Phoenix Homes Report Quarter 2

Phoenix Home All across the country home prices seem to be increasing and this is especially true if you live in a major metropolitan area such as Phoenix. The quarter 2 home prices from last year compared to this year are up by 10% and there is no reason to believe prices won’t continue to rise in the near future. When talking about the housing market in any particular area most people tend to focus on a couple of different numbers such as year over year price changes. That is the 10% number I just gave above. On top of that new home builds tend to be an indicator of economic growth in an area and may suppress home prices for a short amount of time before an economy that is ready for such homes tips over the inventory and home prices sky rocket again.

Employment Growth

Employment growth statistics are given in 3 year running averages so as to not overreact to the numbers. 1 big manufacturing plant in a metro could boost employment statistics numbers in a given quarter by much more than it should be given credit for and thus cause a large overreaction in the market and eventually a correction. The current 3 year running employment growth shown in the Phoenix-Scottsdale-Mesa metropolitan area is 2.6%. This is certainly not the highest in the country but it is a solid growth number that should continue as Phoenix offers many companies a friendly environment to work in and qualified upper educated individuals from the state universities Arizona State University, Northern Arizona University, and University of Arizona. Phoenix is also home to a couple of the larger for profit colleges including University of Phoenix and Grand Canyon University.

New Construction

New construction is measured in a similar fashion to the employment numbers using running 3 year totals to deflate overreaction in the market. The Phoenix metropolitan area has seen an increase in permits of 55,045 over the past 3 years. This is certainly one of the higher numbers although dwarfed by some cities such as Houston (possibly due to Hurricane Harvey rebuilds) and the mega metropolitan areas such as New York City (114,720) and Dallas Fort-Worth (114,370). However, Phoenix is right in line and ahead of many of its similarly sized and competitive markets like Philadelphia (34,118), Tampa-St. Petersburg (34,699), Raleigh-Cary (36,004). All of these cities are showing great growth and Phoenix is right there with them already home to several large corporations and inviting more to come all the time.

Existing Home Sales

Existing home sales in Phoenix are on the rise. Every price category for homes saw an increase in sales except for homes prices $0-$100k. The largest growing sector of existing homes increased 11.8% and that was among homes priced over $1M. This tells us that not only is the Phoenix market supporting new jobs, but that the jobs are higher quality and higher paying.

Qualify for a FHA home loan

buy a new home

There are 2 types of loans for individuals looking to buy a new home. Those are FHA and conventional. Due to the flexibility of FHA loans they are often a good choice for low income or first time home buyers with bad credit. About 40% of all home loans are FHA loans in the United States. Down payment amounts will vary from 3.5% up to 20%+. The primary advantage to conventional loans is the lack of need for private mortgage insurance often referred to as MIP (mortgage insurance premium) or PMI (private mortgage insurance). FHA loans originated after July 3rd, 2013 are subject to new rules governing if and when PMI can be cancelled.

FHA Loans

Federal Housing Administration

The Federal Housing Administration (FHA) is a government agency created in 1934. Its purpose is to set standards for underwriting loans and construction. Along with that the FHA insures mortgage loans and provides a financing system as a means of stabilizing the mortgage market. There are several advantages to getting a loan through the FHA. First and foremost, the credit score, income, and down payment requirements are easier to qualify for. We will discuss these 3 factors in further detail below. There are also several rules that help qualification such as non-occupying co-signers and co-borrowers are allowed. Also, the downpayment can be a gift from a friend or family member and up to 6% of the closing costs can be paid by the seller to close the home sale. Unfortunately, there are a couple of restrictions like the home must be used as a primary residence, the loan amounts are limited, specific inspection requirements, and the need for private mortgage insurance. The FHA offers 2 terms for fixed mortgages. You can get either a 15 year or 30 year fixed rate mortgage.

FHA Income Requirements

Income requirements for home loans are calculated by something called your debt to income ratio (DTI). This ratio is a comparison of the amount of debt you owe compared to your income. In most circumstances your debt to income ratio must be at 41% or lower to qualify for a loan. To calculate your DTI first you have to add up all your monthly debt obligations (EG: car payment, student loans, credit card payments, etc). Then divide that by your monthly income. For example, lets say you take home $4000 per month. Your debts include a $400 car payment, $250 for student loans, $100 in credit card payments, and an estimated mortgage payment of $850. In this example we have total debt obligations of $1600 ($400 + $250 + $100 + $850). We take that amount and divide it by our income of $4000 and we get a back-end DTI of 40%. Back-end DTI means that the calculation is done including the estimated mortgage payment rather than front-end DTI which makes the calculation without the loan being applied for.

FHA Credit Score Requirements

The FICO score requirements for FHA is usually much more lax than what most lenders will require. The minimum credit score to qualify for a FHA loan is 500. A score between 500 and 579 requires a downpayment of 10% of the purchase amount. If you want to qualify for the 3.5% downpayment then your score will need to be 580 or higher. In 2013 the rules regarding cancelling the mortgage insurance on FHA loans changed. Any loans originated after July 3rd, 2013 are subject to the new rules which state that any loans originated with a downpayment of 10% or more can cancel the PMI once the Loan-to-Value amount reaches 78% or lower. Loans originated with a downpayment of less than 10% are not eligible to cancel their private mortgage insurance. In order to get rid of that extra payment you will be required to refinance out of the loan into a conventinal loan.