If you have been waiting to buy an Arizona home because you were afraid price might decline, or you plan to buy an Arizona home within the next 6 months, I would suggest that you seriously consider buying within the next 6 to 8 weeks.
No one knows what prices will do in the future but the graphs and the analysis below suggest that we may have hit or will soon hit a bottom in prices for Greater Phoenix.
Of course, no one lives across Greater Phoenix. You live in a specific neighborhood. Be aware that some cities and neighborhoods are doing much better or much worse than Greater Phoenix as a whole.
Also be aware that we may see below average appreciation for a few years or more, and prices would likely fall if the economy tanks in 2007.
23 responses so far ↓
1 Ken // Nov 17, 2006 at 10:20 am
John:
I think you wrote a while back the Phx Metro inventory usaully starts shrinking in January-February.
Do you have data which supports this? I have a friend who feels it isn’t true,
Thanks
2 John L. Wake // Nov 17, 2006 at 11:37 am
Ken,
You can see in the graph in the previous post that sales are very clearly seasonal.
Closings bottom out in January which reflects December sales. Sales then always start increasing in January.
The increased sales tend to draw down the inventory of Arizona homes for sale.
Looking at that graph again, there isn’t a clear cut pattern but I see inventory that tends to fall at that time of year.
3 Ken // Nov 17, 2006 at 4:03 pm
Thanks! Very nice graph.
4 John L. Wake // Nov 18, 2006 at 8:55 am
Thanks!
5 housingpanic // Nov 24, 2006 at 4:40 am
Oh dear god anyone who buys today in Phoenix and sells within five years will be bankrupted by your “Buy” signal.
Tell you what, if you’re such a bull, tell us what properties you’re out buying today with your own money.
Phoenix will fall ANOTHER 20% to 40%. The burst is just getting started there, and the downfall will be ugly to wash away the excess of ‘04 and ‘05
It was a classic Ponzi Scheme, period.
6 Cow_tipping // Nov 24, 2006 at 6:09 am
Of course you have a “BUY” rating. Just like stock brokers have BUY on the stuff they are selling. Real estate and stock - Its a 0 sum game. Someone gains, someone else loses, and the agents make out like bandits with the 6% commission. The standard agent schpeel is - “Real estate is not like stock” it has intrinsic value - Yea it does, except when it doesn’t. The run down POS’es in over saturated markets, worthless cos they cant be sold for what they cost and the bank wont take to being shorted, its costing interest (people usually dont buy stock with borrowed money BTW) maintenance, property taxes and utilities to name just a couple. Real estate isn’t like stock, its much much much worse. It does have intrinsic value if you’re living in it, but if its sitting its costing $$$ - a lot more than stock is. Relatively … stock is a safer bet, options is a even better bet if you know what you’re doing. Yes you can lose your shirt in stock, but ironically that limits what you can lose. You can lose your shirt, plus your whole future with houses. And the kicker is … here is why we dont have cheerleaders for stock (as much as for RE) - the transaction costs for a individual investor is pitifully low. $10 per trade or under. RE is outrageous. 6% - daylight robbery. Real estate isn’t like stock, its actually much much worse. Cool. Cow_tipping.
7 John Hildahl // Nov 24, 2006 at 7:33 am
John - congratulations! You are featured on Housing Panic. This blog contains really good information regarding the housing bubble. You make take umbrage for being called an “idiot”, but after reading your Buy recommendation I cannot disagree with Keith. The link is: http://housingpanic.blogspot.com/ and the article is “Idiot Phoenix Realtor says Housing is not a Bubble because it will only drop 10%”
8 Dick // Nov 24, 2006 at 9:00 am
They won’t hold a wake for your career. It’s over!
9 John M. // Nov 24, 2006 at 9:55 am
Well, you certainly got a rise out of Keith. I was happy to put both his post and yours up on Doom. May the best blogger win!
10 John L. Wake // Nov 24, 2006 at 12:21 pm
John Hildahl, thanks for the tip. I was wondering why all the comments.
Dick, I love the play on words!
housingpanic, thanks for the comment.
Oh dear god anyone who buys today in Phoenix and sells within five years will be bankrupted by your “Buy” signal.
Prices may indeed go lower. My recommendation if you listen to it was that if you have been planning to buy in the last few months but were worried about prices, or you were planning to buy in the next 6 months, then the next mnoth or two would be a good time to consider buying.
That is, if you were planning to buy next spring , for example, I would suggest you seriously consider buying right now instead.
Tell you what, if you’re such a bull, tell us what properties you’re out buying today with your own money.
