Home Prices Likely to Continue Upward Spiral

Article originally posted on HERE on April 18, 2022
Market
This 4,848-square foot home on East Jacaranda Circle in Mesa recently sold for $1.2 million, built in 2001, the four-bedroom, 3-1/2-bath house boasts a premium corner lot in a gated community with an open-floor plan and chef’s kitchen. (Special to the Tribune)

 

The Valley’s housing market appears to be becoming even more frustrating for homebuyers, judging by some of the recent reports by the leading analyst of home price trends in the Phoenix Metro region.

In recent weeks, the Cromford Report said:

• Building permits issued for apartments are soaring well above those issued for single-family homes;

• Single-family homes on average sold for more than the list price in 28 of 29 Valley submarkets; 

• Phoenix for the 32nd consecutive month led the nation in year-over-year average home price increases in January;

• The annual average price per-square-foot last month continued to march toward a record $300 and already has hit a 20-year high of $289.76.

• The portion of the Valley market in distress because of lagging mortgage payments is the smallest ever seen and “having absolutely no impact whatsoever on market pricing.”

In looking at building permits pulled in February from Maricopa and Pinal county municipalities, Cromford said, “Multi-family permits are some 60% higher than the long-term typical count of 10,000 per year.” Currently, the annual rate is over 16,100.

And while single-family permits for Maricopa and Pinal counties totaled 3,155 in February – the highest total since April 2021 – “it is not higher than the long-term typical rate since 1996,” it said. 

“We saw a collapse in permit counts in 2008 which recovered very slowly,” Cromford said. “The lull lasted until 2020. But typical monthly rates between 1996 and 2007 were around 3,000 and they have resumed at that level since 2020.

“The overall picture is that multi-family permits are well above normal while single-family permits are at a normal level.”

But the “normal level” means the region’s tight single-family home inventory remains a problem – and why Realtor.com warns of a continuing rise in prices.

“Home prices continue to rise because housing demand outpaces housing supply,” says Danielle Hale, chief economist of Realtor.com. “And the way the market balances that is by pushing prices up.”

Added Cromford: “Demand has faded but only by a slight amount while supply remains extremely low and new listings are dropping further. The level of imbalance in the market remains enough to keep prices rising for many months to come, though we expect the third quarter to slow, due to the change in mix that almost always occurs during the hottest months.”

Forbes magazine last week said don’t blame builders.

“The median single-family house price in metro Phoenix increased $100,000 in 2021 and is continuing to increase crazy fast in 2022, according to Phoenix MLS data,” Forbes said. 

“Almost everyone agrees the main culprit for our skyrocketing house prices in Phoenix and the United States is the extremely low number of houses for sale. What we don’t agree on is what’s causing the low supply of houses for sale.”

Instead, Forbes blames investors, 

“In the hottest real estate market in the country, Phoenix, the supply of single-family houses for sale would have been back to pre-COVID levels by the end of 2021 – except that investors bought a lot more houses in 2021 than they did before,” Forbes said.

“One national, long-term, systemic cause is that real estate investors get huge tax breaks that live-in owners don’t get. Landlords naturally buy a lot more houses because of those tax breaks,” it contended, suggesting an end be put to those breaks.

For now, Cromford foresees more of the same for housing prices in the Valley for months to come: “The market is continuing to cool, though at a glacial pace which would take many years to reach balance.”

Buttressing that observation was its look at the average square-foot price of $289 on March 15 – up 4.5% from a month earlier, it said.

“The astonishing increase was even outside the upper bound of our 90% confidence interval,” Cromford stated. 

“The monthly average $/SF can often vary by as much as 1% from day to day, but we clearly experienced a colossal increase in average price per square foot over the past month. In fact, pricing has increased 8.2% since the start of the year, equivalent to an annual rate of 39%.”

Cromford predicted that square-foot price could hit $302 by next week.

“If this forecast holds true,” it said, “then we will have seen prices increase by 9% in just two months – or an annual rate of 54%.”

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