Rise in housing prices in Arizona outstrip nation

PHOENIX — In a turnaround that may be nothing short of amazing, the price of the average home sold in Arizona during the second quarter of the year rose more in the last year than anywhere else in the country.

New figures from the Federal Housing Finance Agency show a year-over-year hike in sales prices of 12.9 percent. By contrast, the national average barely cracked 3 percent.

And prices in just the last quarter are up close to 6 percent.

What makes this particularly noteworthy is the same report issued one year ago showed exactly the opposite. The FHFA found prices had dropped almost 15 percent from the same time in 2010.

Part of the reason for the sharp increase could be a simple question of math: With prices having dropped so precipitously, any jump in sales prices seems magnified.

But Michael Orr said that there may be a bit less to the increase than the pure numbers show, at least as it affects the typical Arizonan.

Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business at Arizona State University, said much of the market is being driven by investors anxious for a bargain. As the inventory of affordable homes put up for auction dries up, he said, the investors find themselves bidding against each other.

He said, though, that this double-digit increase in sales prices recorded by FHFA, driven a lot by sales to investors, does not necessarily reflect a similar increase in the value of all Arizona homes.

“It depends on what you measure,'' he said.

Other parts of the new report bear that out.

While the statewide figures are based solely on sales prices, FHFA's reports for several Arizona metropolitan areas are calculated on a different basis. They takes into account not just what homes are selling for but also the value of the homes as calculated by appraisals done when houses are refinanced.

The differences can be quite stark.

In the Phoenix metro area — one of just 25 nationwide where FHFA uses both yardsticks — the change in home prices alone between the second quarter of this year and the same period last year exceeds 13.9 percent. But the broader housing price index for the Phoenix metro area, including refinancings, pegs that year-over-year gain at less than 6 percent.

Elsewhere in Arizona, only figures with the broader index are available.

In Yuma County, the federal agency shows home values still actually sliding a bit, down 0.7 percent from the same time a year earlier. For the quarter, the average is down 0.2 percent. And it has a long ways to go to recover from 36.1 percent decline of five years ago.

Orr said one difference between the housing value increases in the Valley and the softer numbers for rest of the state is that issue of speculators pushing up prices.

“They tend to focus on the Phoenix area rather than on the smaller counties because they get a lot more done,'' he said. Orr said it makes little sense for an investor to drive to a smaller county in hopes a particular home might be put up for auction “whereas you've regularly got a hundred a day to choose from in Maricopa'' County.

It was interest by speculators in Arizona homes in the last decade that became one of the reasons for the burst in the bubble — and the resultant sharp drop in housing prices. He said many of them were snapping up vacant houses in hopes of making a quick buck, counting on ever-increasing prices to let them turn around the properties in a few years at a tidy profit.

But Orr said the current crop of investors has a different agenda which should prevent a similar fiscal calamity.

“Investors are not buying empty homes,'' he said. “They're buying homes to put people in.''

And that, said Orr, changes the dynamics.

“If an investor decided to bail, take its money, it would not only be selling a house,'' he explained.

“It would be putting a family out on the street,'' Orr continued. “So you're not creating extra supply (of houses) without creating extra demand.''