Metro Phoenix Housing Markets Turnaround Creates New Issues
By Catherine Reagor
Sat Sep 21, 2013 11:56 PM
More than 100,000 houses stood vacant across metro Phoenix barely
three years ago â roughly one of every 10. Today, itâs more like one out
of every 100.
Where have all the empty houses gone? Abandoned properties pockmarked
virtually every neighborhood in the region in 2010, when the housing
Many communities had dozens. These were the foreclosure houses, with
the stark notices in the windows. Some were boarded up, with brown lawns
or green pools. On the fringes of the metro area, brand-new houses sat
empty â the result of a massive building boom gone bust. Rattled buyers
had backed out of contracts, and hundreds of other new houses built on
spec didnât sell.
The sheer volume of empty properties did more than distress
neighbors: All those houses, which eventually flooded the market,
contributed to the free fall in home prices from 2009 to 2011.
Now, buyers and renters live in those places â in properties
re-floored, repainted and relandscaped.
The number of empty houses in
the Phoenix area today stands at about 10,000, according to an Arizona Republic analysis of housing data.
In 2009 and 2010, houses were vacant for months. Now, properties
generally are vacant because they are in transition between owners. The
turnaround is credited to investors, who streamed in to buy dirt-cheap
properties for cash. In many cases, these houses were turned into
rentals for those who had lost properties to foreclosure or otherwise
couldnât afford to own. Once some of the massive amount of housing
inventory was absorbed, it helped win back the confidence of some
In three years, Phoenix has gone from having too many inexpensive,
vacant houses to not having enough.
Although the lack of available
houses is driving up prices and enticing more homeowners to sell,
prospective buyers face a lot of competition for the relatively few
properties on the market.
âMetro Phoenixâs foreclosure problem was fixed faster than expected,
thanks to investors. Itâs great not to see so many empty houses,â said
Mark Stapp, executive director of real-estate development in the W.P.
Carey School of Business at Arizona State University. âNow, we have
another problem. We donât have enough houses for sale, and that could
stall growth later on.â
Just as too many houses for sale drove down home prices between 2009
and 2011, the lack of properties now sparks bidding wars.
inventory has been a key reason that the median home-sales price has risen 60 percent since early 2012.
Fewer than 18,000 houses are listed for sale in metro Phoenix. A
comfortable number for a market of this size with more than 4.3 million
people would be about 34,000, real-estate analysts say.
are selling quickly and only are empty for a brief time before new
occupants move in. Fewer than 10 percent of properties for sale are
Julie Bieganski, a Phoenix-based real-estate agent and investor, is
always on the hunt for available houses. She hopes the rising prices
will persuade more people to sell and add to the inventory.
âItâs hard to find a vacant home for sale in the Valley,â she said. âThe foreclosure deals are long gone.âEmpty to full
Flash back to early 2009. At the height of the foreclosure
crisis, many houses that banks had taken back or buyers had walked away
from werenât for sale, although no one lived in them.
Lenders didnât keep up with the rising number of foreclosures in
metro Phoenix â particularly debt-ridden mortgage giants Fannie Mae and
Freddie Mac, which had purchased many mortgages from original lenders.
The result: Neglected houses enticed vandals and created eyesores in
Many of the foreclosure houses were only a few years old.
regular buyers and investors who bought new houses during the market
peak in 2005-06 walked away from mortgages in 2008-09, after the value
of their properties plummeted by 50 percent, and lenders were slow to
negotiate loan modifications or short sales.
Maria Ratka bought a north Phoenix foreclosure house for $180,000 in
late 2010. It was built in 2006, and the first homeowner paid $267,000
and lost the house to foreclosure in late 2009. Now, Ratka and her
husband, Chris, have their house, complete with swimming pool, on the
market for $280,000.
âThere are fewer and fewer foreclosure and short-sale houses out
there,â said Realty Executives agent Stacie Neumann, who is working with
Ratka. âNow, more homeowners are finally able to sell and make a
She said new houses without pools are selling for $281,000 in Ratkaâs neighborhood.
When she bought, Ratka received help from a federal program for new
buyers administered by the city of Phoenix. As a result, she didnât have
to compete with the many investors in the market. Also, her home was in
much better shape than most foreclosure houses across the Valley.
A first wave of housing investors was able to purchase some of the
foreclosure houses and turn them into rentals starting in late 2009. At
the time, few other houses were for sale in the Valley.
Big investors started buying Phoenixâs foreclosure houses in 2011,
when lenders began lowering prices and turning to auctions to sell
properties quickly to cut their losses.
Banks didnât have to fix up a house and hire a real-estate agent to
sell it if they took part in one of Arizonaâs legally mandated trustee
sales, or foreclosure auctions. Investors swarmed to the auctions,
typically held in front of the Maricopa County Courthouse, and snapped
up properties at bargain prices. One large investor was able to buy more
than 300 Valley foreclosures from Fannie Mae in a bundle. Most
foreclosure houses that sold for less than $50,000 now are valued at
more than $100,000.
Most of the big investors paid cash and turned their foreclosure
houses into rentals, often leased by homeowners who had lost similar
houses during the crash.
Some traditional buyers also got lucky.
Cristopher Matthews was able to purchase a foreclosure home near
Phoenixâs Arcadia neighborhood for $85,000 in summer 2009.
The house had
been listed for more than $100,000.
His home was empty and needed some work but wasnât âwrecked,â he said.
