Arizona, Valley home appreciation rates jump

Arizona, California and Nevada were the only states in the West to have higher house appreciation rates than the national average in the year ending September 2004, according to the Western Blue Chip Economic Outlook.

Based on figures compiled by the Office of Federal Housing Enterprise Oversight, Nevada led the United States with existing house prices up by more than one third, or nearly 36 percent. California had a 27.2 percent appreciation rate and Arizona homes increased 14.4 percent.

Average U.S. home prices increased nearly 13 percent percent during the same time period.

Houses in Las Vegas saw the fastest rate of price increase of any metropolitan market in the country, with gains of 41.7 percent between third quarter 2003 and third quarter 2004. The Phoenix, Mesa, Scottsdale area was at 13.2 percent.

The numbers show a price bubble, said Dawn McLaren, an economist for the Bank One Economic Outlook Center at ASU’s W.P. Carey School of Business.

"If you look at the increases we’ve seen are outperforming other forms of investment so we’re getting more investors coming in," she said. "As they come in, they’re creating an artificial demand. It’s not demand for people moving in, it’s not demand because people can afford more in terms of housing, it’s demand from the outside from people who aren’t intending to live in the home."

In 2004, Maricopa County saw the highest annual median rate of appreciation since tracking began in 1981, according to the Arizona Real Estate Center at Arizona State University

In Chandler and Gilbert the rate of appreciation increased from 4.9 percent in 2003 to 8.3 percent in 2004. Mesa and Tempe saw its homes increase 7.2 percent in 2004. In north Scottsdale, the appreciation rate jumped from 6.4 percent in 2003 to 11.2 percent in 2004. South Scottsdale’s rate was 9.2 percent in 2004.

McLaren said it’s hard to determine when the trend will end.

"It all depends on when the investors start to realize the house of cards is beginning to fall in places like Nevada," she said."We’ll have less of a problem here and it may be localized. For instance in new developments that have just been built, if they have sold to all investors, then they’re going to have a problem."

While the Valley has great job growth, it has a sufficient supply of housing and a week rental market, McLaren said.

"Our wage and salary income figures haven’t been jumping, so who is going to buy those houses and live in them?" she said. "At some point, either we’re all going to get nice, grand raises or housing prices are going to level off."

Maricopa County Assessor Keith Russell said the higher home values in 2003 and 2004 won’t be seen on property evaluation notices that went out Friday. That’s because most residential rates are frozen this year because the county is in the second year of a 2-year cycle when doing evaluations.

"Unless there was a change to the property, the odds are pretty good that those numbers will be the same as last year," Russell said. "The rub on that of course is that next year we’re going to pick up the increase for two years. That is a real concern that I have, how fair that is to all the entities concerned?"

Higher appreciation values do not necessarily translate to higher homeowners insurance premiums, but they could, said Erin Klug, Arizona Department of Insurance spokeswoman .

"The cost of your homeowners insurance won’t go up by itself necessarily because the appreciation in your home has gone up, but you might want to raise it yourself," she said. "You might want to raise your coverage limits, which would obviously raise the amount that you pay for the coverage because you’re now insuring a larger dollar amount."

Klug said the market value of a home is not necessarily the same as what it would cost to rebuild it if it was destroyed.

"It’s a good time to talk to your insurance agent about the amount of coverage you have on your dwelling to make sure that’s its adequate,’’ she said. "I think the folks down in Tucson who had the fires on Mount Lemmon would tell that they found out the hard way, that they did not have enough coverage."

Butler said there are only less then 3,000 active listings of homes for sale in the Valley. Still, he doesn’t think the price bubble will burst completely.