Bubble Looming? Metro Phoenix Home Prices Near 2006 Record
“Could June be the month metro Phoenix home prices rebound to the record they hit in 2006?
A new analysis of pending sales in the Valley shows prices are nearly there.
In May 2006, metro Phoenix’s median home price hit $259,900. Then in June, it set a record at $264,800, according to Arizona Regional Multiple Listing Service data.
Then the recession hit, and prices tumbled. We've been watching them slowly work their way back up since 2011.
The forecast is for the area’s median to reach $260,000 in May, according to housing analyst Tom Ruff's latest report for ARMLS. And then it's only a few more thousand dollars to bust the record.”
At the bottom of the Phoenix Metro market back in 2011, some government reports claimed that it would take a whopping 50 years for housing prices to recover.
Luckily, we were able to pull it off in only 12 :-)
But anytime housing prices approach record highs, the doom and gloom of “bubble talk” is surely not too far behind.
Especially when you consider the recent surge in new real estate licenses as new agents look to make a fortune in the booming economy:
Bad Real Estate Deja-Vu
We all remember just a short decade ago how the market came all crashing down on our heads and totally leveled the economy.
Phoenix’s housing boom was fueled by subprime mortgage and real estate speculators looking to make a quick buck. It all started in 2004 and hit the peak right about the summer of 2006.
If you want to know how it all got really frickin’ bad really frickin’ fast, watch this short clip here from The Big Short (2015):
https://www.youtube.com/watch?v=xbiDrzTd8fE
Metro Phoenix’s housing market hit bottom in 2011, and investors (like you!) snatched up a record number of bargain foreclosure homes that year. The median price then plummeted all the way down to a measly $110,000.
Ouch.
But since then, we’ve seen a major recovery. Home prices in some neighborhoods, have already rebounded to 2006 record levels. Especially in the more affordable neighborhoods (more demand).
In nearly 30 Phoenix-area ZIP codes, prices have climbed back to 2006 levels or even higher in some cases.
Values in another 40 Valley neighborhoods are within 10 percent of recovering.
But with home prices so high again, some may be speculating that we’re in a bubble. Are we?
Housing Bubble? Or Genuine Boom?
In my opinion, as long as we don’t make a sudden move to automated appraisals (ha!) and underwriting standards remain strict, we’re not headed into bubble territory.
Why?
Too much genuine demand.
Who?
Millennials.
See more here: http://www.businessinsider.com/millennials-turn-30-housing-boom-demographics-2018-4
Because?
Over 4 million of them are turning 30 every year. And the average age a woman has her first child is 28.
And while living in downtown LA or San Francisco in a cramped apartment with 5 roommates is cool when you’re young and single swiping on Tinder, there’s one situation where it’s certainly not cool at all…
When you’re pregnant.
I noticed this trend back in California when I had several clients back to back that were all late twenties / early thirties with either a bun in the oven or a baby already here and they were looking to escape the high prices of the Bay Area and move into more affordable markets like Sacramento and Stockton in California’s Central Valley.
Just take a look at Phoenix’s population pyramid to notice how it swells right in the sweet spot of people about to have their first kid and want to buy their first home shortly afterwards:
And not only do you have the millennials here in the Phoenix Metro Area, you also have them moving from Los Angeles and greater southern California:
https://la.curbed.com/2016/5/23/11753840/los-angeles-migration
And can you blame them? Who wouldn’t be lured by $260k homes compared to $650k in Los Angeles?
I remembered when I moved here from Northern California I realized I could spend the same amount I did to buy my home in Sacramento and get a house that was 50 years newer, totally remodeled, and in a much safer area.
"Yes please!"
I can only imagine how peeps from SoCal are blown away by the much greater value offered here in the Phoenix metro area compared to where they’re from.
Even better? It’s only a 6 hour drive back home to see Grandma on Thanksgiving and Christmas. And if you book your flights far enough in advance it’s less than $100 each way.
Far enough away to avoid your grandmother’s nagging about your pink hair, but not too far to visit and still get a piece of that famous pumpkin pie she makes every year :-)
Boomers Add To The Boom
What’s more, Baby Boomers make up a significant percentage of new Arizona homeowners. After all, there are 10,000 of them turning 65 every day:
And where do retirees move once they hang up the gloves for good?
Florida and Arizona. #1 and #2. Anyone surprised? Must be all that sunshine :-p
Perhaps that’s why the Arizona Sun Corridor (Prescott to Nogales) is set to DOUBLE in population by 2050 and reach over 12 million.
https://en.wikipedia.org/wiki/Arizona_Sun_Corridor
That just means more and more and more demand over time. And as long as lending is kept in check then we should be alright.
But Remember – We Are A Cyclical Market
Now, I’m not saying that there won’t be another recession. Of course there will be. It has happened before, and it will happen again. It’s human nature. It’s unavoidable.
The big question is WHEN will the next recession happen? And since the real estate crystal ball is only accurate about a year out (too much can happen in the economy), opinions varying from next week to next millennia are abound out there on the internetz.
The one model I believe in is the 18 year cycle. I’ll let you do the research for the sake of brevity, but just use history as your guide for when the next peak in land value is set to occur (see below):
Therefore, if the last peak in land values was 2006, that would place the next peak around roughly 2024. That’s a whole ‘nother 6 years away.
BUT – like I said. No one can make that kind of prediction. Not even Nostradamus. There is simply too much that can happen between then and now:
- America rips itself apart in the next Presidential Election
- North Korea gets crazy one day and decides to nuke us
- Another 9/11 type event… another war… in the Middle East… about oil
- Robots may steal 800 million jobs by 2030
- Interest rates could go way up and lower the ability to borrow
- Ninja loans could make a comeback… automated appraisals let people overpay
- And so on and so on…
But generally speaking, I think it’s safe to say you’ve got AT LEAST another solid two years before you even need to worry.
Things got a little cray-cray in the mid-2000’s that’s for sure. But I think you’ll see a return to the much smaller ups and downs we saw 80’s and 90’s this next time around:
…
Who thinks Phoenix is in a bubble? And when will it burst if we are?
