The Jacaranda tree is known throughout the world as a welcome and sure emblem of spring and new growth. Not a bad symbol representing the national and international recognition of a suddenly growing, appreciating ‘spring’ market in Arizona.
In our April blog we acknowledged and dug deeper into this spring surge making the observation that what is energizing the market is investor cash targeting properties mostly under $400K. We further speculated a trickle-up to appreciation in the mid and upper price ranges as only a matter of time. The reason for confidence in this trickle-up theory is the underlying metrics.
Wherever you look the fundamental trend is the same—an ongoing drop in the supply of inventory coupled with an increase in sales activity. That activity, or demand, seems only muted by the lack of supply.
At the street level, agents report in many instances that the market is picked-over, leaving over-priced or less desirable properties where there is inventory.
Clearly the market is starved for new inventory. So why isn’t there a pent-up supply of homes coming to market from sellers who have been waiting for the market to turn? After all, particularly in the mid and upper price ranges, there are far fewer distressed properties to compete with (that otherwise have been suppressing prices).
One answer is pretty obvious—loss of equity. Part of what makes the demand so brisk is that prices are so low—rolled back about a decade. That means that even if you’re a potential seller who isn’t under water (owe more than the market value of your home), you’ve lost equity and quite naturally, that gives you pause.
But as a seller there is an upside you want to consider. To the extent you are also a buyer, it may all even out, as you’re buying into that same discounted market.
And there are other factors you may want to consider as well. Interest rates for one. The record low rates can’t be sustained indefinitely. They are artificial, as the Feds keep rates low to prop up the ailing housing market. But as rates inevitably rise, affordability for buyers is diminished accordingly. It goes like this: For every 1% rates increase for a borrower getting an 80% loan, the effective price of the home goes up about 10%. That’s because of what the difference in payments makes in purchasing power. This not only effects buyer incentive, but mutes the potential for appreciation for sellers accordingly.
What is a given is that it will take years for the catharsis of the burst housing bubble to play out. In the mean time it is fair to say this may be the best opportunity in 5 years for sellers to make a move.
What has always been true, but even more crucial to a successful outcome in navigating a market in rapid transition, is getting the help of a specialist. A conversation with a Realtor who knows your neighborhood would be a smart thing to do in considering your options. As with the relatively narrow window of opportunity to enjoy the Jacarandas in bloom, time is of the essence.