By now we have all heard the term “the perfect storm” which was coined and popularized by Sebastian Junger, author of the book by the same name as the term. The term perfect storm “refers to the simultaneous occurrence of events which, taken individually, would be far less powerful than the result of their chance combination,” Wikipedia.
One can say that real estate along the central corridor of Phoenix has been weathering a “perfect storm” of it’s own. The “simultaneous occurrence of events” in this case include the general real estate malaise that has existed in Phoenix since mid-2005, the “mortgage squeeze” that became first apparent in early 2007 and worsened until approximately a month ago, and most specifically the construction of the light rail line along Central Avenue for the last year. Paradoxically, these three “events” have slowed real estate sales significantly in an area that is on the verge of booming.
Supply and Demand and The Three Reasons to Buy in along the Phoenix light rail route.
Simple economic theory states that the higher the supply and lower the demand the lower the price. We see examples above of why supply of real estate in Phoenix is high right now while demand is low, hence a slow real estate market. However, the inverse of the economic law is also true, that is, the lower the supply and higher the demand the higher the price. Let’s explore why almost over night mid-town Phoenix real estate will shift from a slow to a red hot market.
1. Recent headlines and radio talk shows have bemoaned the fact that business along the light rail are suffering badly from all the construction. In response the City of Phoenix has run a number of public service announcements encouraging citizens to support the struggling business. There’s no arguing the point, business is down. Because of this, property sellers are willing to negotiate. Buyers interested in property near light rail routes should act now and buy BEFORE the rail is completed in order to negotiate the best deal possible. But all of this is about to change.
2. Light rail construction along Central Avenue is scheduled to be completed by the end of this year, 2007. So, all the barricades, and cones, and flashing directional signs will disappear almost overnight. With their departure will come a return to “normal” traffic that Central Avenue carried prior to the construction. The contrast will be glaring. With this the number of cars and people using Central Avenue and the surrounding surface streets should quintuple almost immediately.
The returning commuters will see the newly completed rail stops and will begin to appreciate what many people throughout the country already know; that light rail brings quality of life and increased property values. Once the construction is completed, sellers will move from a position of weakness (i.e. fewer buyers) to a position of power (i.e. many buyers). As you know, the higher the demand, the higher the price.
A number of studies have been conducted that reinforce this point. The most comprehensive report to date on this subject was conducted by the University of North Texas in 2003. The subject of the study was the Dallas Area Rapid Transit (DART) and it’s affect on property values. The report revealed that property values near light rail stations had a fifty percent greater increase in value than comparable properties in other areas without light rail. So, if a home in an area without light rail appreciates six percent in a year, a comparable property near light rail will appreciate nine percent.
A 2001 report studying the affect of light rail on property values in Santa Clara County, California, found that being within walking distance of a light rail transit in Santa Clara County increased land values on average by approximately twenty three percent.
A 2002 study of the land value impacts of rail transit services in San Diego County revealed that buyers paid as much as ninety six percent more for land along light rail routes in downtown San Diego than for land not near light rail services.
If Phoenix real estate follows the trends seen in Dallas, San Diego, Boston, Washington DC, San Francisco, Chicago and other cities with passenger rail systems then the properties along Central Avenue are poised to enjoy rapid appreciation.
Three: The slowest time of year for real estate in Phoenix is right now, October, November, and December, while the busiest time of year is January, February and March. Because of this it stands to reason that the best time to buy is right now. Not only does the time of year work in the buyers favor but so too does the fact that Central Avenue is torn up and avoided by most commuters. When the number of prospective buyers are fewer, the deals are better. The funny thing about this is that the turn around will be more pronounced in this area of town because once the light rail construction is done, so many more people will be in the area shopping.
Real estate along the Phoenix light rail route is about to turn the corner in a huge way. The smart money today is buying quality properties along the light rail route before the “storm” passes and the deals disappear.
Copyright © 2006 Will Daly. All Rights Reserved.
Will Daly, a Realtor with RE/MAX Excalibur in Phoenix and owner of http://WeKnowUrban.com/ and http://CondosPhx.com/ combines years of experience, a thorough understanding of current real estate markets, and cutting edge technology to provide his clients the best advice for proven results. He specializes in Loft and High Rise Development/Sales and Condo Conversions. You may reach him directly at (480) 510-8755 or by visiting one of his web sites.
MBTA Commuter Rail Switching at Boston Engine Terminal
