Nicholas Yulico
Much of the run-up in prices was due to investors pouring into Phoenix from California and other outside markets to drive up prices and flip properties for a quick buck. However, the area's economy looks strong -- even though so much of the recent growth has been tied to the residential real estate boom. The latest monthly Arizona Business Conditions Index rose to 69.7 in December, according to the W.P. Carey School of Business at Arizona State University. A reading above 50 indicates growth.
But there are some troubling signs in the Phoenix housing market in the near term. The Arizona Real Estate Center at Arizona State University, in its third-quarter 2005 update on the market, noted that there is "mounting concern" about the sustainability of the current pace. "The fundamental issue is potential homeowners with stagnant incomes confronting higher home prices and mortgage rates," the report says. "Basically, the housing market could be limited by the inability of potential buyers to afford or desire any changes in their current housing situations. "For the ever-important job market, the quarterly average has been near 90 jobs per resale home, while it's currently 65 jobs. This would imply that the housing market is growing faster than the underlying job and income elements of the economy. Historically, it has never been good for the long run when an investment begins to disconnect from the basic economic forces," the report states. The center isn't predicting a massive real estate crash in Phoenix, but says the area could fall under pressure, especially if wages stagnate.
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