Metro Phoenix home prices likely hit another record in November and are expected to climb to $425,000 in December.
But a national housing analyst is concerned that too many “iBuyers” and corporate investors are pushing prices beyond what regular homebuyers can afford.
That will likely slow the housing market next year.Analyst Ivy Zelman, known and respected for pre-crash warnings during the housing boom of 2004-06, is calling Phoenix the No. 1 market in the U.S. for big corporate investors and iBuyers like Offerpad and Opendoor.Housing analyst Tom Ruff cites Zelman in his most recent Arizona Regional Multiple Listing Service report and backs it up with statistics showing that the big investors purchased 15% of the Phoenix-areas homes to sell in October. That’s after the two groups of deep-pocketed buyers snapped up 21% of the Valley homes to sell in September. Most of these buyers pay cash, making it tough for regular buyers with mortgages to compete with them for the area’s tight supply of homes for sale. Metro Phoenix’s strong population growth and rapidly rising single-family rental rates are drawing the corporate investors and Wall Street money.
“You have the people who have real jobs and need a place to shelter their families and you have non-primary buyers,” said Zelman at a recent Inman real estate conference. “When you’re competing with cash and investors paying above appraised value, at some point, the music stops. Pricing is not elastic, and affordability matters.”
Pushing up prices
Metro Phoenix’s median home price climbed to $418,000 in October from $410,000 in September, according to ARMLS.
The forecast is for the Valley’s median to have hit $420,000 in November and then rise to $425,000 in December. That’s $92,000 higher than the median price from last December.
“I believe we’re all in agreement that these price gains are unsustainable,” Ruff said.Prices climbed even as resales dipped 6 percent in October from September’s pace.
Another investor-led bust?
Rapidly rising prices and an investor homebuying rush bring up speculation about another housing bust like the last one in 2008-11.But the housing market is much different now, and so are the investors driving up prices.
During the boom of 04-06, speculators paying little to nothing in down payments used too-easy-to-get subprime loans to purchase tens of thousands of metro Phoenix homes.
Home building across the Valley soared to new records as the investors snapped up contracts on the new houses and then flipped them as soon as they were constructed for typically $10,000 to $40,000 more than they paid.
When the Great Recession hit in late 2007 and the housing market started to collapse, most speculators walked away from their metro Phoenix houses and lost very little.
Foreclosures soared and prices crashed, costing other Valley homeowners almost half the value of their property. Big corporate investors snapped up most of the Valley’s foreclosure homes at bargain prices and turned them into rentals, which actually helped the housing market start to recover.
Now, big jumps in single-family rents in the Phoenix area are drawing big investors again.
Metro Phoenix’s average rent for houses climbed almost 25% during the past year, according to research firm Yardi Matrix. That compares to a 15% U.S. increase and is the third biggest jump for a major city. Both corporate investors and iBuyers are paying mostly cash, so it doesn’t make sense for them to walk away, even if home values dip. Plus, iBuyers purchased homes to flip them.
Also, home building is now running at less than half the record pace from the boom so the overbuilding that accelerated the crash isn’t likely.
And getting a mortgage is a lot tougher and requires a bigger down payment than during the boom.
“I don’t believe, nor does Zelman believe, there will be another collapse in housing prices like the last time,” Ruff said. “But as I see vast amounts of Wall Street money pouring into the Phoenix market, my heart goes out to those first-time buyers trying to compete.”
AUTHOR: Catherine Reager
SOURCE: Arizona Republic