1. Home
  2. Real Estate Market Analysis
  3. Phoenix Real Estate Market Update September 2014

Phoenix real estate Market

Phoenix Real Estate Market Update September 2014

It is time for another in depth look at the Phoenix Real Estate market.  Michael Orr is Director, Center for Real Estate Theory and Practice at ASU.  He has the best information in the Phoenix real estate market available. When you want to know what is happening in the real estate market it is important to look at local information.  What is happening in Florida is not what is happening in Arizona.


Home sales in July (single family, townhouse & condo combined) were 4.9% lower than June, with a 4.6% fall in single family and a 7.5% fall in townhouse & condo sales.

Total sales were down 18.1% from July 2013 with single family down 18.7% and townhouse & condo sales down 13.3%. The gap between 2013 and 2014 sales closed opened wider than in June because July

was an unusually strong month last year. Thanks to the price rises between July 2013 and July 2014, the drop in total dollars spent on homes was less severe than the drop in the unit count.

• Total dollars spent on single family homes fell by 13.3% below July 2013.

• Total dollars spent on townhouses & condos fell by 10.0% below July 2013.

In the sections below we compare July 2014 data for Maricopa and Pinal County with that for July 2013. We analyze volumes and pricing for 8 different transaction types as well as the totals. Individual statistics are also provided in the attached tables by county and city. This report concentrates on single family homes but detailed statistics for townhouse/

condo properties are shown in the tables.

Demand has been much weaker since July 2013 and as yet shows little sign of recovery. Activity by first time home buyers has been stubbornly and unusually low and is not compensating for the loss in strong investor demand that had prevailed from 2009 until July last year.

At the top end of the market sales of single family homes over $500,000 was flat compared with July 2013. Although flat this was much better than steep drop for price ranges below $500,000. Sales of single family homes below $150,000 fell 36%. This fall was partly caused by the lack of distressed supply, but mostly by the reduction in demand from investors.

The market over $500,000 was weaker in July than in June but we still had a sales mix that was heavily biased towards higher end homes. In addition the market below $150,000 continued to contract. It is the relatively low volume of low-priced home sales that is causing the monthly median sales price as well as the increase in average price per sq. ft. There has been very little movement in the values of individual homes over the past 12 months.

Luxury homes over $500,000 captured a 23% market share, up from 21% in July 2013. The lowest-priced homes under $150,000 fell from 14% to 10%. The mid range has increased its share of spending from 65% to 66%. Although supply has been declining for the last four months, it is still adequate to meet the current low level of demand.

Changes in Transaction Mix
For single family homes, the substantial changes in transaction mix between July 2013 and July 2014 are illustrated in the chart below: (Note: ‘Reverted’ homes are excluded from ‘All Sales’.)

Below is a similar chart for townhouse /condo properties. We note an uptick in the previously very low level of new construction sales for townhouse/ condos properties.


Our local Multiple Listing Service (ARMLS) had 24,994 active listings on August 1, 2014 across Greater Phoenix including listings under contract seeking backup offers. This is a decline of 3.3% since July 1, but it is 36% more than on August 1, 2013. 11.9% of these active listings already have a signed contract, typically waiting for the lender’s short sale approval or some other contingency before they stop soliciting backup offers. This percentage has fallen from 18.0% over the last 12 months.

The number of active single family listings without an existing contract was 18,184 for the Greater Phoenix area as of August 1. This is down 2.5% since July 1. The inventory of single family homes under $150,000 increased to 56 days, which is exactly double the 28 days we saw a year ago. Overall we have seen 3% more new listings created this year than in the same seven month period in 2013, but the rate has dropped rapidly since April and we are now seeing far fewer new listings than at the same time in July 2013. Listings are going under contract more slowly than last year, but the percentage of cancelled and expired listings has also grown. Although buyers now have more homes to choose from and less competition from other buyers than in 2013, supply has been on a downward trend since peaking in mid March.


When we look at the individual transaction types we find the following:

Note: the numbers in the tables above come from the latest database, rather than earlier published reports. The underlying records are continuously revised as deeds are corrected and more information becomes available.

Although we see advances in the pricing for “All Sales” these are caused by changes in the mix rather than increasing home values.

• Fewer distressed homes and more normal sales

• More expensive homes and fewer entry-level homes

The market has completed its rebound from the artificially low prices that prevailed between 2009 and 2011. Pricing is now a little below the level that it would have attained if it had increased from 2000 in line with the Consumer Price Index. Further significant increases are unlikely without some growth in demand. However a significant fall in prices is also unlikely without a dramatic increase in supply.

The following table ranks the cities by the percentage increase in the annual average price per sq. ft. over the last 12 months. The average for the period August 2013 to July 2014 is compared with the average for the period August 2012 to July 2013).

