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Rising home prices in the SW Valley AZ pushing out investors

As warm weather signals the start of the peak homebuying season, Southwest Valley buyers will see higher prices but less competition from cash-wielding investors, experts say.

Plus, there are more signs that the Southwest Valley is shaking off the Great Recession’s housing slump. Homebuilders are buying more lots in communities where the original developer installed utilities and built roads but never built houses.

The housing figures are part of a March report released by the Center for Real Estate Theory and Practice at the W.P. Carey School of Business at Arizona State University.

Rising home prices in the Southwest Valley and throughout metro Phoenix have prompted investors to go elsewhere for a good deal, Avondale real-estate agent Joe Bourland said.

“The good house for $70,000 has gone,” Bourland said, adding that out-of-state markets, such as Las Vegas and Atlanta, still offer homes at much lower prices.

Investors move out

The median price for single-family homes surged more than 30 percent from February 2012 to February 2013 in many Southwest Valley cities, according to ASU figures.

The increases ranged from 39 percent in Buckeye, where the median price grew from $95,000 to $130,000, to 33 percent in Litchfield Park. There, prices rose to $230,000 from $172,000 over the 12-month period.

In 2012 the percentage of Maricopa County homes bought by investors fell from 37 percent in February 2012 to 30 percent in February 2013.

That is good news for traditional buyers, who have have had a tough time competing with investors.

Mark Haldane recently purchased a home in Goodyear after he got a job at the Perryville State Prison. After Haldane and his wife sold their Maricopa home, the couple didn’t want to risk getting outbid by rival buyer when they found a house listed for $160,000 in Estrella Vista.

They offered to pay the full price the seller wanted instead of offering to pay a little less and haggling to get a better deal.

“I noticed that homes weren’t staying on the market very long,” Haldane said.

When prices were at their lowest, investors who could pay cash could complete a transaction in less than 15 days, Bourland said. It wasn’t uncommon for sellers to receive a dozen offers from investors.

Other homebuyers, who usually put less than 20 percent down and had to go through a longer process, often lost out to investors with cash in hand.

The Southwest Valley was particularly attractive to potential landlords. Investors could recoup more money from their investments than in such cities as Scottsdale and Chandler.

The area had a higher percentage of relatively inexpensive foreclosure homes, so the ratio between the purchase price of a home and the rent investors could charge tenants gave investors a higher rate of return than they could get in Scottsdale and Chandler.

“When investors could buy a house for $70,000 and rent it for $1,000, the return was really good. Now that same house is selling for $115,000 and rents have dropped because there are many homes for rent,” Bourland said.

It’s normal for investors’ activity to ebb and flow, Arizona real-estate analyst R.L. Brown said. Today their actions play a bigger role in the Phoenix housing market because of the recession and housing crash.

As prices rise, Brown anticipates most large investors will drift back to other types of real-estate investments, such as land acquisition and apartment complexes.

Over the next five years investors will begin to sell the homes they bought in the Southwest Valley and there will be a ready pool of potential buyers, said Michael Orr, director of ASU’s Center for Real Estate Theory.

“Many people who are renting don’t want to be tenants,” Orr said.

In the Southwest Valley many people who lost homes to foreclosure are ready to get back into the market.

“The people who lived in those homes still needed somewhere to live,” Orr said. “Now they’ve spent their time in the penalty box (for foreclosing), and they are ready to purchase a home.”

Vacant lots

The Southwest Valley is the second-hottest new-home market in the Valley right now, next to the Mesa-Gilbert region. Over the past 12 months, 23 percent of all permits to build in the Valley were issued in the Southwest Valley.

Rising demand from buyers also has increased demand for home lots that have installed utility lines and nearby roads, experts say.

For builders, these lots are much more convenient than purchasing raw desert land. While raw land could take years to develop before it’s ready to build, developers can complete a home on a finished lot in weeks.

When the market crashed, the Phoenix area entered an approximately six-year period where there was very little building, Brown said.

“Builders were giving lots back to banks, back to investment companies, putting them in a holding pattern,” Brown said.

In December, the purchase of these properties, which are called developed lots, peaked when developers bought 2,272 lots in Maricopa County.

Although that number has dropped — in February, only 341 were purchased — the buyers are now mostly developers, as opposed to investors, Orr said.

This purchasing pattern shows how the homebuilding industry has started to recover in metro Phoenix, housing-market analyst Jim Belfiore said.

The new homes for sale that result from these lot purchases will hit the market in late 2013 and will continue into 2014, Belfiore predicted.

Sales of the lots began to pick up in many metro-Phoenix cities in early 2012, and later that year those homebuilders began moving into the Southwest Valley, Belfiore said.

“As we went into the beginning of 2013, we see builders are purchasing lots in some markets that haven’t been built in since 2007 and areas that were the areas hardest hit by foreclosures,” Belfiore said.

Mesa-based VIP Custom Homes first bought land in the Southwest Valley when metro Phoenix real-estate business was slow a few years ago, owner and CEO Evelyn Petersen said.

The Southwest Valley’s best assets are the reasonable home prices and its mountain views, she added.

Last month, Petersen sold two lots within a week of putting them on the market.

“I kind of wish I’d bought a few more,” Petersen said.

This article was originally posted HERE.


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