Michael Orr Director Center for Real Estate Theory and Practice August 20, 2014

1. Greater Phoenix Housing Market Michael Orr Director Center for Real Estate Theory and Practice August 20, 2014

2. The Market Cycle Euphoria Unease Exhilaration Denial Enthusiasm Enthusiasm Pessimism Optimism Optimism Panic Relief Hope Capitulation Skepticism Despair

4. Another +50% to reach the peak! +60% Sep 2004 Jul 2008

5. Most Home Prices Are No Longer RisingSome Are Falling, but Not Much

7. Normal Listings Only

8. Southeast Valley Cities + Ahwatukee

9. Southeast Valley Cities + Ahwatukee Normal Sales Only

10. Prediction Is Very Difficult, Especially About the Future - Neils Bohr (1885-1962)

11. Normal = 100 for all gauges

12. 12 Months Ago

13. Balanced Market Buyer’s Advantage

16. Where Are the Boomers? • Sun City West (median age 75.8) • Sun City (73.2) • Sun Lakes (70.9) • Gold Canyon (61.8) • Fountain Hills (52.9) • Cave Creek (50.6) • Paradise Valley (50.4) • Apache Junction (47.3) • Litchfield Park (46.4) • Scottsdale (45.1) These markets are relatively robust

17. Where Are All the Buyers? • 232,767 have been foreclosed since 2008 • 19% of the home owners in Maricopa County • 83,849 have completed a short sale since 2008 • 7% of the home owners in Maricopa County • So 26% of former owners have a credit issue • Most are locked out from loans for 7 years • Peak foreclosures were 2008-2011 • Peak eligibility to buy again is 2015-2018 Some of this demand will emerge more strongly next year

18. The Penalty Box

20. Millennial Impact on Housing Market • Starting families later than earlier generations • Lower birth rates • Many still living with parents • Higher preference for urban lifestyle • Tendency to share accommodation & transport • Not convinced home ownership is good for wealth • Expect to own a home…one day • Not a high priority for them in 2014 • Mostly renting – creating demand for landlords

22. Where Are the Millennials? • Tolleson (median age 26.7) • Avondale (28.1) • Tempe (28.1) • El Mirage (28.2) • San Tan Valley (28.2) • Queen Creek (28.9) • Buckeye (30.2) • Maricopa (32.1) • Gilbert (32.2) • Phoenix (32.2)

23. Single Family Rentals

24. Single Family Rentals • Investors pulling back but tenants still coming • Only 3,048 SFR rental listings on ARMLS • In January there were 4,345 • This is only 36 days of supply • Most of what is left is expensive (avg $1,760 pm) • Average in January was $1,449 pm • Condo rentals are now getting harder to find (63->48 days supply)

25. Maricopa County – SFR / Condo Homes Increase in Assessed Value of Residential Inventory in Last 2 Years = 43%

26. Supply of New Listings at a 14-Year Low

29. Annual Sales Volume Unusually Low and Still Falling

31. Almost Everything Is Below Normal

32. Situation Summary – August 2014 • Supply is below normal & falling (87% of normal) • Demand weak but stable (81% of normal) • AZ loan delinquency below normal at 4.5% • Foreclosures are below normal • Investor buys are below normal 40% -> 13% of sales • Cash transactions decreasing 42% -> 21% • Out-of-state buyers below normal 29% -> 17% • Expect a little price weakness in the rest of 2014 • Expect market to improve for sellers during 2015

39. New Homes Still a small part (10-12%) of the market

42. How Will Demand Return to Normal? • Mortgage applications are at their lowest level since December 2000 • Lenders will start approving applications from people with lower quality credit history • Rents will increase, driving more tenants towards ownership • Millennials will eventually join the game • Supply will become an issue once again

45. Michael Orr Director Center for Real Estate Theory and Practice