Whats Next For Real Estate In The Valley Of The Sun?

Lately it seems like all anyone is talking about is Arizona real estate.   The Phoenix metro housing market is seeing a rise in home prices and a decline in the number of houses on the market, putting the area ahead of most other U.S. cities on the road to recovery.  The national media has pointed to the valley as an example of what is to come for the rest of the nation.  However, the road to recovery has been a long slog, and there have been many false starts and reversals in the market.

Home owners have been fooled before, and because of this they look to industry experts for advice on where the housing market is heading.  Troy Reeves has an understanding of the Arizona market like few others, and because of his accurate predictions in the past, Troy and his team are frequently asked where the market is headed next.

While it is true that valley home prices have risen sharply over the last few months, we are going to dive in a little deeper and answer the question so many of you have been asking, where is the market heading next?  Will it continue to rise at the same rate? Are we heading into a double dip recession?

Troy Reeves gives us a detailed analysis of the factors that will determine the future price of homes in the valley, and what we should expect in the near future.  Here are 7 of his top focuses:

Buyers With Short Sales and Foreclosures Can Now Re-Enter The Market

When the housing market collapse happened in 2008, it wasn’t just the massive flood of foreclosures that hurt real estate prices, the problem was actually two-fold. When homeowners decided to let their house go, either through foreclosure or short sale, they declared themselves ineligible to purchase another home for the next few years. So not only was the housing market flooded with homes, there was significantly less people with the credit to purchase them.

All of this is starting to change. It has been almost 4 years since the housing crisis was at its worst, and many homeowners are now able to re-enter the market. Currently it is just a trickle of people that are eligible to purchase again, but that trickle is poised to turn into a flood in the next 6 months to a year. This will lead to even further reduced inventory and pricing increases.

Inventory Shortage

Much like the height of the housing bubble in 2005 there is currently a shortage of homes available to be purchased.  This is one of the leading contributors of the recent increase in the price of housing.  When valley prices were at their lowest there was over 40,000 homes available, currently there is less than 13,000.

As you can see from the graph above, inventory levels are still trending downward. There are two major reasons for these lower inventory levels. The first is drastic reduction in the number of foreclosed homes banks are putting on the market. The second reason is that many homeowners and still priced out of the market. These are the homeowners who are upside down, but are not willing to hurt their credit by selling their home short. There is still a very large group of home owners out there that are unable to sell their home, even if they would like too. As home prices continue to rise the number of homeowners price out of the market will be reduced, this will allow inventory levels to loosen up.

Bank Owned Properties

This brings us to the banks. The banks are very secretive about their plans and future intentions. Currently the banks wield more power over the real estate industry than any other time in recent history. We hear all kinds of speculation regarding the future plans of the banks, but for this article we will stick with the facts.

The facts are this, after the housing crisis the big banks were over run with houses and the market was flooded with bank owned homes. Recently however, the bank owned homes placed on the market have dried up in Arizona. Instead they have announced different strategies to get these homes from reaching the market. Many large banks have started selling large chunks of homes to large investors. Other strategies include allowing more homes to be purchased at auction instead of being returned to the banks and sold through a management company. The banks have also announced plans to rent homes back to homeowners who have been foreclosed upon.

All of these strategies have one theme in common, they keep the homes from entering the market, and at least temporarily keeps the inventory suppressed. Look for these trends to continue from the banks, as inventory levels shrink and home values climb, the banks will be encouraged by their recent decisions and continue down the same road.

Out Of State/Out Of Country Buyers

It was no secret that Arizona was having a once in a lifetime fires sale on home prices over the last few years. The media may not have realized it, but investors did. Nearly 50% of home sales in the valley over the last 2 years came from someone outside of our state. Investors that were able to see past the short term knew there was no way to make a bad purchase with the prices where they were.

However as prices have steadily increased, investor interest has steadily decreased. This is not to say that they are gone, because they are far from it. But we have seen the ferocity of investor interest wain from its all time highs. Arizona real estate is still on sale, prices will with out a doubt rise over the long run.  But  as prices continue to creep upward, buyers can expect fewer investors in the market, and all cash offers like we are currently seeing will decrease.

Media – What country is saying about AZ

Arizona is the talk of the nation when it comes to real estate. As we have become the first state to shrug off the months of negative trends, the media is looking to us as an example of what is to follow for the rest of the nation.

TV shows like the new Property Wars Series with Doug Hopkins from Posted Properties, who has been our business partner and good friend for many years, highlight the insane competition among bank foreclosures.

It is important to realize when listening to the national media that they report on what is happening and they do it well, however they are not always as accurate at predicting the future.

Rental Prices Stabilizing

It is easy to get lost in the statistics when looking at the housing market. There are so many different metrics to study and analyze. At the end of the day however, looking at the price of renting vs the price of owning a home is a great way of telling if homes are over or under priced. At the peak of the housing collapse it was twice as much to rent as it was to have a mortgage on that same home. This is without factoring in tax breaks and other incentives for owning a home.

Prices are going up, more renters are again qualified to purchase a home, and the rise in rental inventory are all helping to stabilize rental prices.

New Builds

The last four years have been very hard on home builders. The majority of home builders when out of business and the ones that were able to make it through typically had to sell homes at a loss. But like the saying goes, whatever doesn’t kill you makes you stronger, and now that the market is turning around home builders are poised to start making a profit again.

Because home builders are now able to make money they are starting to develop again, driving around you may have already noticed this.  There are many new projects set to take place throughout the valley in the next few months. So what does this mean for prices?  The increase in inventory levels provided by new housing starts should help reduce the shortages we are currently seeing.  In addition these brand new homes should help raise the median home price.


The media is starting to pick up on something The Reeves Team has known for quite a while, its a hot market out here. The attention we are getting in Arizona will continue to add to the idea that now is the time to buy.  It is important to understand the future of Arizona housing prices is a complex subject.  It is not as simple as the national media would have you believe.  In the near term buyers who have been struggling to get offers accepted on homes should find it easier to get into that home over the next several months.  As more and more homeowners will be priced back into the market there will be more traditional sales available to potential buyers, which we are already starting to see.  You can expect the out of state buyers and investors to cool off considerably over the coming year, this again will make it easier for a traditional buyer to get those offers accepted.   When you couple that with the continuation of the historically low interest rates(we just hit a new all time low today) we are finally approaching a very favorable market in the valley.  At the end of the day prices should continue to go up, though not nearly as quickly as we have seen over the last quarter.  We should see the market continue to get healthier with slower sustained growth and more traditional buyers.

Do you have any predictions of your own?  Please leave your questions and comments in the section below.