Supply and demand were the key components driving the Verde Valley real estate market in 2017. Residential inventory has been on a downward trajectory for the last seven years while at the same time prices have been rising. Over the last four years residential inventory in the first part of January has been on a steady decline from 823 residential units for sale in January of 2015 to 587 units in January of 2018, that is a 29% reduction in residential inventory over that four-year period.
The Bottom Line
There is a housing shortage in not only the Verde Valley but the entire United States and especially in the West. The overall economy is strong and with the new tax plan passed by Congress the overall business climate looks very favorable for the foreseeable future. Buyers will be coming into our markets with equities and cash. With still favorable interest rates and all these buyers competing for an inventory that is in short supply, we will see prices continue to rise.
Based on the 1,527 Verde Valley residential properties sold in 2017, we currently have a 4.6-month supply of homes for sale in the Verde Valley, a shortage by all standards.
While we have seen this drop in inventory over the last four years we have also seen a significant increase in the median sales price of single family homes across all markets of the Verde Valley.
• Sedona from $427,500 to $525,000 a 23% increase
• Cottonwood from $174,950 to 226,000 a 29% increase
• Camp Verde from $172,000 to $222,5000 a 29% increase
• Rimrock/Lake Montezuma from $99,975 to $197,500 a whopping 97.5% increase
Verde Valley Residential Inventory
Finding affordable housing in the Verde Valley has become an acute situation. In 2017 there were 472 homes sold in the range below $200,000, as of the first of 2018 there are about 110 listings, that is less than a 2.8 month supply and inventory in the $200,000 to $300,000 range is not much better at three month supply.
The Verde Valley is a retirement and second home market with a large portion of the buyers coming from either California or the upper Midwest and most have the equity from a home sale or cash and are coming from markets that make our home prices in the Verde Valley a serious bargain. With our service sector industry, it makes it very difficult for wage earners to afford a home anywhere in the Verde Valley and the outlook is not getting any better.
This is a challenge that many employers will be facing in the next five to 10 years. Subsidized interest rates look to me like the best way to help our low-income buyers get a home in this market of rising prices.
So why is there the shortage of residential inventory in not only the Verde Valley but all over the United State and especially in the West? Not only is there a shortage of inventory for sale there is housing shortage, there are not enough homes for all the households that exist in the United States:
• There are about 1 to 1.1 million households created every year. There are about 1 million housing units built every year but… there are about 400,000 homes destroyed every year, no matter how you look at it that is a shortfall of about 400,000 units per year. The primary reason for the recession was the excess housing inventory. That inventory was long ago absorbed. This 400,000 unit gap is helping to push up prices and rents.
• Baby Boomers are not moving. They are living longer, staying healthier so staying put is a lot more possible for them to do.
• Landlords do not want to sell. Rents are rising, values are rising, there is no incentive to sell at this time
• Many homeowners have refinanced over the last several years and they do not want to give up their bargain basement interest rates.
• Builders ignore entry level buyers. This is caused by a couple key factors; the cost of construction is increasing significantly and the cost of regulations continues to rise, all adding to the base price of a home and taking it above entry level prices.
For the near term we will continue to face this housing and inventory shortage. New household creation will continue to outstrip new home construction and rising prices and rents will impact the availability of housing for the entry level buyers.
Broad stroke influences on the real estate market for 2018
Sales and Prices: Favorable interest rates and a scarcity of inventory will continue to be the basis for upward pressure on prices. Verde Valley residential inventory is in short supply, especially in the price range below $300,000. All areas of the Verde Valley experienced an increase in median sales prices in 2017: Sedona at 9.6%, Camp Verde at 5.4%, Rimrock/Lake Montezuma at 20%, and Cottonwood-Cornville at 11%. With the overall economy hitting on all cylinders the outlook is for more upward pressure on prices.
Interest Rates: Mortgage rates ended 2017 lower than many had projected for last year, but they still think that rates will go up by about one half of 1 percent in 2018.
Here are several predictions from the largest housing and mortgage groups for the 30-year fixed-rate mortgage:
• The Mortgage Bankers Association predicts it will rise to 4.6 percent in 2018.
• The National Association of Realtors expects it be around 4.5 percent at the end of 2018.
• Realtor.com says the rate will average 4.6 percent and reach 5 percent by year end.
Sedona and Verde Valley Real Estate 2017 in Review Just the Facts
The median price of a single-family home rose 9.6% in 2017 over 2016. The number of transactions showed a solid increase to 464 sales up 9.6% over 2016 and the highest number of transactions for this area since 2005.
Vacant land transactions for 2017 came in at 146, possibly showing some strengthening of this segment with a 26% increase in the number of sales over 2016. The median sales price rose to $136,750 a 5% gain over 2016. Prices for vacant land in the Sedona area have remained soft for much of the last eight years and are no where near the highs of 2006.
The luxury market, over $1 million, posted solid gains with 39 sales, up 52% over 2016; 26 of those sales were between $1 million and $1.5 million. This was the highest number of sales in this segment of the market since 2007. Inventory in this segment of the market is 71 homes and for this price range between $1 million and $1.5 million, based on last year’s sales this, is only about a 15 month supply.
Cumulative days on the market came in at 107 days. This is slightly above the 104 days for 2016 and is indicative the overall strength of the market. Well-priced homes are not staying on the market long.
The median sales price for Condos and Townhomes in the Sedona area was up 8% over 2016 to $280,000. The number of transactions for the last 12 month period is 124, this is the highest number of condo and townhome sales in the Sedona area since 2003.
The median price for mobile homes took a 13.5% increase in 2017 over 2016, to a price of $226,000, the highest median sales price for mobile homes since 2007. Fueling the continued increase in mobile home and manufactured home prices was a 51% increase in the number of transactions in 2017 to 41 sales.
The median sales price for single family homes in the Camp Verde area for 2017 was $222,500 up 5.4% from 2016, and an 85% increase from the low point of the market in 2011. The number of transactions for 2017 was at 113 a 20% increase from 2016 helping to add pressure to an already tight inventory.
Lake Montezuma and Rimrock:
The median sales price for single family homes in the Rimrock and Lake Montezuma area for 2017 was $195,500 up 20% from 2016. The number of sales was up 35% to 76 sales in 2017 from 56 in 2016. The 20% increase in median sales price in this area was the strongest in the Verde Valley, reflecting also the lowest median sales price in the Verde Valley, but at $195,500 the bargains are going fast.
Cottonwood and Cornville:
The median sales price for single family homes in the Cottonwood and Cornville area for 2017 was $250,000 up 11% over 2016. This is the highest median sales price in this area since 2005, only 4% lower that the all-time high set in 2007, The number of transactions for 2017 came in at 556 up 12.4% from 2016. A further indication of the overall strength of the market in the Verde Valley.