Michael OrrDirector

Center for Real Estate Theory and PracticeMarch 10, 2015

Greater Phoenix Housing Market

Euphoria

Denial

Despair

HopeSkepticism

Optimism

EnthusiasmExhilaration

Unease

Pessimism

Panic

Capitulation

Relief

Optimism

Enthusiasm

The Market Cycle

Euphoria

Denial

Despair

HopeSkepticism

Optimism

EnthusiasmExhilaration

Unease

Pessimism

Panic

Capitulation

Relief

Optimism

Enthusiasm

The Market Cycle

2005

20082010

2015

2007

2012

2003

Most Home Prices Are Flator Keeping Pace with Inflation

Some Segments are Falling or Rising, but Not Much

Outlook: Positive for Second Half of 2015

Demand for Homes to Buy Has Been Weak While

Demand for Homes to Rent Is Very Strong

Why Has Demand Been Weak?

• Investor buys dropped 41% in 2014 from 2013• Owner occupier buys up only 0.3%• Many owners frozen in place – need higher prices• Millennials not buying homes like their parents did

– Far more living with parents, sharing or renting

• 1 in 4 former owners in “the Penalty Box”– 367,000 owners lost homes to foreclosure / short sale

• Large lenders are still very risk averse– Avg FICO for DENIED Conventional Purchase Loan = 721– Avg FICO for CLOSED Loan = 752

• Income and wealth disparity increasing• Very slow income growth (0.9% for Phoenix 2011-2013)

Single Family Rentals

• Investors pulling back but tenants still coming• Only 1,993 SFR rental listings on MLS• This is 25 days of supply• Normally expect to see 4,000 to 5,000• Rents are climbing 5% to 8% per year• Most of what is left is expensive (avg $1,980 pm)• Supply for $900 - $1200 range is down > 50%• Supply over $2000 is relatively plentiful

Prediction Is Very Difficult, Especially About the Future

- Neils Bohr (1885-1962)

Long term average

Normal Listings Priced from $175,000 to $600,000

Hotspots – March 2015

8504385353

85323

8503385035

85037

85335

85307

85345 8530285051

85017

85304

85306 85053

85040

85283

85203

85204

ZIP Codes Showing Strongest Increase in Demand Versus Supply

Cold & Lukewarm Spots

Gila Bend

Carefree

Fountain Hills

Casa Grande

Gold Canyon

Coolidge

Wickenburg

TonopahLitchfield Park

Heating Up

85326

85392

85379

85382 85027

85029

85303

8530185019

85031

85006

85339

85041 85042

Demand Exceeds Supply in All These Areas

85044

85226

85224

85225 85295

85233 85234

8520185202

85210

Situation Summary – March 2015

• Supply is well below normal (83% of normal) • Demand is low but growing (95% of normal)• AZ loan delinquency below normal at 4.5%• Foreclosures below long term average• Lending rules starting to loosen• Entry market heating up• High end market cooling down• Economy and jobs continue to improve• Time to change from relief to optimism

Michael OrrDirector

Center for Real EstateTheory and Practice