For those who’ve been following the Phoenix real estate market recently, you’ve no doubt noticed a significant slowing in the single-family home (SFH) market. This shouldn’t be that big a surprise given how insane that part of the market was in the first half of the year. SFH’s were flying off the market, inventory was incredibly low and appreciation rates were staggering. As I’ve blogged here, that market HAD to slow down–it simply wasn’t sustainable at that torrid pace.
Now we’re seeing condos/town homes accelerate. While that market wasn’t even close to bad during the crazy SFH of the first half of the year, it definitely lagged. But no longer—condos are exploding. While not as crazy as SFHs were, any condo that is in halfway decent shape will sell in a very short period of time, often commanding full list price (if not more).
Why? I think the answer is relatively simple…. Single-family homes have risen an average of 47% in the last year in the Phoenix area. That’s an average. Average means that for every home that “only” went up 20%, some other home went up 75%. Think about that for a minute…………it’s staggering.
(And before some math wiz chimes in about my example for an average, relax. I understand that what I just said isn’t 100% mathematically correct, but it’s close enough.)
With SFH valuations going through the roof, it was only a matter of time (a short time) before escalating prices forced people out of the SFH market. There are more people who simply can’t afford to buy a SFH—particularly young and first time home buyers.
But one interesting aspect of real estate—whether you are trying to sell it or invest in it—is this…. People need a place to live. Unless you want to live in a cardboard box and push around a grocery cart full of aluminum cans, you have two choices when it comes to a place to live. You either rent, or you buy. There really isn’t much in between. (for simplicity sake, we’ll leave out college kids living with their parents and moocher’s crashing on their buddies couch)
< < Quick Tangent Goes Here >> If you have a college student who won’t get out of your house, you should seriously look at buying them a condo! < < End Quick Tangent >>
So as more people are rendered out of the SFH market due to escalating prices, they look for other ways to own a home. What other forms of home ownership are there? Condos and Town homes (we’ll save manufactured home for another post).
And now we are back to that darn Law of Supply & Demand again! As more people want a condo, demand rises. That little economic law tells us (generally speaking again) that as demand goes up, prices go up. Hence the prices of condos are moving up. Supply, obviously a big component of the Law of Supply & Demand, is relatively fixed for condos. Look around at all the new construction. See many condos being built? You can find the occasional apartment complex being built (remember – people have to rent or buy) and you can find a zillion new SF homes being built. But developers just don’t seem to build new condos.
So again….. relatively low and fixed supply + growing demand = prices go up.
Yep, Phoenix condos are Going NUTS! I don’t believe it will get to the frenzy we saw in the SFH market, but I don’t think it’s close to peaking either.
Stay tuned! It’s gonna get crazy before it gets normal!