Low buyer demand has put a damper on the Valley housing market for the past 15 months or so, but things have suddenly turned around this month and it may set the tone for the rest of the year.
On any given day in February, the number of homes under contract, or in escrow, spiked by more than one third compared to a year ago for price ranges between $150,000 and $600,000, according to a special report released Friday by Arizona State University’s W.P. Carey School of Business.
ASU publishes housing reports every month, and February’s report, which outlined December housing data, was released early last week.
But when Michael Orr, the reports’ author and a housing expert at ASU, noticed the recent sudden spike in homes under contract — data the Arizona Regional Multiple Listing Service does not typically share with the public — he said it was significant enough to write up a special report.
“It’s so strong this time and it’s across most of the geography that I thought it was worth reporting on it because it smells to me like something's different,” Orr said.
It’s hard to know exactly why this is happening, but Orr said it’s definitely not due to the big crowds that flocked to the Valley over Super Bowl weekend, although the timing was somewhat uncanny.
“It’s that time of year when demand picks up anyway if it’s going to,” he said. “And I don’t think people come for the Super Bowl and go out and write a contract on a home.”
Some possible explanations include easing lending standards and an rising number of “boomerang buyers,” meaning those who lost their home to foreclosure and are locked out from obtaining a new mortgage for a set period of years.
Household formation, a key indicator of home buying activity, may also be playing a role.
“If you look at the Census numbers about household formation, they have just rocketed up for the last three months from a very low point. So it may not be just Phoenix this is happening,” Orr said.
Household formation is when a new renter or homeowner enters the U.S. housing supply, such as when children move out of their parents’ home.
The latest available U.S. Census Bureau data shows household formations surged to 1.3 million housing units during fourth quarter and 1.7 million total for the year. That’s a substantial increase from the tepid 500,000 or so housing units that formed annually during the Great Recession.
“Last year was unexpectedly weak for demand, and I’ve been thinking it’s got to come back at some point,” Orr said.
Generally, he said whatever happens in February sets the tone for the rest of the year.
That said, there aren’t many sellers right now, which hasn’t been an issue because of low buyer demand in the past year. This is why overall home sales dropped 14 percent year-over-year last year Valley-wide and the median single family home price climbed only 5.4 percent.
But if this new trend continues, Orr said buyers might find eventually themselves in bidding wars as they did just a couple years ago.
