Thousands Move To Valley, Many Seek The Holy Grail Of Housing. By Catherine Reagor-Burrough, Glen Creno and Ryan Konig Ron and Lisa Spencer had a long list of demands for their new house. It had to be bigger so the young couple with three children could plan a larger family. And they wanted to be in a friendlier neighborhood. The Valley's red-hot housing market made it happen. They sold their three-bedroom place in Peoria and plunked the $25,000 of appreciation into a five-bedroom, $200,000 house in Gilbert. Their mortgage is higher but their Power Ranch house now sells for $30,000 more than they paid just five months ago. They've already had dinner with the neighbors and they're happy with their new church. Low interest rates and a constant flow of move-up buyers, new residents, investors and former renters drove Greater Phoenix housing sales in 2003. At the same time, bargain shoppers and the relentless growth in the number of homes kept prices stable. A record 127,000 new and used homes sold across the city as most neighborhoods saw prices increase around 7 percent, according to The Arizona Republic's 2003 Valley Home Values report. Price increases may seem paltry to some homeowners and buyers spoiled by double-digit price jumps in value. But overall Valley home prices were more stable in 2003 with fewer areas posting drops or unsustainable jumps. "Prices flattened out just like interest rates," said Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Housing values climbed enough and interest rates stayed low enough to help the Spencers move up. They took a five-year adjustable-rate mortgage that has a $1,400 payment, higher than the $800 they paid in Peoria but they're making it work. Lisa works part time at a Target and is launching a baby-clothes business on eBay. Her computer-technician husband travels the Valley from his office near Paradise Valley Mall. But because so many buyers took advantage of low interest rates, economists expect the housing market to slow down slightly this year. If inflation climbs and takes interest rates with it, the housing market could slow even more. ASU put the Valley's overall home appreciation at 6.3 percent last year. That's higher than the 5.6 percent national increase but far from runaway leaps of appreciation. Such leaps sparked fears of a housing bubble that could burst and take the home prices down with it. At the same time, demand for new and used homes in Greater Phoenix continues to swell as more people pour into the area. They're after the holy grail of housing: affordable homes in a sunny climate where job growth is expected to rebound before most of the country. Cheaper in Phoenix Artist Lawrence Taylor relocated to Arizona last year from Palm Desert, Calif. He had moved there for the affordable prices after selling his small place in San Francisco for $500,000 but after a few years wanted a house with more studio space. But Taylor, 59, was shocked at how prices had climbed in Palm Desert. He said the "low-end" of the market there is a 1,200-square-foot house built in the 1950s that costs $275,000. Now, Taylor is buying a 3,000-square-foot house that's under construction near the Mayo Clinic in Scottsdale. The place has 12-foot ceilings, three bedrooms, three baths, a big courtyard and a large lot. "Utilities are cheaper, the phone is cheaper," he said. "It's these little things that you don't pay attention to. You become numb to them in California. You don't know until you get out and start looking." The house will cost $500,000, but Taylor figures the same place in Palm Desert would be $750,000. Housing prices and the overall cost of living cinched the deal for him in Arizona. He's even looking for a house to buy and keep as a rental. "There's no disconnect in Phoenix's housing market," said David Lereah, chief economist for the National Association of Realtors. "It's in better shape than many other areas because it attracts so many people, and home prices aren't out of whack with the local economy." The buyers fueling the Valley's housing market are diverse, but most are enticed by the lowest mortgage rates in 40 years and some of the most reasonable home prices in the West. * First-time buyers are stretching the Valley's boundaries looking for the biggest home with the lowest mortgage payment. * Families are cashing in on steady appreciation and moving up to larger homes or closer in for better school districts and shorter commutes. * Retirees continue to purchase homes in not only age-restricted communities but also regular subdivisions. * Second-home buyers are finding posh bargains across the Valley and investors are snatching up homes, betting on the area's continued growth and continued housing appreciation. The Spencers bought farther out than they had initially planned, but it's worth it for Lisa to be closer to her family in Mesa and, she said, to live in a neighborhood where they are making friends. They're plugged into the new schools and have found a new church. When the Santan Freeway is completed, they will have better driving access. "This was outside my circle as to how far out I wanted to live, but there weren't any other houses being built on Power Road that fit our price range," Lisa said. "This neighborhood's really booming." The family is in what housing market-watchers call a "sweet spot," a combination of price, size and location that appeals to a broad range of buyers. "The market is still rocking along," said Neil Brooks of Century 21. "Anything nice under $250,000 sells pretty quickly." Affordable, affordable ... The median price of an existing Valley home climbed to $155,000 in 2003, up 7 percent from a year ago. The price of a new home reached $176,500, posting a similar increase from the year before. Housing analyst R.L. Brown of Home Builders Marketing said house shoppers chasing affordable neighborhoods need to move much faster these days. He said prices can climb quickly in new developments as costs of land and impact fees escalate. "The affordable spots are farther and farther out," he said. "It's amazing how quickly an emerging area becomes less than affordable. That used to take years. Now, it's months and maybe, in some cases, weeks." Daniel and Aaren Esh wanted to buy in Glendale's Arrowhead development but ended up going to Peoria to find a new 1,772-square-foot house built by KB Home for $156,000. The couple had been renting an apartment when they moved in with relatives to save for their down payment. Rising prices actually entice some buyers to act quicker than their fears of an uptick in interest rates. "When buyers see home prices rising, they decide to jump in to the market while they can still afford housing," said Raphael Bostic of the University of Southern California's Casden Real Estate Economics Forecast. He called it the ultimate buy-and-hold strategy, which is the opposite of speculating on real estate. Leveling off? Analysts who are calling for the market to cool say home prices will continue to level off. But don't expect any huge drops unless more people lose jobs. Still, the crystal-ball gazers also promise that 2004 will come in a close second to 2003. Housing prices nationally are expected to climb 4 to 5 percent. Realty Executives President John Foltz said not to expect any surprises from the Valley's housing market this year, which is good news. "Phoenix's housing market is sturdy now," he said. "Sales and price increases may not be dramatic this year, but they will be steady."
April 4, 2004