely different type of commodity. But the increase in home prices have made flipping a less attractive option, and Orr said regulations have helped curb some of the problems — including fraud within the mortgage system — that occurred during the last decade.
“We got rid of the type of loans that got us in trouble,” said local realtor Kenny Klaus.
Klaus, who sells homes in Mesa and Gilbert, agrees with Orr that prices are growing in a healthy and sustainable measure and are not indicative of the formation of a bubble. He said the current loan structures, for example, incentivize people to stick with their homes in lieu of short selling or taking the credit hit and vacating the property.
While Klaus said there are certain aspects of the industry in need of loosening —the appraisal process among them — he said the market is strong and agrees with Orr’s conclusion that people in need of a house should buy now instead of waiting for a price drop that neither predicts will come.
“We are one of the sunshine states, and people want to be here,” Klaus said.
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