The Cascade Team Blog

While the increase in home values over the last two years, from an almost five year fall to the lows, home buyers and sellers are concerned that Phoenix may be heading towards another bubble.  While it is only normal to worry about losing money or going under water on home values, based on the available data, Phoenix does not appear to be heading for another bubble.

Michael Orr, the Director of The Center for Real Estate Theory and Practice at Arizona State University, described what is happening right now in Phoenix as "a fast bounce."  "If prices can go down fast, they should be allowed to go up fast as well," he in a recent commentary on the Phoenix housing market.

One of the main reasons for the severe downturn was investors who had come looking to make some quick money in the Phoenix real estate market, pulled out and simultaneously defaulted on their loans forcing a high number of foreclosures. The new investors are groups that have staying power and are looking at the Phoenix housing market from a longer-term perspective.  Many of these houses have been paid for in cash making default a non-issue.  This also forces these investors to stay in the market for the longer term and are turning many of these homes into cash flow opportunities as rentals.  In addition, todays banks are only providing financing to buyers that are well qualified and are typically not purchasing homes as investments.

According to Michael Orr, "The idea that there is another bubble in the real estate market is absurd. We are just seeing a normal reaction to lack of supply. Prices are still below the long-term trend line and none of the conditions that define a bubble are currently in existence." He also added that bubbles rarely burst a second time in a market that had such a severe correction as Phoenix.

Along with housing price increases, we have also seen an increase in overall employment, which is allowing people to re-enter the housing market.  Just a few weeks ago Apple announced the opening of their new manufacturing facility in Mesa, which just passed a vote of the Mesa City Council and the Gilbert School Board.  In addition, several other large companies are looking to relocate to Arizona which will continue to bolster the job market in The Valley.  Given these facts, it would appear that home values in Phoenix are sustainable and will continue to climb upward in 2014.

Some content used from "Is the Housing Boom in Phoenix Creating Another Bubble?" By - Anita Verma-Lallian