The Phoenix market is facing a housing shortage because relatively few new homes are coming onto the market for sale. Mike Orr, the Director for the Center for Real Estate Theory and Practice at the WP Carey School of Business, conducted a report indicating the market has become extremely quiet in Phoenix.
Orr says the Phoenix is facing low demand and low supply and at the moment, the demand is slightly lower than the supply. If there is to be any pressure, it's for housing prices to go down a bit. As most sellers aren't inclined to do just that, they are taking them off the market.
Currently, Orr says only about 13-14% of inventory is going to investors, as opposed to a while back where it was closer to 40%. While there are still more cash transactions than normal, it's dropped quite a bit from last year. Part of the reason for the low demand is that people are having trouble qualifying for a mortgage or getting enough money together for the down payment. Another factor lending to the low demand is the younger generation are not even applying for loans, as they're just happy to rent, so first time home buyers are lower than ever before, Orr adds.
Orr believes the mindset of home buyers has changed, as they're not as enthusiastic and there's not a sense of urgency. "There is also skepticism whether home ownership is good for your long-term financial health," Orr says and while he doesn't share that skepticism, he can understand why it exists given the recent recession.
Homebuilders are moving slowly as a result of the slowing market and as such, are scaling back on their permits and rate of building, Orr explains. He believes that if you're interested in an inventory home, you'd probably be able to negotiate a pretty good deal because of the incentives they're now offering. There isn't a surplus of new homes, Orr notes, as homebuilders were careful to be sure they didn't overbuild. Orr points out that the Gilbert area, in particular, has a lot of active builders with similar products, which probably offers home buyers the best chance of negotiating the best deal.
It's surprised Orr that the supply has not gone up when the demand has been so low and he's watching the quantity of new listings coming along, which has been lower than expected. Once demand picks up, which Orr is sure it will, Phoenix could find itself in another shortage but right now, with things moving so slowly, predicting what will happen more than a few weeks out will be difficult.
Mike Orr, the Director for the Center for Real Estate Theory and Practice at the WP Carey School of Business, spoke with Arizona Business News during this interview. For more on his report on the slowing Phoenix home market, click here. Arizona Business News, sponsored by ASBA, is a featured network of Sequence Media Group.