The vast majority of buyers today are owner-occupants and that’s who I’m talking to. I didn’t say, “Hey, you should invest in a rental property in Phoenix even if you weren’t planning on it.” Maybe next autumn I would make that recommendation if the data looks good but it’s more likely it would be years from now.
But don’t forget that there are many people who have already decided to move to Phoenix and they like would an educated guess on likely pricing trends during the next several months.
Phoenix will fall ANOTHER 20% to 40%. The burst is just getting started there, and the downfall will be ugly to wash away the excess of ‘04 and ‘05
That just ain’t gonna happen. The median home price in Greater Phoenix has only fallen 3.7%. The high was $267,000 in June 2006 and October was $257,000. http://www.poly.asu.edu/news/2006/11/08/
Obviously, it can’t fall “ANOTHER 20% to 40%” when it’s only fallen 3.7%.
Now, that doesn’t mean that the price hasn’t declined 20% in some outlying areas that are competing big time with homebuilders. http://www.arizonarealestatenotebook.com/2006/11/have_price_really_declined_15.html
But overall, the median price for Great Phoenix has only gone down 3.7%… so far.
With the inventory flattening out, that will remove one factor putting pressure on prices. It’s not only the level of inventory that puts downward pressure on prices but the increase in the inventory.
Sure, there are significant downside price risks for the Arizona residential resale home market if the economy tanks.
But right now the outlook for 2007 is good. Gas prices down, interest rates likely stable or declining a bit, the stock market is up and it’s often a leading indicator for the economy.
It was a classic Ponzi Scheme, period.
That’s just silly.
Sure, some investors made an ungodly amounts of money during the skyrocketing prices, but you lose that envy and jealously when you talk to investors who didn’t get out in time and their personal real estate bubble is bursting big time.
They didn’t Ponzi themselves. It’s not a Ponzi scheme.
Speculative real estate investing just has some huge risks.
11 The one who knows // Nov 24, 2006 at 1:22 pm
I work for a bank that does short sales. The borrower borrowed $480k to buy this home at fair market value last year in Sun City. We just sold it for $350k and are happy we got it. 27% drop. And there are even more properties listed? Not sure about the logic in this sentense “Obviously, it can’t fall “ANOTHER 20% to 40%” when it’s only fallen 3.7%. ” Its like saying: Obviously it can’t rain harder when its only sprinkling.
12 John Hildahl // Nov 24, 2006 at 1:36 pm
John, you are welcome for the heads up on the Housing Panic article. I would not buy in Phoenix now, or Las Vegas where we currently rent - we sold our Oregon home in January. Why not buy now? Prices have to fall, and fall dramatically. Prices in many major cities are totally out of snyc with the fundamentals - CPI, Rent, Wages. Why buy now and be underwater in a year? John, I am sure you are aware of the median wage and median home price in the Phoenix area. Most people simply cannot reasonably afford a house. The things that have distorted the market are speculators, inflation rates, and crazy loans. For the most part, those are in the past. In the future we will see (and are seeing) massive forclosures and rising inventories of existing and new houses. John, read the experts and understand their unbiased logic (eg Shilling, Roubini, Shiff,etc)
13 John L. Wake // Nov 24, 2006 at 2:21 pm
John Hildahl,
How can people afford these prices? I don’t know.
But I do know prices were much higher in California several years ago before the crazy increases in prices and even though wages wheren’t that much more in California than here, they somehow maintained the prices.
I try as best I can to not say what prices “should” be and let the market tell be what the prices are.
I thought the prices “should not” have been so high in California but they were… and they’ve gone up even more since then.
I certainly agree with you that we will see massive foreclosures. Foreclosures are a lagging indicator and we could see very high foreclosures even after the market has bounced back to normal.
I don’t think, however, we’ll see a ton more increases in inventory… unless the economy tanks next year.
14 John L. Wake // Nov 24, 2006 at 3:06 pm
The one who knows,
Boy, that’s the worst I’ve heard of, although I spoke with a gentleman who was more than $100,000 underwater on a new home in Marley Park in Surprise.
A 27% decline is huge but it’s only one sale.
I’m suspicious whether $480K and $350K were really the market prices. Nevertheless, I accept your point that that particular home lost a ton of value.
Let’s look at the median home price for Sun City. The peak was $225,000 in November 2005. Last month the median was $209,950 according to ASU data.
That’s a 6.7% decline for Sun City from the peak.
You’re suggesting, I think, that since this one home went down 27% that it foreshadows the rest of the market declining in that range as well.
Maybe. But more likely it was just an outlier, one of the worst cases and it isn’t representative of the majority of sales.
