By Mike Bodeen · 15 May 2017
Phoenix Matches Nation’s Growth
We knew what would happen when “it” happened, and now “it” is happening. And just what is the “it?”
“It” is the millennial generation entering into the national (and local) real estate market in big numbers. And “it” is making its mark on sales, which is increasing the prices of homes, which is increasing the value of homes!
Nationally, home sales in the first quarter hit their fastest pace in a decade, a sign that rising prices and slightly higher mortgage rates haven’t deterred home buyers from rushing into the market. Total existing-home sales climbed 1.4% in the quarter to a seasonally adjusted annual rate of 5.62 million, the highest since the first quarter of 2007, according to the National Association of Realtors.
The national median home price, meanwhile, jumped 6.9% from the same quarter a year earlier to $232,100, the sharpest price gain in nearly two years. Phoenix median incidentally is $232,500. Our market jump was also nearly identical from last year. So, you might say that either the nation is mirroring Phoenix, or Phoenix is mirroring the country.
Demand remains strong as millennials begin to enter the home buying market in force. But that could change as higher prices weigh on affordability, economists said, particularly if interest rates rise. Personally, I think that will happen in the hyper-priced cities, but not in Phoenix, not in the near term anyway.
Phoenix median incidentally is $232,500. Our market jump was also nearly identical from last year. So, you might say that either the nation is mirroring Phoenix, or Phoenix is mirroring the country. Mike Bodeen
Per a recent article in the Wall Street Journal by Laura Kusisto, who quotes Lawrence Yun, chief economist for the National Association of Realtors, “…many millennials have been living in cramped conditions, whether in their parents’ homes or in pricey urban apartments, “and are being released into the market at a time when affordability is becoming more challenging,”
When accounting for population growth, the pace of sales today reflects what economists consider a normal market like that of the early 2000s, when the pace of sales was just under 5 million homes a year. The pace of sales topped out at roughly 6.2 million in 2005, at the height of the housing bubble.
Price growth, meanwhile, remains subdued compared with the bubble years, but is perking up as well. Single-family home prices increased year-over-year in 85% of the 178 markets covered in NAR’s survey. In the fourth quarter, 89% of markets reported higher prices.
The disparity between the most and least expensive housing markets continued to grow. A mid-price home in San Jose, Calif. – the most expensive metro area in the country – now costs $1.07 million, while the typical home in the cheapest market – Youngstown, Ohio – costs just $79,200.
Home prices in San Jose have shot up 10% over the past year, while prices in the Youngstown area increased 4% during that time. Homes have become less affordable over the past year due to rising prices and mortgage rates, though they remain theoretically within reach for most families.
A buyer making a 5% down payment on the median-priced U.S. home would need an income of roughly $52,000, compared with the national median household income of just over $71,000. A year ago, a buyer making a 5% down payment on a typical home would have needed an income of roughly $48,000.
Affordability is likely to become more challenging if prices keep rising at this pace and mortgage rates also climb. The rate for a 30-year, fixed-rate mortgage has risen to 4.05% from about 3.5% in November. Economists expect rates to inch closer to 4.5% by the end of the year, which could make affordability even more challenging.
“There will be some choke point where people can no longer afford to buy,” Mr. Yun said.