Bob Major returned to Phoenix in October in search of more bargains like the four empty houses he bought in 2010 at rock-bottom prices. The retired builder from Vancouver instead found real estate about 20 percent higher and stiff competition.
“There’s been an extreme turn,” Major, 66, said in an interview at a Chandler, Arizona, pizzeria, sitting beside his wife, Wendy. “We put bids on 30 properties and only got two.”
The Phoenix housing market, down 55 percent from peak values with more than two-thirds of borrowers owing more than their properties are worth, is starting to recover as demand grows and inventory shrinks. Sales rose in November for the 12th straight month on a year-over-year basis, and distressed real estate accounted for the smallest share of purchases since 2008, according to research firm DataQuick.
“The laws of supply and demand are finally taking hold,” said Jim Belfiore, president of Belfiore Real Estate Consulting LLC in Phoenix. “We’ve cleaned house. This market is poised to make a significant jump.”
Values may increase 9 percent this year in Phoenix, known as the “Valley of the Sun” for its desert climate and triple-digit summer temperatures, as homes in or near foreclosure are bought up, according to Clear Capital Inc. Bank-owned property, which made up two-thirds of sales at the May 2009 market trough, now accounts for only one-third, said Alex Villacorta, director of research at the real estate data company in Truckee, California.
‘Pain Was Greater’
Pending foreclosures in Maricopa County, where Phoenix is located, tumbled by almost two-thirds in two years to 18,325 this month, according to Mike Orr, publisher of the Cromford Report, a local housing information service. In December, first-time foreclosure filings in Arizona fell 41 percent from the previous month to the lowest since 2007, data firm RealtyTrac Inc. said.
“The pain was greater here,” Orr said. “I think the reward for that is we’ll be out of the woods faster.”
Arizona’s bank-owned inventory has shrunk relative to other hard-hit housing states partly because courts don’t oversee property seizures, said Daren Blomquist, spokesman for Irvine, California-based RealtyTrac. It takes an average of 125 days to complete a bank-owned home sale in Arizona, compared with 217 days in Florida, a “judicial state” with a foreclosure glut, according to the company. The U.S. average is 193 days.
The winnowing has boosted the average Phoenix property sale to $85 a square foot in December, up 7.6 percent from the market bottom in August, according to Orr, who is also the real estate center director at Arizona State University’s W.P. Carey School of Business. Prices are still down from a peak of $190 a square foot in June 2006, he said.
“I never would have believed what Phoenix has gone through, but the data speaks for itself,” said Karl Case, co-founder of an S&P/Case-Shiller home-price index that showed the metropolitan area as the only gainer among its 20 members in October. “When prices fall that much and interest rates are this low, it’s got to be the case that the markets begin to clear.”
The upturn follows more than five years of decline, the worst housing bust in a city where home construction for new Arizona residents has been the path to economic growth, Phoenix Mayor Greg Stanton said in a telephone interview. Falling U.S. prices and bloated consumer debt have arrested mobility, trapping owners who can’t sell their homes, according to Orr.
Arizona lost about 324,000 jobs in three years -- about one-third in construction -- before employment bottomed in September 2010, U.S. Bureau of Labor Statistics data show. The state added about 45,000 jobs last year. At that pace, it will take until 2015 to reach pre-bust levels, said Lee McPheters, director of Arizona State’s JPMorgan Chase Economic Outlook Center.
Even with fewer foreclosures and prices turning, Phoenix has the sixth-highest U.S. metropolitan rate of foreclosure filings per household, according to RealtyTrac. Phoenix led the 25 largest U.S. metropolitan areas with two-thirds of its mortgaged homes in negative equity at the end of the third quarter, Zillow Inc. said. Across the nation, 29 percent of all mortgaged homes were “underwater,” meaning the properties were worth less than their loan balances.
Buying Repossessed Homes
Steep discounts have lured investors such as American Residential Properties LLC, which used more than half of a $100 million fund to buy 800 Phoenix-area homes at an average price of $120,000, some down from as much as $400,000 five years ago, said Laurie Hawkes, president of the Phoenix-based company. It’s now teaming with New York-based Ranieri Partners LLC on a proposal to buy repossessions from government mortgage companies Fannie Mae and Freddie Mac and manage the properties as rentals.
“Phoenix appears to be leading the nation in terms of major metropolitan areas that are recovering,” Hawkes said. “It’s considerably faster than many people thought.”
Bargain-hunting also attracted flocks of Canadians taking advantage of a 28 percent currency gain versus the U.S. dollar since March 2009 -- and winters with an average January high of 66 degrees Fahrenheit (19 degrees Celsius). Canadians edged out Californians last year as the largest group of outside buyers, with 4.2 percent of purchases, Orr said.
“My clients are here in full force,” said Diane Olson, a Phoenix real estate agent who works with Canadian investors and winter-home seekers. The transplant from Winnipeg, Manitoba, where the temperature was minus 8 degrees Fahrenheit yesterday, has brokered more than 500 deals since 2008 with Canadian “snowbirds,” she said.
Six Arizona Months
Major, the retired Vancouver homebuilder, spent $400,000 for four properties during his 2010 investment foray, including a three-bedroom foreclosure that he fixed up as his own winter residence. He plans to spend six months a year in Arizona.
“There were so many listings the first time, you could really take your pick,” Major said at the pizza restaurant, where teenagers in shorts ate ice cream outside. “Now you can’t bargain nearly as much. The whole attitude is different.”
A property similar to a house that Major bought for $85,000 in 2010 sold in October for about $102,000, he said.
Stanton, a Democratic former city councilman who was elected mayor in November, said Phoenix needs to move from a reliance on housing cycles toward more sustainable technology and health-care jobs. His idea for a health and science development, to be built on 600 acres (240 hectares) northeast of downtown, was announced in his Jan. 3 inauguration speech. It has the support of the Mayo Clinic and Arizona State University, which would be partners in the project, Stanton said.
Phoenix Hit Hard
“Being disproportionately dependent on single-family homes is the reason why this recession hit Phoenix so hard,” said Stanton, himself the owner of an underwater house in central Phoenix that he purchased in April 2007.
The hoped-for employment shift may already be under way. Intel Corp. broke ground last year on a $5 billion plant in Chandler, about 20 miles (32 kilometers) southeast of downtown Phoenix, that will require “thousands” of temporary construction and permanent jobs, said Laura Anderson, a spokeswoman for the world’s largest semiconductor maker. PayPal, an online payment service owned by EBay Inc., plans more hiring after adding 700 jobs in 2011, said Sara Gorman, a spokeswoman for the unit.
Phoenix had 30,000 of the state’s new positions in the 12 months through October, led by health care, transportation and warehousing jobs, McPheters said.
The proposed campus is “very exciting” and would attract startup companies as well as international firms, said Wyatt Decker, chief executive officer of the Mayo Clinic’s Arizona branch in Phoenix, which employs 400 physicians and scientists and a total staff of 5,000. The state’s health-care sector has grown even during the real estate recession, he said.
“We’re all rowing in the same direction,” Decker said of policy makers such as Stanton and education and science executives.
Even homebuilding has revived. Single-family construction permits are expected to climb to 11,300 this year, up 66 percent from a 2010 low, according to the average estimate of 13 Phoenix market analysts surveyed by Arizona State University.
Meanwhile, investors like Major peck away at the real estate overhang. Time spent in his new $25,000 outdoor spa, the biggest cost of his foreclosure renovation, is a world away from frozen Canadian winters, he said.
“We like it at night before bed, when it’s warm and all the stars are out,” he said. “There’s an awful lot of rain and dullness in Vancouver from October to April. And it’s cold.”