Housing

Investors pushing locals into tight rental market

Phoenix-area home inventory hit record low in January

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The Phoenix home buying and rental markets are both heating up, with much of the new money flooding in from out of state.

Investors have deemed the nation’s fifth-largest city and its surrounding areas a target for their liquid assets.

Recent data from Zumper shows Scottsdale is the 10th most expensive market in the country. In September 2021, median rent for a one-bedroom apartment in Scottsdale rose to $1,850 — a 24% increase over the year before. That’s in line with the massive rent spikes seen across the Valley during the past year. The Zumper data puts Phoenix’s year-over-year rent growth at 22%, 21% for Mesa, 23% for Glendale in the West Valley and Gilbert at 25%.

The report also pinpoints neighborhoods such as Arcadia Lite and Lower Arcadia, Gilbert, Mesa, Avondale and Garfield in downtown Phoenix as areas of interest for future investors hoping to snap up Valley real estate in the coming months as home values continue to appreciate.

Trevor Halpern, founder of Halpern Residential at North & Co., has seen the market evolve significantly during his past decade in the real estate business. He said even with Phoenix home prices increasing and inventory decreasing drastically, investors still think the market is worth investing in.

“You look at home prices in Seattle, you look at home prices in Los Angeles, and we still are perceived as a value here in Phoenix when compared to those markets,” said Halpern. “They still think that Phoenix has quite a long way to go in the appreciation game so investors still think it’s a worthy endeavor.”

That’s in stark contrast to what’s available for the average consumer living in the Valley who needs a loan to help pay for a home and is often losing out to all-cash offers from investors, he said. Home prices are increasing 10% to 20% each year, pushing the rental market into an all-out frenzy.

“As people are having more and more difficulty finding a home to purchase, their next alternative is to rent,” said Halpern. “So there’s been a lot of demand in the rental market, both from investors seeking income-producing properties and consumers trying to find places. The only market that’s tighter than the residential resale market is the residential rental market.”

While most of the Valley is thriving, Halpern suggests investors or buyers do their research on different neighborhoods that best fit their needs, whether that’s a short-term Airbnb or a longterm home investment.

“If you blindly threw a dart at any part of town, you will see rental increases and appreciation in the value of that asset,” he said. “What you really want to find is a neighborhood that matches what your overall goals are.”

David Swaim, broker and co-owner of Service Star Realty, handles more than 850 single-family rental homes in the Valley and has seen it all. Now, rent increases are leaving tenants with sticker shock.

Swaim said the area’s average rental price in January 2020 for a 1500- to 2,000-square-foot home was about $1,600. In the beginning of 2021, it was $1,825. As the region enters 2022, it’s $2,195. Sale prices have also gone up by 30% to 40%. And it’s likely not stopping anytime soon as people continue to move to Maricopa County.

“The demand is so high and the supply is so low and there’s no relief in sight for the supply to increase, and there’s no reason or belief that the demand is going to change or get less,” according to Swaim. “So there’s a couple of things that can work with that, like higher interest rates could slow down somebody’s desire to buy, but that doesn’t stop an influx of 10,000 people not coming in.”

Swaim suggests investors look beyond central Phoenix for cheap properties that will appreciate, even if it takes a while. He pointed to Coolidge as a target for 5- to 7-year investments, or the outer corners of Buckeye.

“They get a lower price and a better cash flow, but the appreciation will take longer,” he said of Phoenix’s far-flung cities. “If you buy closer in, then you’re going to pay more because the price is higher, but you might get a quicker bump in value.”

With the supply of available houses so low, Swaim said investors should be patient and not expect sellers to knock the sale price down in a crowded market.

“Be patient, be happy that you got a property and then watch it grow,” he advised.

Erik Humphrey, co-owner and manager of SGI Property Management, said there currently is not enough inventory for both investors and families looking to buy. The Arizona Regional Multiple Listing Service recorded just 5,700 active homes for sale on Jan. 1 of this year — a record low, he said. According to Humphrey, a balanced market typically sees about 25,000 active listings.

“Investors obviously have the upper hand in the current market because they are more often paying cash or putting larger amounts down to purchase, which makes it tougher for the families that want to purchase to compete,” he said. “It is not a fun time to be a family buyer in this market.”

Humphrey said areas like Casa Grande, where SGI manages 80 homes, are becoming a hot spot for investment properties because of the area’s potential future growth. He suggests investors diversify their portfolio with properties in several different neighborhoods around the Valley as well.

“With large companies like Lucid Motors and others building centers there, it’s looking attractive for investors to purchase homes and get good performing tenants,” he said. “Phoenix is only about a 30-40 minute drive from Casa Grande, and parts of the East Valley are even closer.”

Frank Morales, the lead for Arizona field operations and leasing at Nomad Properties, said the rental market has exploded in just the last few months.

“The rental market has continued to tighten for several years now,” he said. “We get multiple applications on most homes in the first few days after they’re listed. This wasn’t the case even six to eight months ago.”

Morales said there are several hidden gems in Maricopa County being hit by more investors, including Queen Creek and Goodyear. He also sees areas such as Maricopa and, like Humphrey, Casa Grande as potential targets for future growth due to the sheer amount of homebuilding occurring there.

“The far west and east areas of the Valley have definitely seen an increase in growth activity for investment rentals,” he said. “The availability of newer homes at reasonable prices still exists in these areas. Queen Creek and Goodyear are good examples of this. Typically prices escalate as you get closer to metro Phoenix.”

But Morales acknowledged rising prices are making some investors skittish when it comes to purchasing.

“Investors definitely aren’t rushing into purchases like they were 12 months ago,” he said. “The steep increase in home prices over the last few years has forced investors to methodically evaluate the numbers for each potential new deal.”

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