Anthem, AZ Real Estate – Are we in another bubble?

Picture of bubble


With rising Anthem home prices over the past two years there have started to be murmurs of another real estate bubble forming.   My inclination is to say no, we are not in a bubble, and here’s why.  First, yes, home prices have risen dramatically but not beyond affordability.  Second, lending practices are tighter these days.   And third, the speculative market is quite different from the market of 2004-2007.  Let’s take a look at the prices themselves first.

Phoenix, and therefore Anthem, was one of the worst hit metropolitan areas in the country during the market downturn.  On average Valley home prices took a 50-55% hit.   Some places, such as Anthem were hit even harder, upwards of a 60% decline from the peak.  As with any panic sell off there’s a tendency for a market to shoot past what the real market bottom should be.  And that’s what I believe happened here in the Phoenix/Anthem market.  Our market probably dropped about 10% below what it really should have.  When people are spooked about markets they are VERY reluctant to get back in.  Which can cause a self-fulfilling prophecy of downward pressure.  At the bottom of our market very few people were willing to dip their toe in the pool, which continued the downward slide past what the reasonable and expected market bottom should have been.  You see this happen all the time in stock market panic sell offs.  So taking that into account, and the fact that our market prices have increased by about 25% from the market bottom, the true rate of appreciation is more like about 15%.  Over a two-year span that’s a reasonable rate of growth, especially after such a steep sell off.  Now, that being said, I do not think we will continue at that pace.  As more and more homeowners find themselves getting out from underwater on their mortgages we will see more homes come on the market.  And, the builders are starting to build again, which will provide more homes on the market inventory.  These two eventualities will maintain a level of affordability for buyers coming back into the market.

Speaking of affordability, with interest rates at all time lows, and home prices still well off from the market peak of 6 years ago, buying a home here in the Phoenix/Anthem area is still a great deal.  During the market down turn many home owners were forced to short sale their homes or lost their homes to foreclosure all together.  This caused a glut of renters on the market at a time when there weren’t a lot of rental homes available.  Simple supply and demand economics dictated that rental rates would go up.  And they did, eventually driving rents past the cost of buying a home.  And now, several years after most of these people lost their homes, they’re ready to get back into the home buying market again.  And it makes economic sense to do so,  however, due to the number of investors who have come back in the market, rental rates will start to drop.  We’re already starting to see some evidence of this occurring.

In addition to home affordability, there’s another major factor different about this market.  Lending practices.  During the halcyon days of 2004-2007 the market was flooded with exotic loan package that didn’t require buyers to have down payments, didn’t require buyers to have good credit, and in some cases didn’t even require buyers to show proof of employment.  For the most part, those days are gone.  Thankfully so.  Nowadays a buyer will have to have a minimal down payment (there are still some exceptions, ie. VA loans), good credit, a job, and income to debt ratios that are reasonable.  They way it should be.  These changes have made it more difficult for buyers to purchase, but it’s brought about a more stable cadre of home buyers into the market.  Buyers that will be able to stay in their homes for the long-term and who will be able to persevere through future economic road bumps.

As I mentioned, over the past couple of years real estate investors have come back to the Phoenix/Anthem market at full throttle.  But this breed of investor is a bit different from that of the run up in 2004-2007.  And the main difference is cash.  The investors of the market run up of 8 or 9 years ago were amateurish group of investors.  Many of them were investing based on the principal of using other people’s money.  Often these investors would secure 100% financing to purchase their investment properties, banking on the rising home prices to be their return on their investment.  When the market turned south these investors were left holding the bag, often with negative cash flow investment properties, thereby leading to a rash of home foreclosures as these investors dumped their investments and headed for the hills.  Although we have seen a flurry of fix and flip investors come into this market, the majority of the investors we’ve seen are the buy and hold type.  They’ve got cash and they’re looking for solid long-term cash flow returns on their money.  Even the fix and flippers were smart enough to use cash this time around.  So, if the market does take an unexpected down turn or level off, these investors won’t be hurt, because as long as their investment homes are returning a nice rental income month in month out, appreciation, although nice, is not mandatory for them to make money on their investments,  thereby creating a much more stable real estate market.

So in conclusion, although we have seen a significant increase in home prices over the last couple of years here in the Phoenix/Anthem real estate market, factors such as over correction, home affordability, tighter lending practices, and a more stable investor class leads me to believe that our current real estate market is not in a bubble phase, just a healthy rebound from the worst real estate collapse since the Great Depression.


Please feel free to contact me, Jerry Murphy, at 602-334-3757 or e-mail: if you have any questions about the Anthem real estate market or if you would like a current market analysis done for your home.




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