Part 3 ended with the big question, “What are the home builders doing?” I’m going to end my four-part market analysis with this answer and what they tells us as we’ve crossed into 2013 and heading into February already.
At the same conference that was put on for realtors by old Republic, where Mike Orr spoke, the home builders got up on stage. There were five of them and they had this total love-fest among themselves talking about how proud they were, “We’ve got this land out by the San Tans and were going to put like 8,000 homes on it!” And “yeah that’s right! And every one of them is going to have a pool!” They were really proud of themselves because they’re really starting to build 424 a month, 704 per month, 805 a month and they just saw a great future for themselves.
This is where they used to be. And this is where they are now…
Back when I was working for the State Energy Office. We were trying to convince home builders to put energy efficiency improvements in their homes and they were like, “Don’t bother us. We’re too busy.”
This is where they were in 2006. They built 60,000 homes in a year. Way too many for us to absorb.
I think what these guys are going to find, in the next two or three years is that they will never reach that old demand for “sprawl” housing.
Bear with me. I’m going to pontificate a little bit here. As the United States gears up its economy,
and China gears up its economy,
and Europe gears up its economy,
the price for auto fuel is going to go up. I think, it will reach over $5 per gallon, and that is going to affect home buying decisions.
One of the things I learned back at the energy office when I was there is that the price per barrel to get oil out of the ground has only gone up year after year. You may be fracking for natural gas and all that, but you don’t drive a natural gas car, typically, from Ahwatukee to downtown Phoenix, or from Avondale or the San Tans to your job.
So these guys are going to continue building out in the ‘burbs, but they’re going to find, as I have found, that people are less and less enthralled with the idea of living so far out.
So what will that do to home buying decisions?
I think you’re going to see those zip codes that we talked about before continue with an even greater price pressure upward. I think you’re going to see more desire for infill. Unfortunately, the big developers sitting on the stands, congratulating themselves only want to do 1000+ homes. They’re not interested in doing a little infill project with six homes (which is about the best you can do in central Phoenix). They’re going to have a really hard time putting in new condos until we can continue selling off the ones we built at like $500 per square foot back in the peak of all this.
That’s going to make central Phoenix even more interesting to people.
This is the outlook that Mike Orr presented:
…‘Cap Rates’ are their ability to make money off of these investments. So the investors will slow down as those Cap Rates fall. You have to ask yourself, is that going to put me in a situation where we are going to have less and less of a possibility for renters to find a place? We’ll talk about that, shortly…
I think that as you watch those historic neighborhoods that are a walking distance to the light rail (typically considered as between the 7’s; Seventh Avenue and Seventh Street), you’re going to see those prices continue to go up. That’s because builders are in the ‘burbs, not in central Phoenix and the inventory downtown is limited. Like Tempe, it’s landlocked. I think we’re going to see more of that.
Investors: the Cap Rates are going down, so if you’re thinking of investing, I think the window is closing for your potential to get an investment.
Home buyers: the prices will continue to go up, though we don’t know where the interest rates are going to be.
Home sellers: when you look at the charts above, and you think, “Great! The prices are going to continue to go up!” But we think that interest rates are going to stay low for another year, but if you are a home seller and home buyers interest rates go up, their ability to buy your house goes down. You have to keep an eye on that. In other words, this might be a good time for you to sell if you’ve been waiting.
Mike Orr also said that we can expect a rush this month (January 2013). I want to say something about that. Typically, if agents don’t get their sales completed by August, September, or October, they’re going to have a really bad Christmas/Hanukkah. The reason is because it’s slow during the holidays. The last two years, I have hardly had a day off during the holidays because it’s just been so busy. I think Mike could tell you that we don’t expect to have a whole lot of free time, because it is going to stay busy during Christmas.
Having said that, what always happens is that people finally shake off the left over Christmas tinsel at the end of January and say, “Oh, yeah, weren’t we talking about buying a house back in October? Must’ve forgotten about it because of how Halloween and all those other goings on.” And then you get that big rush of buyers. I think that this drastic upward momentum they receive is going to continue until the end of January 2013.
I would love to see my friends and my clients and the folks who are supporting downtown and central Phoenix getting some good information. I have access to all of this data from Mike Orr’s Cromford Report and it can reveal so much.
Please tell me, how helpful you folks think this market analysis series has been to you? What areas would you like me to zero in on? Are there listing conditions you’d like me to do some research on?
If you have questions about buying or selling your home, please call me at 602-456-9388. I can help.