2014 Arizona Housing Market

Arizona’s housing market took a harder hit than most other states during the recession. That fact is no longer news to us. The state is still a good two or three years away from making a full recovery to pre recession economics. Most reports predict a surprisingly stable and balanced 2014 Arizona housing market. By and large, experts expect housing supply to meet demands, prices to continue to rise (yet remain at affordable levels), and mortgage interest rates to continue being balanced. According to Mike Orr, head of the Real Estate Center at the W.P. Carey School of Business Arizona State University, the market will appear far less frantic this year than in previous years. If you’re interested in last year’s report for Arizona, you can read it here: 2013 Arizona Housing Market.

A more detailed perspective on the 2014 Arizona housing market reveals the following:

  • There will be a balance of buyers and sellers, with foreclosures and short sales down to nil.
  • The demand for single-family housing is still strong in Arizona, as it is nationwide.
  • The increase in single-family housing prices is expected to slow down in 2014, after a massive increase (32.7 percent, from $150,000 to $199,000) between September 2012 and September 2013.
  • There will be more options on the market for buyers. The number of houses actively up for sale increased by 32 percent from October 2012 to October 2013. Experts predict that this will continue to increase in 2014.

2014 Arizona Housing MarketIn his October 2013 forecast for the Phoenix area of Arizona, real estate broker Jason Moss addressed the one question at the top of everyone’s mind: is Arizona and the Phoenix area in particular experiencing a new real estate bubble? His analysis also encompassed the Las Vegas, NV and Portland, OR areas. Jason Moss determined that, while the three markets experienced strikingly similar evolutions (with Phoenix slightly ahead of the other two), he predictability did not qualify any of these markets as existing in a bubble. Moss concluded that, while a bubble is not out of the question, current trends indicate the Phoenix housing market values will continue to adjust to match the actual levels of inflation, supply, and demand in 2014. He expects this will involve a slight adjustment over the inflation baseline. But any massive spikes, such as those seen up to the 2009-2010 recession are out of the question.

The Phoenix Business Journal reached a similar prediction. Towards the end of 2013, Kristena Hansen reported that 2014 will bring a slower pace of price increases, an uptake in interest rates, and less interest from Wall Street Investors. By citing real estate experts, Hansen explains that the slow real estate market recovery that Phoenix experienced over the past two years will continue in 2014. But, this slower recovery will probably occur at a more ‘normal’ pace than previous years (2011-2013). In numbers and figures, this translates from a previously witnessed 25 to 30 percent rise in year-over-year prices to a more balanced 6 to 8 per cent increase in 2014. According to Arizona State University data, the median housing price recorded in October 2013 was 27 percent higher than the one posted for the same month in 2012. But, this price only .5 per cent higher than the September 2013 median price. Industry experts predict that this more subtle pace of price increase will continue in 2014.

The experts are also keen on watching the mortgage sector, another segment of the real estate market in Arizona. In 2013, Arizona stood among the top five states in the U.S. by number of underwater homeowners (i.e. mortgage holders whose amount of mortgage debt was higher than the actual market value of the house). Most real estate market analysts agree that the days of 3.5 percent interest rates have long since passed; however, they cannot agree just how high these rates will grow in 2014. In late 2013, the Federal Reserve made an announcement according to which the monthly $85 billion bond buying program will slow down to a trickle. This is an attempt to determine a renewed infusion of private capital into the mortgage market. It’s also a clear sign that Arizona, much like the rest of the country, will experience higher mortgage interest rates. In turn, this might bring about looser lending standards in Arizona. We already see this in the form of jumbo loans, a trend that’s sweeping the market.

The mortgage market does have a silver lining. This market will be further encouraged by optimistic predictions on the new housing unit market. However, analysts cannot agree as to just how much this segment will increase in 2014. Their expectations for 2013 were not met, mostly because of the explosion of price for land. Some 17,000 new home permits were expected to be awarded in 2013. But, the tally by the end of the year only went as high as 13,000. Some forecasters predict only 14,700 new 2014 housing permits will be doled out for the Phoenix area. Others pegged the number at 20,000. Either way, both predictions stand a far distance from the 60,000 new housing permits being awarded each year during the economic boom.

Arizona will likely see another market trend in 2014 in the continued decrease in Wall Street investor interest. In July 2012, major investors purchased as many as 831 single-family housing units. That number sets an unprecedented record. By the beginning of 2014, major investors owned 5 percent of the total single-family rental stock in the Valley (or roughly .5 percent of the area’s total inventory of homes). The numbers are low, as is the number of houses purchased by Wall Street in Phoenix in October 2013 – no more than 63. The Valley should experience a low level of foreclosures and short sales in 2014. As prices continue to increase, some experts predict that the major investors on the market might just sell off their portfolios. However, it’s unlikely they’ll do so in 2014. Even if they do, their small market share shouldn’t create more than a very minimal impact on the Arizona Housing Market.

As far as new residential construction goes, experts predict that the positive trend that first emerged in 2013 will continue in both 2014 and 2015. Last year’s massive demand on the Arizona housing market, which saw many owners actually turn to renting property, created a surge in the number of new multi-family housing units in Arizona. Demand is still strong. Experts do not foresee this segment experiencing any over-building in 2014.

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