We must remember that a percentage increase in average sales price per square foot is not the same as a percentage increase in home values, because of the changes in the mix of homes that sell. Because these are annual averages they will continue to show increases long after the monthly average has stabilized.

All areas of Maricopa County are now showing positive appreciation on an annual price per sq. ft. basis with the exception of 3 small areas: Aguila which is registering -28% with only 13 sales over 2 years, Guadalupe which registers -48% but only had 29 sales over the 2 years and Fort McDowell which is registering -9% but only had 12 sales over 2 years. In Pinal County, the small towns of Kearny, San Manuel, Mammoth, Winkelman and Superior are still recording negative appreciation.

Foreclosure Starts

Foreclosure starts for single family and condo/townhouse homes rose 11% between June and July. However, foreclosure starts have been on a steep declining trend and are now 28% below July 2013 levels. The breakdown by county is:

Foreclosure levels are far below the peak levels of March 2009, which were 10,099 in Maricopa and 1,256 in Pinal. In 2002 we averaged 1,160 per month for Maricopa County. Since the population has grown by about 23% since 2002, we would consider 1,425 foreclosure notices per month a normal level for Maricopa County, so we were 39% below that normal level in July.

We expect new foreclosures to stabilize at the current low levels over the next year due to the very tight underwriting standards that have been in place since 2009.


Foreclosure Completions

We see a large drop in completed foreclosures when we compare July 2014 with July 2013.

• The number of completed trustee deeds is down by 45%

• The number of single family homes reverting to lenders is down by 29%

• The number of single family homes purchased by third parties at the auction is down by 57%

Completed foreclosures were up 11% from the June total. The number of pending foreclosures has fallen below a normal level and is reaching stability. New foreclosure notices are proceeding to trustee sale quickly with little sign of any delay.

It is noticeable that a higher percentage of homes are reverting to beneficiary rather than being purchased at the trustee sale. This is primarily due to flagging investor interest, not higher opening bids set by lenders.


New Home Sales

Newly built single family home sales grew fell 2% from 862 recorded unit sales in June to 849 in July. For the second time in 2014, the monthly total exceeded the same month in 2013, though only by 4 units. The total dollar value of single family new homes closed was up from $266 million to $289 million compared with a year ago, but this was a slight decline from last month.

Closings declined month to month in both Maricopa and Pinal County. The average sq. ft. of a new home in July was 2,555 while the average sq. ft. of a normal re-sale was 2,049. This suggests the extent to which homebuilders have abandoned the entry-level market in favor of the move-up market.

Gilbert easily retained its position as the top city for new home closings with 134. Other cities that are active for new homes include Peoria (95), Phoenix (86), Mesa (78), Goodyear (51), San Tan Valley (50), Queen Creek (47), Buckeye (39), Surprise (36), Cave Creek (27), Chandler (26), Scottsdale (23), Maricopa (23) and Laveen (22). Builders were also busy in Florence (16), Casa Grande (15), Waddell (13) and Tolleson (12).

The market share for new homes has grown to 12% from 9% in July 2013. Local builders Meritage Homes ($169 million) and Taylor Morrison ($166 million) have closed the highest revenue for new homes during the first 7 months of 2014, pushing Pulte Homes ($139 million) into third place. This contrasts strongly with the same period in 2013 when Pulte Homes was far out in front with $211 million.

Normal Re-sales

Normal single family re-sales fell 4% from July 2013 to July 2014. However the increasing share of the market for normal sales is continuing to boost the average price per square foot beyond the underlying rise in home values. The average sales price for normal re-sales is up 1%, the median sales price is up 2% and average price per sq. ft. is up 4% over last year.

Normal re-sales have increased their market share to 73% from 61% a year ago and are now by far the most numerous type of sale.

Investor Flips

These are similar to normal re-sales in that there is no distressed owner, but we count them separately when the property was previously purchased with the obvious intent to resell at a higher price within a short period. Often the investor obtained a distressed property at a trustee sale (sometimes through a wholesaler), as an REO or as a short sale or pre-foreclosure. The investor usually refurbishes and renovates the property and then sells the home somewhat below the price for normal sales in order to ensure it sells quickly.

Volume for investor flips has declined by 53% since July 2013. They represent 5% of total sales, down from 9% in July 2013.

Short Sale and Pre-foreclosures

Most lenders are still encouraging homeowners facing financial hardship to use short sales as a preferred alternative to foreclosure. However many have been insisting on higher contract prices before they will approve the sale and these increased prices have reduced buyer enthusiasm, resulting in far fewer sales being completed than last year. In addition rising prices mean that fewer people are underwater on their mortgages, eliminating their need to negotiate short sales.

As a result, short sales and pre-foreclosures are down a dramatic 71% in volume. They now represent 3% of single family home sales, having been 9% in July 2013.

