Michael Orr Director Center for Real Estate Theory and Practice March 10, 2015 Michael Orr Director Center for Real Estate Theory and Practice March 10, 2015 Greater Phoenix Housing Market

Euphoria Denial Despair Hope Skepticism Optimism Enthusiasm Exhilaration Unease Pessimism Panic Capitulation Relief Optimism Enthusiasm The Market Cycle

Euphoria Denial Despair Hope Skepticism Optimism Enthusiasm Exhilaration Unease Pessimism Panic Capitulation Relief Optimism Enthusiasm The Market Cycle

Most Home Prices Are Flat or Keeping Pace with Inflation Some Segments are Falling or Rising, but Not Much Outlook: Positive for Second Half of 2015

Demand for Homes to Buy Has Been Weak While Demand for Homes to Rent Is Very Strong Demand for Homes to Buy Has Been Weak While Demand for Homes to Rent Is Very Strong

Why Has Demand Been Weak? Investor buys dropped 41% in 2014 from 2013 Owner occupier buys up only 0.3% Many owners frozen in place – need higher prices Millennials not buying homes like their parents did – Far more living with parents, sharing or renting 1 in 4 former owners in “the Penalty Box” – 367,000 owners lost homes to foreclosure / short sale Large lenders are still very risk averse – Avg FICO for DENIED Conventional Purchase Loan = 721 – Avg FICO for CLOSED Loan = 752 Income and wealth disparity increasing Very slow income growth (0.9% for Phoenix ) Investor buys dropped 41% in 2014 from 2013 Owner occupier buys up only 0.3% Many owners frozen in place – need higher prices Millennials not buying homes like their parents did – Far more living with parents, sharing or renting 1 in 4 former owners in “the Penalty Box” – 367,000 owners lost homes to foreclosure / short sale Large lenders are still very risk averse – Avg FICO for DENIED Conventional Purchase Loan = 721 – Avg FICO for CLOSED Loan = 752 Income and wealth disparity increasing Very slow income growth (0.9% for Phoenix )

Single Family Rentals Investors pulling back but tenants still coming Only 1,993 SFR rental listings on MLS This is 25 days of supply Normally expect to see 4,000 to 5,000 Rents are climbing 5% to 8% per year Most of what is left is expensive (avg $1,980 pm) Supply for $900 - $1200 range is down > 50% Supply over $2000 is relatively plentiful Investors pulling back but tenants still coming Only 1,993 SFR rental listings on MLS This is 25 days of supply Normally expect to see 4,000 to 5,000 Rents are climbing 5% to 8% per year Most of what is left is expensive (avg $1,980 pm) Supply for $900 - $1200 range is down > 50% Supply over $2000 is relatively plentiful

Prediction Is Very Difficult, Especially About the Future - Neils Bohr ( ) Prediction Is Very Difficult, Especially About the Future - Neils Bohr ( )

Long term average

Normal Listings Priced from $175,000 to $600,000

Hotspots – March ZIP Codes Showing Strongest Increase in Demand Versus Supply

Cold & Lukewarm Spots Gila Bend Carefree Fountain Hills Casa Grande Gold Canyon Coolidge Wickenburg Tonopah Litchfield Park

Heating Up Demand Exceeds Supply in All These Areas

Situation Summary – March 2015 Supply is well below normal (83% of normal) Demand is low but growing (95% of normal) AZ loan delinquency below normal at 4.5% Foreclosures below long term average Lending rules starting to loosen Entry market heating up High end market cooling down Economy and jobs continue to improve Time to change from relief to optimism Supply is well below normal (83% of normal) Demand is low but growing (95% of normal) AZ loan delinquency below normal at 4.5% Foreclosures below long term average Lending rules starting to loosen Entry market heating up High end market cooling down Economy and jobs continue to improve Time to change from relief to optimism

Michael Orr Director Center for Real Estate Theory and Practice Michael Orr Director Center for Real Estate Theory and Practice