Oh, and my comment “Obviously, it can’t fall ‘ANOTHER 20% to 40%’ when it’s only fallen 3.7%” is to point out the magnitude of housingpanic’s exaggeration of the price decline.
I might agree with him if he said the median home price in Greater Phoenix would fall “ANOTHER 3.7%.”
An additional 20% just ain’t gonna happen in my opinion unless the economy hits a major recession.
15 Jay Thompson // Nov 24, 2006 at 5:11 pm
Well said John. And thanks for the inspiration for this blog.
16 Gordo // Nov 24, 2006 at 5:43 pm
I cannot believe you are seriously advising anyone to buy in a falling market. Your logic is totally flawed. Even basic econommic principles suggest a wait and see position. To invest now is to catch a falling knife. gordo nyc.
17 John L. Wake // Nov 24, 2006 at 8:32 pm
Jay,
Thanks, it nice to know I’m not alone!
Gordo,
Despite this being the weakest time of year for Arizona residential real estate three, things unexpected things happened that show unexpected strength;
1) the inventory fell and fell sharply in November for the first time since inventory started to skyrocket in the spring of 2005,
2) the median home price stopped it’s steep fall since mid-summer and stablized in October, you would expect any underlying weakness in prices to be exaggerated this time of year, but the prices stabilized, and
3) the number of sales were flat in October, a month that often sees steep declines.
So, it looks like a bottom.
Sure, it might be a false bottom, just a correction on the way down, but I don’t think so.
Be sure and see this post and then click “CLICK HERE - Analysis for November 2006″ for a and then click “CLICK HERE - Analysis for November 2006″ for a
18 RE.Agent // Nov 24, 2006 at 8:50 pm
It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.
Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.
This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.
19 winjr // Nov 24, 2006 at 8:51 pm
“But right now the outlook for 2007 is good. Gas prices down, interest rates likely stable or declining a bit, the stock market is up and it’s often a leading indicator for the economy.”
Yeah, the stock market is terrific at predicting economic activity. Except recessions. On that score, it hasn’t been all that hot.
The outlook for 2007 is not nearly as rosy as you (and many others) think, especially for Arizona.
Unless the rate of home starts improves dramatically in the very near future, as many as 600,000 residential constructino jobs, or more, will be lost nationally. Expect additional job losses, factored to the “n” power, to quickly be lost in all of real estate’s myriad support groups, e.g. agents, loan brokers, title insurers, and more.
This isn’t rocket science. Home starts are now at the 2000 level, a time when 700,000 fewer construction workers were needed.
20 John Hildahl // Nov 24, 2006 at 9:49 pm
John, in your reply to me you state: “I thought the prices “should not” have been so high in California but they were… and they’ve gone up even more since then.” Gone up???? Want to read something truely amazing and shocking? Go to Max’s web site regarding Sacramento area housing and see the huge potential losses. These losses are potential - they will be much greater because it shows list price - the actual price sold will probably be much lower. Also, selling costs have to be considered. The Sacramento area is a blood bath, and why should Phoenix be different? The web site is: http://flippersintrouble.blogspot.com/2006/11/sacramento-2006-11-11-part-i.html Note the loss on the first house - $216,500
21 John L. Wake // Nov 25, 2006 at 9:38 am
FYI: The commenter RE.Agent is not likely a real estate agent. He runs an advice website on “Business Sex Music Art Food…”
22 John L. Wake // Nov 25, 2006 at 9:45 am
winjr,
Yes, that is the killer scenario.
That’s why the economic growth is so important to my view. Construction employment will indeed decline so it is imperative that the economy as a whole continue to produce non-residential construction jobs to offset those lost.
If the economy tanks and given the certain loss of many residential construction jobs, then the Arizona economy could be in for a death spiral. As an Arizona native, we’ve seen it before.
Right now I don’t see that until 2008 at the earliest and by then the Arizona real estate market should have worked through a lot of the the problems created by the 2004 and 2005 craziness.
23 John L. Wake // Nov 25, 2006 at 1:21 pm
John Hindahl,
The site you mentioned is wild! Very unique. Good link.
There are some homes showing stunning loses in the Sacramento area.
A commenter on that blog however said, “… over 3% of all the MLS listings are Flippers losing serious money.”
Yes, but it’s still only 3% or so of the market.
There’s a lot of crazy people out there and some of them will pay way too much for a home.
I like to key on the median home price.
Nevertheless, quantifying how much some flippers are losing might go a long way to discourage the crazy speculation like that of 2004 and 2005.
But it won’t last forever. People will forget.
The next crazy market will probably be in 10 or 15 years after everyone’s long forgotten the flipper wipeout of 2006 and 2007.
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