Phoenix Area Housing Bubble

Saturday, April 21, 2007

Phoenix Area Housing - What Type of Market is It?

Seller's Market? Only some real shills could make that argument with a straight face. Of course, they learn from their chief shill, but even he is not calling it a Seller's Market.

Buyer's Market? It is true that you can buy houses in Metro Phoenix for 10% to 20% less than the late 2005 price peak. Even 30% less in the case of some bank-owned foreclosures and certain new builds. These unbiased folks really want you to buy. ;)
But should you?


Because the Phoenix Area Housing Market of 2007 is a . . . Sucker's Market!

Do not ignore the fact that as lending standards become tighter than they have been in many years, the cash that fueled the speculative buying mania of 2004-2005 is becoming less available day by day. The frenzy ended as 2005 turned into 2006. Purchases were obviously made since then, and some folks may think that they have found a bargain. But the risk of catching a falling knife is huge. A 40% price drop would bring us only to late 2003/early 2004 price levels. How insane is that? I have concluded that a 50% price drop in Phoenix houses from peak to trough is "in the bag." We may drop even further than that as panic sets in for f'd borrowers.

Phoenix housing inventory is at a record high and growing. Stories on the recession in housing are readily available, including many that cover aspects of the Phoenix housing bust. A Gilbert blogger provides some nice graphs and often focuses her coverage on our metro area.

The spinmeisters and shills will urge you to buy that single family house in Peoria or Chandler for 0% or 15% off the peak, or they will pocket a 10% commission as they have you sign up for a reduced price new house in Goodyear or Queen Creek. They will swear that the population growth in Metro Phoenix will prevent a bust. We are so overbuilt that even solid net in-migration will not prevent the ongoing bust. Builders will build, and as land options expire, they will build on cheaper land to compete on price. Our 2004-2005 "demand" was artificial, and what little demand there is now will be lessened further by inability to borrow. BTW, when someone cites population statistics, be sure to ask them how many of these people are illegal immigrants, who thankfully are finding it a bit more difficult to qualify for $300,000 loans.

The Phoenix economy is not strong; it is real estate and construction dependent. Jobs in those areas are diminishing. Lack of access to the Housing ATM (HELOCS, etc.) for consumers will also hurt retail and tourism. What is left? Copper? Tech in Chandler? I would not bet your down payment money on Phelps Dodge or Intel saving Arizona from recession.

Remember, one Foreclosure in a subdivision is a concern, several Foreclosures in a subdivision are the new Comps.

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