The real estate market has turned around in some parts of the U.S., but many buyers aren't seeing true bargains anymore. Investors are driving up prices, and inventory is low, especially for homes priced under $250,000. That's not great news for anyone hoping to buy an affordable house to live in.
Arizona is home to one of the nation's extraordinary turnarounds. The Phoenix-area median home price rose 20 percent over the past year — 6 percent in March alone. And Tucson was recently named the nation's best market for investors. But the easy money has already been made.
Tucson firefighter Keith Cubberley buys distressed property in his spare time. The brick house he bought recently in an older middle-class neighborhood was trashed. "It was dirty and people hadn't done anything to take care of the property for the last 40 years," he says.
So Cubberley gutted it, and now he has workers fixing it up. When he's done, he'll resell the house. But buying low-end real estate like this, he says, is getting harder.
"Anything $100,000 and under ... [is] selling very quickly," he says.
Inventory Down, Prices Up
Tucson real estate agent Steve Marshall, who specializes in finding homes for investors, says a lot of homes that would have sat on the market a couple of years ago are now getting multiple offers.
"They're starting to list their properties higher than what they used to," Marshall says. "Property that would've listed for $20- to $30,000 is now listing for $50- to $60,000."
About a quarter of all home sales in Phoenix and Tucson are to investors — people looking to fix and flip or fix and rent, or people looking for a second home.
Mike Orr, a real-estate researcher at Arizona State University, says a lot of people are still looking for bargains, but the deals are harder to find. He says prices are up because inventory is down — there are fewer homes on the market. There are also fewer foreclosures — about 60 percent fewer than last year in the Phoenix area.
"Although we still have a flow of foreclosures taking place, it's dramatically down from the worst situation, which was kind of 2008 through 2010," Orr says.
Homes worth more than $250,000 are moving up in value, too, but more slowly. Rising prices are good news for Arizona homeowners who saw their property plummet in value since 2008, but Orr says the investor frenzy on the market's low end is bad news for people who just want to buy an affordable home and live in it.
"When an investor is buying, they will very often offer cash and waive the appraisal contingency," he says, "and that is very attractive to a seller because they know the deal is almost certain to go through."
Sellers don't have to wait to see if a buyer has good enough credit to get a mortgage, and the relatively tight credit is helping to keep the rental market strong — more good news for investors looking for tenants.
A Welcome Turnaround
Keith Cubberley wants to resell the fixer-upper he bought, so he's keeping a close eye on expenses. The market is just turning around, after all, and he wants to price the house so it sells quickly to a homebuyer or another investor who will rent it out.
"Ultimately someone's going to move in here who's going to enjoy it, so it's good for everybody," Cubberley says. "We make a little money, the neighborhood gets cleaned up, [and] someone gets a nice house."
Having an empty home occupied is good for any neighborhood, though what's happening in Arizona isn't happening everywhere. In some markets like Atlanta, Chicago and Las Vegas, prices continue to fall. Expensive markets on the coasts haven't caught up yet, either.
Arizona, however, and especially Phoenix, experienced one of the biggest bubbles and biggest busts. So this turnaround is especially welcome.