Bank Owned Sales

Often referred to as REO sales, these are properties owned by commercial lenders following a completed foreclosure. If there are no bidders at the trustee sale the trustee issues a deed in favor of the beneficiary, i.e. the foreclosing lender, who subsequently liquidates the asset by marketing the property as a “bank owned home”.

Sometimes the lender receives the property after a “deed in lieu of foreclosure” from the borrower, bypassing the trustee sale.

Between July 2013 and July 2014 REO sales have decreased by 3%. In contrast to rises in the rest of the market, pricing for bank owned single family REOs is down significantly over the last 12 months. Bank owned REOs now represent 2.7% of the market, up from 2.2% in July 2013.

Fannie Mae / Freddie Mac / VA Sales

Similar to Bank Owned Sales except the entity receiving the foreclosed home is a government sponsored enterprise (GSE) rather than a commercial lender. Between July 2013 and July 2014 these REOs have fallen 46% in volume. Sales $/SF pricing for GSE single family REOs is up by 10.2% over the last 12 months. GSE REOs now represent 1.7% of the market, down from the 2.5% that we saw in July 2013.

HUD Sales

If a bank receives a property through foreclosure where the loan had been guaranteed by FHA, the lender will usually deed the property to HUD for disposal. At an average $78.06 per sq. ft. they remain priced lower than all other sources of single family homes. HUD sales were common during the housing crisis of 2008-2012 but unfortunately for bargain hunters, HUD homes are now very scarce and they currently represent only 0.3% of sales, down from 1.8% in July 2013.

Third Party Purchases from Trustee Sales

Foreclosures used to provide a significant supply of homes for those willing to bid at the trustee auction, but the number auctioned has dropped significantly. During July 2014, there were 185 single family homes purchased by third parties at trustee sales, 172 in Maricopa and 13 in Pinal. Despite the lower numbers, competition for auctioned homes is fading as investors start to lose their appetite. Average price per sq. ft. has risen 2.6% over the last 12 months. At 2.5% of the market, they are sharply down from 4.9% in July 2013.

Reverted to Lender (i.e. Beneficiary)

If the lender sets an opening bid which is too high to attract any bids then the home is deeded to the lender. The outstanding loan debt is removed usually with no recourse (under Arizona law) to the original borrower. Most other liens (but not necessarily all) are also eliminated at this time .

When the lender is not interested in disposing of the property through the trustee sale, the opening bid is often set to be the outstanding loan balance plus expenses, usually well in excess of current market value. As such the bid has little relevance to us and we do not record it as a sale. However if the lender wishes to avoid acquiring the home, a low opening bid is set which attracts the interest of third parties.

Over the last 12 months, the number of reversions to beneficiaries has dropped by 29% for single family homes. There were 391 in July 2013 and 279 in July 2014.


New Construction Permits

Permits reported by the Census Bureau for single family homes in Maricopa and Pinal Counties dropped from 1,311 in June to 1,096 in July. As we suspected, June’s total appears to be an anomaly rather than the first sign of a new stronger trend.

The level of permitting remains small by historic standards. For example the total for 1996 was 29,598 and 2004’s was 55,858.

The rolling 12 month average number of permits reported has fallen back to 1,010. The annual rate is now 12,123 and it has remained between 12,100 and 12,800 for the last year and a half.

Multi-family permits have been on a strong upward trend recently and they totaled only 648 in June. This is still the highest total for June since 2008 and the annual rate ticked up to 7,390, a sign of how much rental demand has increased at the expense of the demand for homes to purchase.

Out of State Purchasers

The percentage of residences in Maricopa County sold to owners from outside Arizona was 16.9% in July, down from 19.0% in June and lower than the 17.7% we saw in July 2013. Californians have reduced their market share from 4.2% to 3.6% over the last year but retained their normal position as the largest group of out of state buyers. Canadian demand has dropped from 1.9% to 1.2% over the last 12 months, the lowest level since September 2007. This is now less than Illinois (1.3%) but still marginally ahead of Washington (1.2%) and Colorado (1.1%). Texas, Minnesota, New York, Wisconsin and Oregon provided the next most numerous home locations for home buyers in Greater Phoenix during July.

Cash Buyers

For some considerable time, cash purchases have been running at an unusually high level but this has been on a declining trend over the past year. In Maricopa County the percentage of properties recording an Affidavit of Value and purchased without financing was 20.9% in July 2014, significantly down from 29.3% in July 2013. We consider 7% to 12% the normal range for cash buyers, so mortgage lending still has a long way to go to get back its normal share of the market.

Investor Purchases

When someone buys real property in Arizona, an Affidavit of Value is usually recorded by the county. The new owner indicates whether the property will be occupied by the owner or a family member, or instead will be rented to someone other than a family member. An owner occupier also indicates whether or not it is their primary residence or a secondary home. Studying this information gives us a good idea how many homes are being acquired by investors.

