Future of Arizona Housing Market Looks Bullish
We are bullish on Arizona over the long haul. The Phoenix Metro area is projected to grow from 4.3MM people to 6.9MM by 2040. Barring any significant fundamental shifts in education, transportation, taxation or regulation we believe this is quite plausible.
Generally speaking, we think the Arizona economy is stronger than the nation. Specifically, in the residential real estate market. In our opinion, the non-judicial foreclosure states have performed much better than the judicial system states. Arizona, as a non-judicial state has moved through this downturn much more quickly and efficiently than other, judicial states like Florida, New Jersey, and New York. Home loan defaults and foreclosures are very nearly at long term trend normals. Arizona was ranked the 5th worst state in home loan defaults three years ago. Today they are ranked 42nd.
A recent Reuters article stated, constrained supply is a significant factor in todays market. The same holds true for the Arizona market. Arizona currently has approximately 20k active listings. 32k listings is closer to what would be expected in a neutrally balanced market the size of the Phoenix metro area.
We believe home buyer demand is not as high as some would suggest. Yes, supply is very constrained and prices have risen significantly due to this imbalance. However, we would, by no means, consider the current demand robust. The increasing delta between list price and sold price is indicative of a sluggish demand. Maybe not sluggish relative to this market, but if the supply side returned to normal, this level of demand would be considered sluggish. We believe additional supply will be hitting the market from new home builders, from pent up sellers who are waiting for values to rise, and some investor sell off. There will be some increase in demand from buyers who were previously in trouble, repaired their credit and are now returning to the market. But this will be somewhat offset by a reduction in investor purchases due to higher prices.