If you’re actively buying houses for investment purposes, you’ve probably spent a good amount of valuable time perusing housing reports. The problem is, though, that housing reports from different sources for the same area or market can seem and even be contradictory. How do you make heads or tails of them?
The trick in such cases is to research and then consider the source of each report and what primary resources those authors used. We know that sounds tedious. But to help you out, here’s a quick guide to understanding housing reports in AZ.
The “Real Estate Market”
Real estate market is a broad and nebulous term that covers a deceptively broad and changing range of possibilities. So the first step in understanding housing reports in AZ is to understand what the term can and does mean in various contexts.
Real estate market is used to denote the overall economic outlook of real property/real estate and is based in large part on supply and demand. Currently, Phoenix is experiencing normal demand, but the supply is in abnormally short supply and has created a hot or frenzied market. What you need to examine closely in a housing report is whether the term is used to describe the market in a specific location, say, AZ or within a specific real estate niche (for example, single-family homes or multifamily dwellings) or for a specific kind of user (for example, home buyers or investors). When economists issue a report on the real estate market, you have to figure out whether they are reporting on all or just one of these.
So if you see housing reports that say the market is weak or strong, you need to ask some crucial questions. Exactly where is it weak or strong? For whom is it weak or strong? And for what kinds of properties is it weak or strong? Commercial? Residential single family? Rental?
The Real Estate Cycle
The next part of understanding housing reports in AZ involves some understanding of the real estate cycle. It is, indeed, cyclical, and the pattern repeats itself – but not rigidly so. Ad there are factors that influence the market in Tucson or Phoenix or Mesa, like immigration policies, that may have a lesser impact on other cities around the country. And like the cycle of seasons, the real estate cycle follows a generally repeating pattern, but with huge variations from year to year, sometimes attributable to policy changes as well.
Economists in the real estate arena have identified four phases in the repeating cycle: 1) recovery, 2) expansion, 3) hyper-supply, and 4) recession. Currently, Phoenix is in expansion as many builders learned from their mistakes in overbuilding during the Great Recession of 2008. Your task in understanding housing reports in AZ is determining exactly which part of the cycle the report claims the market is in and is attempting to address going forward.
The Current Market
Again, if a housing report asserts that the market is in a specific phase of the cycle, you need to ask exactly which aspect of the market the report is referring to. For example, if a certain report refers to a real estate market, does it mean the commercial, housing, or rental market? And is it at the local, state, or national level? A shortage of single family homes for purchase may mean a swell in opportunity for rental.
Further, while these many seemingly disparate markets really are interconnected to some degree, they still function independently of one another. Another consideration is that some parts of the market may be in one phase of the cycle and other parts in another phase and still others straddling the fence between phases. So a blanket statement about the real estate market may not be much help in understanding the part of the market you’re interested in. Having fun yet?
So in addition, you should be aware that although the real estate cycle is in general, dependably predictable, it is by no means certain, as recent memory serves. Experts can track trends and extrapolate from them, but their predictions are often just educated guesses. There is, though, a definite boom-and-bust cycle. And it’s good to know at least by approximation where the current market is and where it’s likely to be headed in order to make wise investment decisions. With that said, real estate is still one of the safest investments you can make, especially so as a private lender.
Understanding housing reports in AZ is crucial for investors seeking to buy profitable investment houses. This brief guide is a good starting point, but there’s still much more to understand because the economic complexities are often beyond the layman and the average real estate investor.