Surely these are signs of a market bouncing back right? Just when you thought it was safe to take your head out of the sand we had a headline that Phoenix shares the highest office vacancy rate in the nation with Detroit, MI at 27+%. Ouch. The caveat is that at the bottom there will be signals in both directions.
What one has to understand is multi family on the commercial side, and residential, always turn up before office, industrial and retail.
Multifamily hasn’t had a negative signal in some time now. It has led the local real estate market upward beginning a year ago. This past month we had an A class property close for under a 4 cap (3.6). That is truly buying on a pro forma outlook as any slight downward turn and that property will begin to lose money. The REIT that purchased would probably have had a better return in one month buying iShares silver ETF than they will the first year. That aside, it shows how competitive the multifamily market has become in Phoenix, AZ.
Residential (which multi family is NOT considered to be part of) had its best month (March 2011) since the peak of the bubble in 2005. March 2011 was the first month retail sales broke the 10,000 level since 2005 and was only the third month to ever do so (both of the previous 10,000+ months were in 2005). What is even more interesting is Dec 2010 was the best December ever for sales volume. Jan 2011 was the best January ever for sales volume, Feb 2011 was the best February ever for sales volume and March 2011 was the best March ever for sales volume. Is anyone starting to see a trend here? Currently 2011 is ahead of the best year ever, 2005 but only by a few percentage points. Nevertheless it is moving at a fairly breath taking speed.
The biggest difference between 2005 and 2011 is the inventory. In 2005 there was less than one months inventory and currently there is roughly just under 30,000 homes as “active” with another roughly 7500 as “active with contingencies.” Most of those “active with contingencies” are short sales with an accepted offer by the owner, with the contingency being the bank has to approve it. So we have roughly 3 months inventory.
What is startling is the rapid pace in the drop in inventory from over 40,000 actual active (not including AWC as those have offers with contingencies) to below 30,000 in one quarter. The first quarter is NOT the most active quarter of the year. Traditionally the busiest quarters have been the second and third quarters. If we extrapolate from the past 4 months, the inventory will drop by summer into less than 20,000 active homes on the market. A strong sellers market. That will put strong upward pressure on home prices. If it is ANYTHING like the multifamily market, when buyers smell blood, ie a lack of inventory, they get very competitive very quickly and prices jump quickly.
The real question is how MUCH inventory are the banks truly sitting on locally, and how much will they release onto the market? If inventory drops significantly and prices go up, will they dribble it out to get top dollar for their beaten down portfolios or not?
Stay tuned…..
If you would like to discuss the current Phoenix Commercial Real Estate market feel free to call me at (602) 692-4288.
Marc Brodeur BS, DC
Phoenix Commercial Realtor
Marc@PhoenixCommercialRealEstate.com
Direct (602) 692-4288
www.PhoenixCommercialRealEstate.com
Copyright © 2010 by Marc Brodeur – All Rights Reserved – Irrational Exuberance in Phoenix, AZ Multifamily and the Best Residential Month Since 2005
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You bring up a good point about residential real estate. Although I think investing in REITs can be good no matter which kind you invest in, commercial or residential. The thing to look for is a REIT that has a diversified portfolio, like a Cole REIT. Cole invests in retail, office and industrial real estate and they’re all over the US, which seems to be another quality to look for in a REIT.