However affidavits are not required for HUD sales or trustee sales. HUD sales are usually oriented towards owner-occupiers while investors dominate the trustee sales. We have therefore combined HUD sales with the owner-occupied purchases and combined trustee sales to third parties with the investor purchases to estimate the percentage of the total market represented by investors.

The percentage of individual single family and townhouse/condo parcels acquired by investors in June 2013 and June 2014 are as follows:

These percentages have dropped dramatically in the last 12 months and are the lowest we have seen for many years, confirming that investors are no longer driving the market the way they did between early 2009 and mid 2013.

Second Homes

In July 2014, 10.5% of homes purchased with an Affidavit of Value in Greater Phoenix were owner-occupied but used as second or vacation homes. The percentage in Pinal County is higher (11.1%) than in Maricopa County (10.4%). Second home purchases made up 10.4% of sales in July 2013, so we are seeing no major change since this time last year. However this percentage tends to drop between April and September each year.


The number of rental homes offered for lease on ARMLS (excluding vacation rentals) was 4,301 as of August 1, 2014. This is up 2% from a month earlier. However this still represents just 1.3 months of supply. Rental demand remains strong and has supply is constrained. There were 6,632 active rental listings as of August 1, 2013. The supply of single family rentals is generally lower relative to demand than for apartments, condos and townhomes. The supply of single family rentals was 36 days as of August 1, while that for apartments, condos and townhouses stood at 57 days.

The average time on market for a leased home (excluding vacation rentals) stood at 28 days, up from 27 days last month but much lower than 39 days last year. With this fast turnover and low vacancy rates, rents are starting to increase in the most popular locations. We are currently seeing a 7.5% rise over the last 12 months across the Greater Phoenix area.


Demand has been unusually weak for a full year now across the Greater Phoenix housing market. The most recent month with strong sales numbers was July 2013 and this means the month of July 2014 had a particularly difficult comparison, with overall sales down over 18% year over year. Next month should see an easier comparison, because August 2013 was unexpectedly slow and August 2014 is already showing a few signs of a slight improvement in demand relative to the usual seasonal pattern.

Usually when demand is weak for an extended period, supply starts to grow, as it did in the second half of 2005 and throughout 2006 and 2007, heralding the collapse of the housing bubble. But in the summer of 2014, supply is slowly weakening. It appears that the lack of enthusiasm among buyers has spread to sellers rather than causing them to panic. Many sellers clearly have the patience to wait for better times and are unwilling to drop prices to dispose of their homes.

Distressed homes are now few and far between and the choice for those want to pay less than $175,000 is pretty slim. Most attractive homes below this price are being snapped up quickly.

Above $175,000 we still have rather more supply than necessary to meet the weak demand and some listings are sticking around for longer than normal. This is especially true of homes that a priced higher than market or have significant deferred maintenance issues. With investors thin on the ground, most buyers are looking for homes that will not need a lot of work.

We anticipate pricing will move sideways to slightly down over the next few months until supply and demand get back in balance. However the current trend is for the gap between supply and demand to gently close so any weakness in pricing is likely to be minor and relatively brief.

Meanwhile demand for rental homes is expected to remain strong. In the last couple of months, affordable apartment and condo rentals have become almost as hard to find as single-family rentals below $1,300. As we move up-market, rental supply becomes more freely available.

The luxury market has gone much quieter over the last month. Many times in the past we have seen trends in the normal market take place up to 12 months later in the luxury market. However July through September is always a relatively quiet time for luxury home sales, so it is hard to distinguish between a seasonal downturn and something more significant.

With investors and out of state buyers continuing to depart, a recovery in demand from first time home buyers is what we are all anticipating. However there are two long term demographic trends that are tending to depress first-time home buyer demand:

• Lower birth rates (2013 recorded the lowest fertility rate ever in the USA)

• Higher mean age of mother when first giving birth

Back in 1970 the average mother’s age for a first child was 21.4 across the United States. By 2009 this had increased to 25.2 and the upward trend has continued since, with 2012 reporting 25.8. In several countries in Europe this figure has reached 30, so the US is not unusual.

Everything in real estate tends to be cyclical, but this is not necessarily true of demographics. The total fertility rate in the USA has been below the replacement rate (2,100 births per 1,000 women) since 2007. Below this rate a generation will not replace itself.

Starting a family is often an event that causes a couple to seriously consider moving into a home of their own. With today’s low interest rates and increasing rents, it is typically cheaper for such a family to buy a home rather than rent, as long as they will occupy their home for 2 years or more. As the Millennial generation ages and starts more families, it will be interesting to see how many of them do this buy versus rent calculation for themselves.

Data supplied by Michael J Orr, Director Center for Real Estate Theory and Practice W P Carey School of Business Arizona State University