In 2008, the housing market crash ripped through Phoenix like a monsoon – leaving a flood of empty
homes and devastated homeowners behind. Inflated housing prices, combined with other factors led to the largest economic recession since the Great Depression of the 1930s. Phoenix was far from immune
to the effects of this crash, being one of the hardest hit cities in the country.
Fast forward to 2015, and our market is gradually returning to historic norms. Home prices have
steadily risen over the past few years. The temperature of the real estate market has gone from boiling hot toice cold and is warming up again.
What does this mean for you? How can consumers protect themselves in this market? What does the
market look like now?
The team at Financially Empowered sought to answer these questions for you and sat down with
Commissioner Judy Lowe, from the Arizona Department of Real Estate.
Where the market has been and where it’s headed.
Phoenix saw some of the highest increases in home prices during the housing bubble, with some
home prices increasing at 50 percent a year at the height of the market. As a result of this unsupported
growth, the housing market crash that started in the latter half of 2006 hit the Phoenix market with a wallop.
In fact, 70 percent of home resales in 2009 were from foreclosures, and in April 2011, there were
100,000 vacant homes from overbuilding and foreclosures. The story could have been much worse if
investors weren’t buying up houses in the Valley to build up their real estate portfolios. According to
Commissioner Lowe, investors carried the market during the worst of the crash and came in from all over the world, including Canada, South Africa and Europe.
While one can argue the benefits and consequences of large numbers of investor-owned properties,
the fact is that investors have started withdrawing from the market. “Investors no longer believe Phoenix is the market where you get a bargain on home prices,” states Commissioner Lowe.
The Valley is starting to see a lot of first-time homebuyers entering the market again. Regardless of
what the investors might think, Phoenix is still an affordable market, a place where you can find homes for under $140,000. The midlevel and luxury markets are starting to crack open a bit and improve. This shows positive growth for the Phoenix real estate market.
Homeowners are also reluctant to put their houses on the market, wanting to stay put in their current
homes. Some reasons for not selling are personal, others are financial. Some of the most common reasons people are not selling their homes include:
• A handful are underwater or just barely breaking even on their purchase price, because they
purchased their home before the market crash.
• Some potential sellers are unwilling to trade their low mortgage payments for a newer or larger home,
opting instead to remodel their home or live with any perceived shortfalls.
• Others are still wary of the market, afraid of moving and making the wrong decision, then ending up
upside down on their mortgage.
Following the basic economic principal of supply and demand, the shortage in homes available
(supply) and increase in buyers (demand) has caused housing prices in the Phoenix metro to begin creeping upward beginning in early 2011, and home prices have continued to rise ever since. The shortage of supply is also being supplemented by new construction homes and communities popping up within empty spots in the Valley, and also in outlying cities and towns.
“We see the increase in new construction before the market does because the builders have to request
the public reports from us when they are purchasing land or starting to develop it,” says Lowe. “In the past six months, we have seen three times as many public report applications than we saw three years ago.”
Home prices in Phoenix have been rising in 2015, with March home prices up 3.1 percent year over
year. The growth trend is expected to continue through the end of the year. However, new legislation expected to take effect in August will cause the market to cool down just a bit, as it is intended to increase the amount of time it takes for a buyer to purchase a home by adding in a minimum time frame for buyers to review all closing documents. Currently, the first time many buyers see the pages and pages of closing documents is when they are signing them. Legislators argue that this is not enough time for a person to thoroughly review every line and understand every condition of the purchase of the home.
Commissioner Lowe believes buyers are rushing to purchase homes before this pending legislation
Additionally, Federal Reserve Chair Janet Yellen has indicated that a rate hike is expected this fall. If a
rate hike occurs, it would be the first time the Federal Reserve has raised rates from their near-zero position since the housing market crashed. While rates are still near historic lows, rising rates could dampen the market.
What does this all mean for you?
Real estate transactions can be overwhelming and intimidating, even more so after many of us were
negatively affected by the crash. If you are looking to get into the market as a buyer, seller or investor, it is important to take precautions and protect yourself. Here are three recommendations from Commissioner Lowe that you can do as a consumer:
First, pick the right real estate agent to work with. This is important because the agent will act as your
fiduciary during your real estate transaction, and picking the wrong agent can have a negative effect on your entire real estate transaction. With 78,000 licensed agents to choose from, this can be a daunting task.
Start by interviewing and researching several different agents. While it is illegal to do so, many people
still try to work as a real estate agent without the proper license. Ask the agent if they are licensed. Then, visit azre.gov and enter their name or license number. You can see if the license is still active, how long they’ve held the license, what brokers they have worked for, if there have been any complaints against them, and what continuing education courses they have completed.
“Consumers will be better represented if they’re working with a licensee,” says Commissioner Lowe.
Be sure to Google your agent to find out more about their history online. When you are ready to move
forward, most real estate agents have a presentation they will give to you, says Lowe. Make a list of what is important to you in this transaction and ask the real estate agent for their experience in those areas.
As to what characteristics make for the best relationship with a real estate agent, Commissioner Lowe
says it is often dependent on the consumer. When looking for a real estate agent, she recommends you consider their education, experience, and ability to hold your hand as the buyer or seller. If you’re a first- time home buyer, your real estate agent should have expertise in working with first-time buyers. Looking to work with a builder for your next home? Choose a real estate agent that has experience or has gone through training on the new construction real estate sector. Your real estate agent should also stay in touch with you throughout the process and communicate with you in the manner of your choosing (texting, email, phone calls, etc).
Second, whether you are buying a new construction home or a resale property, complete your due
diligence. Research the neighborhood you are looking at, walk the neighborhood at different times of day and talk to neighbors. Make sure the home you are looking at purchasing is one you want to stay in for five years or more. Most experts agree this is the amount of time it takes for the average consumer to both recoup the upfront costs of purchasing a home and come out of the home sale with a profit.
Have your real estate agent pull comparable home sales in the neighborhood before making an offer. This will give you an idea of what homes in the neighborhood are selling for. “They can also pull the old public report so the buyer can see if everything that was supposed to be developed in the neighborhood was actually developed,” states Commissioner Lowe. They can also help you check crime rates in the neighborhood, educational ranks, and recorded history on the property.
Once you’re under contract, have a home inspection and an appraisal. The appraisal gives you and the
lender the value of the house that the current market will support. This value gives the lender a safe gauge on how much they can lend, and recoup, if you were to walk away.
The home inspection will give you an idea of any damage or hazards on the property that could be a
problem down the road. If it’s not something you are willing to pay for out-of-pocket and it’s important to be fixed, you can ask the seller to make the update.
“Don’t be afraid to ask for repairs if they need to be done,” advises Commissioner Lowe. “Sometimes
buyers won’t ask for repairs but will come in at a lower price to compensate for the difference.”
Third, make sure you are receiving copies of all signed documents. Real estate agents can get caught up
in the transaction and forget to send you copies. Once you have them, make sure you protect those copies and keep them on hand. You never know when you’ll need to reference them again, even 10 or 20 years down the road.
With the real estate market showing consistent, positive growth, it could be the right time for you to
purchase a home and sell your current place. If you had a property foreclosed on during the crisis, keep an eye on your credit. The first round of foreclosed consumers should be eligible to enter the real estate market soon, as their credit score improves and the foreclosures no longer have a negative effect on their ability to borrow.
Article originally published by ARizona Federal Credit Union in Financially Empowered Magazine. www.arizonafederal.org