Catherine Reagor and Glen Creno
The Arizona Republic
Oct. 27, 2005 12:00 AM
Zareh Tahmassebian began buying homes in metropolitan Phoenix last year. The mortgage banker was living in Las Vegas but was so bullish on Arizona’s real estate market, he decided to move into one of his 15 investment houses here early this year.
The 23-year-old has since sold half of his metro Phoenix homes and pocketed as much as $700,000 in profits. But he is not done speculating on the area’s real estate.
As he cruises the Valley in his 2005 Cadillac Escalade looking for the next hot spots, he has become part of a new trend. Investors continue to snatch up Phoenix homes at a record rate, hoping to cash in on the area’s growth. But now, more of those speculative home buyers are local. advertisement
At least one of every four houses sold in metro Phoenix last month went to an investor, but the number of out-of-state buyers was down. In May, 26 percent of all home buyers were from out of state. That number has been steadily falling and was down to 20 percent in September.
The Valley’s 50 percent run-up in home prices during the past year and a home-builder ban on investor sales have put off some speculators who don’t live here. But not Tahmassebian and other local investors counting on the Valley’s continued growth to keep houses steadily appreciating.
“I still believe in Phoenix. It’s still growing, but home prices aren’t going to go up 30 to 40 percent every single year,” said Tahmassebian, who first bought new homes in the Valley but switched to used homes after builders began limiting purchases by investors. “If you make the right moves, prices are still going to go up. If I get 20 percent, I make money.”
Almost 17 percent of homes sold in September were purchased by someone who declared it an investment on property records, according to the Information Market of Phoenix. That’s up 1 percent from January and almost triple the rate from two years ago.
But not all investors disclose if they plan to rent out a home, which is why housing-market watchers say the number of houses bought by investors is much higher.
Many of the out-of-state buyers purchasing Valley homes are also investors.
“The out-of-state bump-and-run investors who bought new homes and sold them at a profit the minute they were built are gone,” said analyst RL Brown, publisher of the Phoenix Housing Market Letter. “Home builders started limiting those deals early on, and that helped spur buying in the resale market.”
He said more investors now are local long-term buyers and landlords who don’t need to make a profit in 30 days.
Moving on
Tahmassebian began speculating on houses in Southern California a few years ago, before following the housing boom to Las Vegas in 2003. But after home prices jumped 50 percent in Sin City, he sold many of his properties for a hefty profit. Then last year, he began buying in metro Phoenix, betting it was the next city poised for big price run-ups.
It was, thanks to speculators like him, as well as new residents and first-time buyers.
But now that the typical metro Phoenix home costs $263,000, almost $40,000 higher than the national median home price, housing speculators are looking for the next city where low home prices and growth will let them make money fast.
Tahmassebian has begun buying homes in Albuquerque. It, along with Boise, Idaho; Austin and Dallas, is drawing the same investors who bought in metro Phoenix last year.
Many early investors in the Valley bought new homes when subdivisions first opened and prices were at their lowest. By the time the house was built nine to 10 months later, the price had jumped by 20 percent to 30 percent. Many of those investors sold for a profit before the paint was dry on the house.
But early this year, builders, fearing a repeat of Las Vegas’ problems, began limiting, or banning, investor buying in their communities.
Housing investors rolled into the Nevada city in early 2004, many of them from high-cost housing cities in California. They began buying new homes, pushing up prices. Some analysts estimated two out of every four new homes in Las Vegas were being purchased by investors because subdivisions were completed but had few residents.
Pulte Homes slashed some Vegas prices by $100,000, and others cut, too. Investors shifted to the city’s resale housing market, pushing up prices there before flocking to metro Phoenix.
Vegas housing analyst Dennis Smith said greed took over and locals followed out-of-staters into the investment market. That led to a big increase in used-home listings and an evaporation of demand in new subdivisions. Las Vegas home prices climbed 11 percent in the past year, compared with 50 percent the year before.
“When the locals saw what prices were doing, they jumped on the bandwagon,” Smith said about Las Vegas. “When you get that thought process imbedded in the population, you are going to have a run-up in prices. It was a very unrealistic period of time.”
Buy, sell or hold
Metro Phoenix home-price gains are now beginning to slow. After posting 6 percent to 8 percent monthly jumps early this year, the Valley’s median home price climbed only 1.5 percent in both August and September.
Aaron Korges of Phoenix has been investing in Valley homes for the past five years and has bought and sold 20 properties. The owner of Tempe’s Desert Autoplex owns two homes, a townhouse and three residential lots in metro Phoenix and keeps looking for good deals.
“A lot of people are still moving here,” he said. “There will always be a market for affordable houses. They may take longer to sell, but the market is still strong here.”
He doesn’t want to invest in other markets that he can’t see or track as well.
But other housing speculators are moving on. Real estate agents say the recent uptick in Valley home listings shows investors are trying to sell.
Jim Sexton, owner of Phoenix real estate brokerage John Hall & Associates, says his agents are seeing more houses for sale that are vacant and have lockboxes. “That means an absentee seller,” he said.
There were less than 9,000 homes for sale in Maricopa County around April of this year. Less than two weeks ago, the figure was 15,000. Now, Sexton said, there are more than 17,000.
The increase in homes for sale means more opportunities for local buyers and investors. Korges had to bid against many out-of-state investors earlier this year.
Real estate agents say many first-time buyers, who lost out to investors paying cash for properties they hadn’t even seen, may finally have a chance at getting a home now.
But some investors are holding because the number of houses being bought and turned into rentals was near a monthly high in September, reports the Information Market.
Too many rentals in a neighborhood can deter other buyers, reduce home values and lead to blight.
Also, investors who can’t find tenants might sell for a loss, and that could drive down all Valley home values.
Sexton said the easy money is gone in the Phoenix area.
“A lot of people have gone to a cocktail party or two and decided, ‘Sure, I can do this.’ They found houses that needed carpet and paint and made $30,000 in 60 days,” he said.
“That’s not happening anymore.”