State Capitol News
10:20 am
Fri October 5, 2012

Economists: Be Wary of Strong Housing Market in Phoenix

Homeowners happy with the current double-digit increases in values should be warned: There could be a bubble. And bubble can go 'pop.'

Economist Marshall Vest of the University of Arizona said Thursday that home prices have risen 20 to 30 percent since they bottomed out a year or so ago. But he said it's not because people are moving here to buy homes. They're not. Nor are kids who moved home with mom and dad during the recession back on their financial feet. What is happening is investors and hedge funds have raised hundreds of millions of dollars to buy homes they intend to rent.

"And at some point they will have filled their portfolio," Vest predicted. "And so that source of demand for housing will go away. So it's really a question, then, as to whether there's enough regular demand to take up the slack when that happens."

Economist Jim Rounds said at this point it does not look like the investors are going to all dump their homes at the same time.

"So I don't think we're looking at any kind of a problem where you're going to have a disaster happening in terms of the economy, in terms of the fiscal health," Rounds cautioned. "I think it will be a little bit more slow to progress. The thing to watch, though, if this current increase continues at the rate it is for the next quarter or so, you will see a mini bubble."

And at that point, he figures home prices could lose half of what they gained since hitting bottom.