Last week I had lunch at an event arranged by a friend of mine, and the guest speaker was from the Cromford Report, a report that analyzes trends in the Phoenix market. A year ago, I went to the same event and he predicted that we would have a buying frenzy in the spring. Partially as a result of that prediction, one of my clients decided to sell out their entire portfolio, and it really was a major frenzy. So from that experience and a few others, I give much weight to his comments about the market.

One of the interesting graphs that he showed was a plot of the average real estate price, starting from 1950. Most charts we see today look at 2005-current, or from 1990 – current. The longer term trend is more interesting. First, on average, the prices rise a little faster than inflation. We are currently below that target.

Second, there have been several “bubbles”, one being around the time of the S&L crisis, and the most recent one bottoming in 2011. In each of these cycles, in hindsight, it is pretty easy to see that there are hitches and bumps in the recovery process.

The Phoenix market has been really charged up lately — and now seems to be softening. It looks like buyers have started to back off, especially in the above 300k range. (I have a current listing less than 150k and it has been on the market for a month – unheard of, a few months ago!) The lower end is still strong though (my listing not withstanding). So is this a “top”, or just a pause?

The Federal Reserve announced at the end of this week, that they will print Even More Money. So this should alleviate interest rate concerns; and the Cromford Report presenter thinks that we are having a little buyer’s revolt around prices (up some 25%-30% in the last year). But he said that this was just a little pause, and we will continue to see a strong market, and increasing prices.

According to the statistics, we are very close to being in a more “normal” market, in terms of the number of homes for sale, the number pending (under contract), and the number of new listings each week. Still a seller’s market, but maybe not for much longer. It looks to be turning into a market that favors neither buyers nor sellers.

Another interesting statistic was about rental properties. Something like 20% of the homes in Phoenix are rentals. Most of us know that the lower end of the market has been dominated by hedge funds and REITs such as Colony homes, Blackstone, and others. These funds have been buying many, many homes. However, they account for a very, very small number of the rental homes! Most rental properties in Phoenix are owned by individual investors!

The effect of the funds buying in the low end has not had much effect, unless you were a buyer yourself trying to compete against their offers! It has been very difficult for a first time home buyer using financing, for example, to buy an inexpensive home.

Rental rates for single family homes have not increased very rapidly; only the larger apartment complex owners have been raising their prices. This is partly because credit has loosened, the foreclosure crisis is all but over, and FHA is willing now to allow people with a foreclosure or short sale to get financing much sooner.

Finally, he had a chart of the population change in Maricopa County since 1950, and alongside this chart, the number of new homes built each year (including apartment units). These two trends followed each other closely, until this year. This year, immigration is up, but home starts have not kept pace. It looks like there is now, or will shortly be, a shortage in starter homes. An opportunity for some builders?

So all in all, we are coming into a set of more typical market conditions, and it looks like prices will continue to rise. the below $200,000 market remains strong, and the higher end is seeing longer days on the market. Inventory is rising. This little pause we are having right now might be a great time to buy, if you have been frustrated by all the institutional buying that has been hammering the lower end of the market.