âThe (buying) process wasnât too bad,â said Matthews, whose home
warranty paid to replace his air-conditioner and water heater during the
first year. âI had an experienced Realtor friend (Laurie Yantis of
HomeSmart) walk me through everything.â
After buying all new appliances, renovating his bathrooms and doing
lots of painting, Matthews said he is considering âselling now because
the market is rebounding.â
With many foreclosures already turned into rentals and new
foreclosures starting to slow in late 2011, home prices began to climb
again. Metro Phoenixâs median home-sales price is now $195,000, compared
with the crash low of $116,500 in September 2011. In 2003, before the
boom, the median home-sales price was $162,000.An elusive number
Although the number is essential to accurately gauge the marketâs
health, getting a firm grip on the inventory of empty houses has
challenged demographers and real-estate analysts for years.
In the housing boom of the mid-2000s, when investors were buying
multiple properties, analysts estimated that more of the houses were
filled than actually was the case, skewing estimates on population
growth and state revenue.
âTracking the number of vacant houses has been notoriously difficult,â said Mike Orr, an ASU real-estate analyst.
Plus, thereâs the issue of part-time residents.
Metro Phoenix has
long been a seasonal haven for retirees and second-home buyers. That
makes it more difficult to figure out which houses are really vacant,
instead of just not in use until their owners return. The U.S. Census
Bureau tracks housing vacancy through phone and mail surveys, but most
part-time Valley residents arenât in the state between late spring and
early fall and miss being counted.
âFiguring out how many vacant houses there are out there is the
billion-dollar question,â said Tom Ruff of real-estate data service
Information Market, recently purchased by the Arizona Regional Multiple
ASU tracked the number of empty houses in the Phoenix area until
2011. The peak years were 2009 and 2010, when more than 100,000, or one
out of 10 houses, were empty.
In 2011, the inventory of vacant houses began to fall, largely
because investors snapped up more foreclosure homes. More than 150,000
houses across the region have been purchased by investors since 2009.
Most of those are now rentals.
Too many empty rental houses havenât been a problem in the Valley so
far. The number of homes leased by tenants continues to climb rapidly.
Last month, a record 4,200 leases on houses were signed, according to
the Arizona Regional Multiple Listing Service. Counting empties
Vacant properties can be measured on any given day and compared with
the same day in a previous year. A more precise measure of the market is
the number of houses that become vacant over a 12-month period.
Today, the region, with about 1.1 million single-family houses, has about 10,000 vacant properties, according to an Arizona Republic analysis of vacant houses for sale, empty rental houses, utility hookups and disconnects and new houses built speculatively.
Calculating the figure for a full year shows a total of about 34,000
houses across the Valley were empty during the 12 months ended June 30. The Republic
used the same July 1-June 30 time frame previously used by ASU in its
survey, and the figures and methodology were confirmed by economists and
real-estate analysts. The starting point for counting vacant properties in the region used to be foreclosure houses, but that no longer is the case. The
number of pending foreclosures has dropped to below 7,000 after peaking
at 51,000, according to Information Market. Monthly foreclosure figures
hover around 800 houses after hitting 5,000 regularly in 2010.
The new starting point for counting empty houses is the Arizona Regional Multiple Listing Service. In
2010, 80,000 empty houses were listed for sale. During the past year,
there only were 8,000. Today, there are fewer than 2,500.
Utilities also track empty homes through hookups, disconnects and
usage. Arizona Public Service Co. reports the lowest number of vacant
houses in metro Phoenix since 2006.
A look at how many new houses built speculatively is important in the
Phoenix area, which has been one of the top five regions for
homebuilding over the past two decades, including in the crash years.
Currently, there are 500 vacant new houses, half the number of 2010, according to housing analyst RL Brown Reports.
During the crash, the region had thousands of vacant new houses, but
they werenât owned by homebuilders. Most of those houses had been
purchased, but the buyers had walked away.
Speculators drove the housing boom, and investors snapped up vacant
properties after the crash. Now, most of the houses are filled and the
residential market is nearing ânormalâ again â a market in which
activity by traditional buyers and sellers influences the price of homes
and the number built.
For the next few years, the health of the housing market will be
closely tied to the regionâs economic health. Jobs are returning slowly
and, after a pause, population is growing, also at a slower pace.
Although the number of vacant houses in 2013 is almost 40 percent
higher than in the pre-crash year of 2003, the area also now has more
houses, and more people. According to the Census Bureau, the metro
Phoenix population estimate was 4.3 million in 2012, compared with 3.6
million in 2003. Thatâs almost a 20 percent increase.
Affordable existing houses â notably those under $200,000 â are in demand. In September 2009,
more than 50,000 houses were listed for sale in the Phoenix area. Now,
there are about 18,000, but that figure has been inching upward after
dropping below 15,000 in July.
Even with the small number of homes for sale, buildersâ appetite for
new construction has been slow to rekindle.
Those burned by putting up
too many houses during the boom and then almost going bust during the
crash are being cautious as they expand again. Plus, contractors, who
laid off thousands of workers as the market hit bottom, now canât add
enough trained workers to support a big expansion.
As prices rise, fewer homeowners are underwater, offering hope that
more properties will be put on the market by sellers who want to upsize,
downsize or relocate. New data from CoreLogic shows about 25 percent of
Arizonaâs homeowners owe more on their mortgage than their home is
worth, half the number underwater in 2011.
âWe want to sell and buy another new house closer in,â said Ratka,
who has listed her former foreclosure home in north Phoenix for more
than $100,000 above what she paid in 2010.
The drop in vacant houses will help Ratka and other homeowners sell. Itâs also a sign that more new houses are needed.
âAbout 25,000 to 30,000 vacant houses is normal and healthy for metro
Phoenix,â said economist Elliott Pollack. âMore new houses will need to
go up in 2014 to meet population growth.â
He, too, said the increase in new construction will be gradual over
the next few years. Even though the market will continue to improve, he
said it will be âa long slow recovery.â
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Author: Joshua Smith
September 22nd 2013
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