The Phoenix/Maricopa County area is larger than San Diego County (30% more houses and condos) but similar in bubble fever. These are thoughts given at a Phoenix realtor conference, highlighted by the REO count in the middle – excerpted from moderntimesmagazine.com:
“Nobody saw the housing crisis sooner, talked about it more vigorously, or was more right about the housing bubble than Dean Baker,” Holtz-Eakin said.
So where does the soothsayer who predicted the crash in 2007 stand on the current state of the Phoenix housing market?
“The idea that we are going to get back to the prices at the height of the bubble is just ridiculous. What we can expect to see is moderate price increases of around 3 or 4 percent. But the general direction is going to be upward,” Baker said. “We have turned the corner, but we still have a lot of issues going on and we are far from saying everything is good.”
Better news to be sure, but not exactly what the crowd wanted to hear.
Michael Orr, who, like most Valley wonks, is ‘too-close-for-comfort’ cozy with most builders and real estate brokers, was a bit more enthusiastic, and said fears of banks dumping thousands of homes on the market and causing another precipitous drop are unfounded.
“The direction is very positive and there is no sign of a large addition supply coming in. Almost everybody has this fear that banks are going to flood into the market. I actually count these homes, everyday,” Orr said. “They don’t have a very large number and even if they do dump them it will have very little effect on the market.”
Orr said banks own about 5,700 homes in Maricopa County right with 2,700 of them in the midst of being sold already and the other 3,000 are being prepped for sale.
What those in the real estate industry need to be worried about, Orr said, is delinquencies. There are still many out there who remain dangerously close to foreclosure thanks to the bubble or that they qualified for a loan they would never be able to afford long-term.
Stagnant income growth is a big reason for that, Holtz-Eakin said.
“We need better income growth and we have had bad income growth in this recovery,” he said.
One thing they all agreed upon, though, was that without the influence of deep-pocketed investors which have descended upon the Valley to swoop in and grab the foreclosed homes, things could have been much worse.
“They were the only people willing to catch the falling knife,” Orr said. But their positive influence appears to be waning as a full recovery will only be realized when a better balance is reached.
“I think we have bounced back faster than most areas, but the situation that concerns me the most about the current state of the housing market is that investors have the upper hand. Without investors are market would still be down, but it would be nice to get a better balance so private buyers could compete effectively,” Orr said.
Baker said what could happen is something akin to a mini-bubble where investors artificially drive sales prices up as the competition begins between private buyers.
“What I worry about in in regards to investors is that a lot if investors are plucking up properties with the expectation that they will be able to flip them at profit and you could see a lot of up and down which is not a great story,” he said.
“What I worry about in in regards to investors is that a lot if investors are plucking up properties with the expectation that they will be able to flip them at profit and you could see a lot of up and down which is not a great story,” he said.
I think this is probably the most likely scenario moving forward. Organic sellers will probably stay in place if they can’t get their number. Hot money investors certainly don’t have any emotional attachment and might be willing to dump for a loss if they see a better investment opportunity. I don’t think we want to see the housing market with volatility similar to the stock market. The stable nature of housing allows for 95% LTV. If it starts swinging up and down like the stock market you’ll probably see 70-80% LTVs or massive increases in PMI.
The smart investor money left Phoenix at the end of 2011. There was a burst of buying by owner-occupants and other investors, but that’s cooled off now. School has started, inventory is building, and Phoenix should be flat to down slightly for the rest of the year.
Entrenched sellers can’t or won’t sell. I have a number of properties over there and I’m not selling until it makes sense to do so. Those rent checks keep coming in, the mortgages get paid, and my equity position improves every month. Weaker hands will be forced to sell, but it will be a trickle, not a flood.
I suspect there will be more underwater folks trying short sales now that it is known banks are moving toward short sales as the general strategy. we have one neighbor doing this on our street. They were $450k underwater at the bottom, and now trying to short sale at $300k loss.
as for PHX, I just wonder about the supply of water down the line…
With only a 1% raise in the last three years and inflation around 5% my Purchasing Power has decreased. The new “raise” in this economy is to keep your job.
I’m happy to see an ivory-tower type agree that there aren’t a lot of REOs waiting in the shadows, and if dumped on the open market would have very little effect.
Thaylor has it right, though — the real problem for housing prices going forward isn’t inventory as much as employment.
The increase in taxes on January 1st aren’t going to help. I’m already looking at ways to minimize my tax liability. I think I’m going to sell my stocks before the end of the year to avoid the 33% increase in Capital Gains.