Update to the Phoenix market for mid summer, 2014.

If you scroll down through my posts, you’ll see that about last August, i predicted housing prices to lull in Phoenix. And that is precisely what has happened. Overall, price increases kind of stopped around then, although it comes down to each neighborhood, and the luxury market has been on a tear all year.

The other trend I observed, starting in January, was a plunge in available rentals. We had 9500 on the mls in January, it dropped to 5200 at a low a couple months ago, today it sits around 6000. Large numbers of rentals on the mls is a recent phenomena, so I don’t have any yearly patterns to go off of, but it is safe to say that early summer sees:
A. tens of thousands of ASU students go home, and B. tens of thousands of snow birds (seasonal renters, usually retires who come here to avoid the snow back home) also leave. So, I won’t know how to compare recent rental trends till late fall.

BUT, it has been enough to drive rental prices up. Months inventory has dropped and stayed below 2, and that is a tight rental market. Rents are up around 10% valley wide comparing to my existing rentals, and I have indeed raised several of my property rents during this time.

So recently, the number of rentals have increased somewhat, though still below a balanced market. Also, recently, the number of listings has dropped. Last year, it went up from May to June, this year it dropped by about 1000, so it will be curious to see which way these two trends go in the future.

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Continuing plunge in rental inventory.

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This one year chart of Rental absorption rate tells the story. Investors have largely quit buying homes to rent, and inventory has now dropped below the market stable 2.x months inventory. The rate of the drop has actually accelerated. Another month at this rate, and we will start to experience a serious shortage in rentals, which will lead to prices increasing, possibly swiftly. This can only end one of two ways: Less people rent homes, which seems a bit unlikely, or more homes are offered for rent. The latter is a possibility, but I view price increases as the most probable short term, and year long outlook.

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continued observation on Phoenix market

1. RENTALS DISAPPEARING!!  The trend I noticed in the past two posts has continued unabated, and if it continues, will soon have a dramatic effect on the Phoenix housing market. 

Yesterday, we dropped under 6000 active rentals on the mls. This down some 20% since this time last year, and for comparison, we had 9500 homes for rent in October. Total leases signed in the past 30 days is 4000, an increase of 10% over the same period last year. 

Demand up, supply down, and prices will rise. Already, well prices rentals are going quickly off the market, if active listings continues to drop, we will see serious rental increase. 

The irony, is that so many potential buyers in the past year, dismayed by how phoenix prices have bounced off of the crashes, floor, decided to rent. “Why buy, if you can rent for about the same price?” Well, how does that logic work, if you see your rent start to go up at the end of your lease? Phoenix rental rates are actually quite low, and have not seriously increased in nearly 15 years, so they could go up by some very real percentages, and still it wouldn’t really cause a surge in construction. But, it will be push to housing prices, slowly over time, likely somewhat offsetting the slowdown our recent interest rate hikes have caused.

 

On the sales price front, the “lull” or plateau I predicted in August of last year is still in effect. Price increases have been slim to none since then, and inventory has indeed increased, while buying has slowed. The mirror opposite of what we are seeing on the rental side. However, it has not been too dramatic to cause me to predict any real market price drops. We have 26,000 homes for sale, and sales are around 5000 in the rolling 30 day window. So, 5.x months inventory. Sales inevitably pick up in the late spring and summer, so I don’t see this inventory level hurting the market, unless it increase dramatically. If we cross into the 30K inventory range, and stay there past August, prices could possibly come down, if inventory drops, prices will increase. We are at the balance point more or less today, so it will take more data and time to see which way things go. 

 

Those who know me for years, Know I was one of the first to predict the crash, and I saw the bounce back coming. (I sold 4 of my homes before the crash, and then bought 13 across the bottom) Don’t take my predictions on our rental market lightly! I don’t have a crystal ball, but my data analysis has not steered me wrong yet!

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Rentals dropping? start of a big change to Phoenix market?

Last month, I observed that listed rentals dropped from 8400 to 7900 in december, approximately. This was a bit of a surprise to me, as   as a landlord, I have always found December to be one of the hardest months to rent a home. So, I was curious to see what would happen in January, would rentals become more numerous?

Well, today is the midpoint of January, and we have 7350 available. Now, I have to confess, there are several factors that make it hard for me to analyze the rental market from mls data:

1. I didn’t keep track of this data historically, so I don’t have old patterns to compare to.

2.  I don’t know how much seasonality it has (after all, Phoenix is famous for winter snow-bird renters)

3. Historically, the MLS wasn’t used much for rentals. Many years ago, everybody used the newspaper. A few years ago, it was craigslist, until that got over run with spam. In the past couple of years, as lots of investors bought homes, often times as large companies, they placed them with real estate agents; The number of real estate rentals listed on the MLS had been going up quite strongly over the past few years.

So, given all that, I don’t know exactly how to interpret the data, but I will say this: If this trend continues, we may see a serious tightening and hence price increases in the Phoenix rental market going forward, ad precisely the same time that purchase prices seem to have stagnated. I think many people’s analysis is that “renting is about the same price as buying  today”, but if we see rental prices go up 10% say over the next 3 or 4 years, that changes the buy to rent decision dramatically!

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Two trends to watch, Phoenix real estate market

Listing inventory, peaked a couple months ago, and has dropped by roughly 500 since then… The end of the year is never normal, and so the question is: do we get a flood of new listings in the spring? Do we get the traditional spring increase of normal buyers? Today the market is much closer to balanced than it has been in a decade, how these two factors change determine what will happen to prices next year. Foreclosures and short sales are all but disappearing from our market, and investor buying has dropped by half in the past year, so it is down to normal buyers and sellers to set the future trends in action.. An even more interesting trend is showing up on the for rent side..properties actively for rent have dropped steeply in just the past couple months. Typically, December is a tough month to rent a property, but this December, we dropped from 8400 active rentals to 7920. Rentals are cyclical, with more coming on in the early days of the month, as tenants typically move out on the last day of the month, and after a week or so to prep the house, it becomes listed. But this is an unprecedented monthly drop, and even more surprising to see it in December. I will update this trend as I re check the data in mid January.

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