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Real estate retaining its value, despite cooler market

'While putting a home up for sale may require some concessions, the seller has still gained a handsome sum'


April 29, 2006

If you worry that the Kyrene Corridor housing market may continue to cool down, consider this: Phoenix remains among the nation's top five metro areas in terms of net in-migration, averaging 130,000 people, or up to 40,000 new families, a year.

That, coupled with an unemployment rate of less than five percent, means that home sellers need have little long-term concern that their investment will go sour.

It doesn't mean that today's prices are as high as we'd like.

"Right now there is a huge oversupply of resale homes," says Jeff Lucas, owner-broker of ERA Lucas real estate offices in south Tempe and west Chandler.

"When I ran the numbers last week, there were 38,000 active resale listings; a year ago there were less than 5,000," said Lucas.

That translates to a 700 percent increase, he says, a jump that represents a record high for Valley home listings.

The larger inventory means that prices are lower, negotiation is again fashionable, and resale homes are staying on the market 60 to 90 days rather than being sold virtually overnight. Price reductions of 10 percent--$40,000 to $50,000 on a typical sale--are not uncommon.

It also has changed the seller's modus operandi, suggests Lucas. Homes need to be market ready with fresh paint, new floor coverings and other upgrades. And the seller has to be attuned to prices in the immediate market area, which typically have been declining.

While the flood of new listings represents a reversal of last year's market, in which values went up as much as 50 percent, buyers with homes purchased during that super-heated period can still count their blessings.

"If you do the math, even if average prices drop by 10 percent sellers still have realized a net gain of 30 to 35 percent," Lucas says.

"While putting a home up for sale now may require some concessions, the seller has still gained a handsome sum."

There's also good news for buyers who bought investment homes and plan to hold them: the rental market is gaining momentum.

Because of an increase in apartment-to-condo conversions (more than half of the former apartment complexes in Scottsdale have been converted), apartments are becoming scarcer.

The same trend has been spreading to the southeast Valley, where properties at Ray and McClintock, Kyrene and Elliot and Dobson and Ray are among those switching to owner-occupied status.

The conversion trend, which Lucas calls the newest niche in affordable housing, results in a shortage of apartments, a phenomenon which naturally drives up rents.

It seems to be a case where everybody wins.

"For someone just out of school and trying to get their (financial) legs under them, a sale price of $150,000 to $250,000 can be the perfect solution," Lucas says.

With five to 10 percent appreciation a year, a condo could represent an otherwise unavailable opportunity.

Likewise, he says, the trend means that investors with one or two properties probably will see an increase of 10 percent or more in rents.

Another spin-off of current market conditions, according to Lucas, is the growing affordability of homes in such outlying areas as Queen Creek, Maricopa and others.

Part of the cause, he says, is the cost of gas.

"People who bought in the fringe areas and also bought a big SUV are getting a double whammy," says Lucas.

Thus, he says, they're desperately seeking alternatives.

"These are very weak markets right now, and there will be some good buying opportunities for investors who want to hold their properties for three to five years."

So what advice does Lucas offer the typical buyer?

"Unless there's a lot of urgency, better values may be available three to six months from now," he says. The buyer's only real risk is that interest rates may continue to go up (they have increased one percent in the last year). But that seemingly doesn't worry some buyers.

"People get the sense the market is soft, and they're waiting because they think if prices are declining, they'll be able to buy for even less six months from now."


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