Article originally posted on AZ Central on June 25, 2018
A new national report calls metro Phoenix one of the most overvalued housing markets in the U.S.
And while first-time home buyers repeatedly getting outbid on houses priced under $350,000 might agree, Arizona housing analysts say not so fast.
Calling Phoenix overvalued brings back painful memories of the housing market’s boom and bust. So I reached out to the experts who were here for the crash and asked their opinion on the New York-based Fitch Ratings report.
“I absolutely don’t think the overvalued statement applies to metro Phoenix’s housing market,” said Mark Stapp, executive director of the Master of Real Estate Development program at Arizona State University’s W.P. Carey School of Business.
Valley housing analyst Jim Belfiore said he doesn’t believe the report at all.
“The reality is that housing prices are dynamic and based upon true supply and demand,” he said.
And Tina Tamboer, senior housing analyst with the Cromford Report, said, “I don’t believe Phoenix is overvalued, yet.”
I’ll get back to Tamboer’s “yet” comment. But first, a deeper look at Fitch’s list.
Las Vegas was named Fitch’s most overvalued housing market on its latest ranking. Sin City’s home prices are 20 to 24 percent “overheated,” according to their report.
Earlier this year, Dallas topped the ranking with Fitch calling home prices in the market 15 to 19 percent overvalued.
Housing analysts from those areas disagreed with the rankings.
Fitch has ranked San Francisco and Los Angeles as overvalued for a few years. Fewer housing market watchers dispute home prices are out of the reach for a growing number of buyers in those markets.
I asked Fitch to define how it determines what housing markets are overvalued.
“As per Fitch’s criteria, overvalued denotes a housing market where the home price growth is outpacing the economic fundamentals necessary to sustain the rate of growth,” said Grant Bailey, managing director of the rating firm.
Metro Phoenix income versus prices
Many economists call a housing market overvalued when the area’s median home price is six times its household income.
By that definition, the Valley’s housing market isn’t overheated.
The median home price in the Phoenix area is currently about $260,000, and the household income is about $60,000.
But home prices have been steadily rising. That, as well as the bidding wars for affordable homes, has some concerned about another housing bubble.
Phoenix home price check
Home prices in the Valley climbed about 6.5 percent last year and 7 percent in 2016. Now, the median is poised to reach 2006’s record this year.
For comparison, metro Phoenix home prices climbed 40 to 50 percent during the boom of 2005-06.
Tamboer said the Valley’s home prices can’t keep rising at the current rate for the market to be healthy.