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Have Phoenix Home Prices Really Recovered?

Tom Ruff’s commentary this month in STAT points out the dramatic impact today’s low interest rates have on mortgage payments.

$200,000 Home

  • June 2006 | Interest Rate = 6.68% | Interest Per Month = $1,113
  • June 2016 | Interest Rate = 3.66% | Interest Per Month = $610

The Recovery

He also talks about the peak (2006) and trough (2011) of home prices and which zip codes have “recovered” the most and the least.

  • Most Recovered = Arcadia and North-Central Phoenix
  • Least Recovered = West-Central Phoenix and the far Northwest Valley.

See Tom’s piece for more details.

Curmudgeon Says

A curmudgeon might say 3.66% mortgage rates are responsible for the “recovery” of home prices and not so much a stronger Phoenix economy.

I’m starting to think we may never see mortgage rates above 6% again in my lifetime and Tom’s example suggests how fragile Phoenix home prices would be if we did see 6% mortgage rates again.

Where’s My Hammer?

But the danger of permanent low interest rates is what happens during the next recession?

The Fed can’t really lower rates any lower. That tool’s all used up.

With a smaller toolkit, it would be harder for the Fed to fight the next recession.

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2 comments… add one
  • John Wake June 24, 2016, 8:36 AM

    So, yesterday the UK voted to leave the European Union.
    What if that triggers a recession?
    The Federal Reserve can’t lower rates much more. They’re about out of hammers.
    Not good.
    Maybe they could go the fiscal stimulus route.
    But the federal debt was doubled during the last recession.
    Those hammers aren’t infinite either.

  • steve July 1, 2016, 10:59 AM

    I think the Brexit fears are overblown. In less than a week the Euro has stabilized and the markets have rebounded. Britain (if it actually does leave the EU) will negotiate trade deals with each country and life will go on. Yes, Britain may experience some bumps and bruises but I just don’t see this event tipping the world economy into a global recession.

    In Arizona net inflows of people are positive and rising with the economy vibrant. To me the PHX-metro area is in an upswing, companies are hiring, and while low interest rates have contributed to demand for housing I think it is only one factor.

    So I have to disagree with you that the recovery is “fragile”.

    Typically, when rates rise the economy is doing well so folks feel confident and tend to spend money, be it on a house or any other item. Within this type of environment I don’t think rising rates will inhibit spending until the rates rise significantly (6%+) and even at these levels we are historic norms.

    If I try to judge it, I would say ‘Individual’ confidence overrides the math we each do, where we see a low risk and a high reward when making purchases. This is just human nature. The fear dissipates and good feelings take over, leading to what we collectively believe are positive actions.

    But, no matter how you slice and dice it, in my mind the overriding factor as the housing market continues to recover is that household formation will continue to increase and this puts pressure on our low supply of housing (which is due to the lack of new builds since 2007).

    Anything is possible, and I agree it is impossible to predict the future, yet I think the Phoenix housing market is fine for the foreseeable future. There will be some leveling off and dips, but overall over the next 10 years we are going UP UP UP!!!!

    Hey, at least that is my two cents …

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