Just a couple of months ago, home flipping was all the rage in Phoenix. In fact, investors were so “house-hungry” here that they were bypassing lenders altogether – coming in and doing all-cash transactions, instead. And, since prices were rising so quickly, investors didn’t even have to spring for upgrades like traditional flipping was famous for. They could simply hang onto the house for a couple of months (or even weeks!), then sell it for a profit based on natural price increases around the area.
However, it’s those same price increases that may be turning off investors altogether. Now, Phoenix may simply be too expensive for investors. Remember, flippers love nothing more than a good deal – especially if they’re going to come in and pay for the whole kit-and-kaboodle with cash, instead of taking out a loan. But with home prices rising at unbelievable rates, many investors simply can’t keep up. To give you an idea of just how fast Phoenix home values are rising, let’s use November 2012 as an example. In 30 days, Phoenix’s home values went up a whopping 35%! For homeowners, that’s great news. But for investors, not so much. It means that the deals they were getting just a few months before that are long gone. Common sense tells you they wouldn’t be happy about that.
And the statistics are bearing that hunch out. In August 2012, investors made up 35% of the buyers in Phoenix. By November, that number had dropped below 28%. Yes, that’s still a significant chunk of buyers, but it’s also a significant drop, especially in such a short period of time. It’s proof that investors aren’t crazy about paying higher prices.
So, what does this mean for the future of Phoenix’s housing market? In the short-term, it’s not going to have a huge impact. Remember, investors are still making up more than a quarter of the home sales here, and that’s much more than what virtually every other part of the country is seeing. So for now, Phoenix will gladly take all of the cash that’s continuing to flow into the area!
The biggest change that the market will see over time is in the competition. With all of the investors descending on the area, “traditional” buyers here found it very difficult to buy homes. What made things even tougher on those “traditional” buyers is that they were getting financed the ol’ fashioned way, and their investor competitors were coming in with cash – and many sellers opt to deal with cash buyers, because there’s less red tape to deal with. But as the number of investors dwindles, other buyers will have an easier time getting the homes they want.
And there’s another effect of that lower competition. If investors continue to bow out and “traditional” buyers don’t have to fight as hard for the homes they want, prices won’t skyrocket as quickly as they have been. The demand will be lower, so sellers won’t be able to charge as much for their supply.
There is one thing that rising prices have on their side – a tiny supply. Homeowners in Phoenix have been hesitant to list their homes for sale, because they’ve wanted to wait until prices rose even higher. That way, they could list their homes at higher prices and make more money. As a result, though, Phoenix’s inventory is incredibly low. Thanks to basic supply and demand, the few sellers that are out there can charge more – even if the investors pack up and move out!
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