Phoenix Area Housing Bubble

Phoenix Area Housing - What Type of Market is It?

2007-04-21T06:46:00.000-07:00

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?

THE ANSWER: NO.

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.

28% Loss In Phoenix Area, or Where Did That $117,000 Go, or Better Yet, Where Did That $184,500 From the Refinancing Appraisal Go?

2007-02-16T10:00:00.000-08:00

I do not think that this one was fraudulent; it was probably just a poor buying choice. But the refinance seems a bit sketchy. Either way, I am looking forward to checking out the new Paladin Reports site soon to see some really questionable purchases.

Back to this large stucco and tile masterpiece. The house at 15997 West Becker Lane in Surprise, Arizona was purchased new for $416,994 in December 2005 from Greystone Homes. It has 4 to 5 bedrooms (MLS listing is unclear), and is 3,120 square feet. It is now for sale at $300,000 as part of a seemingly lender pre-approved short sale, and has sat unsold at that price for 64 days so far.

There was a March 2006 sale/transfer from the two December buyers to one of those buyers. They are both listed as unmarried on the recording docs, so I can only guess that they are siblings or parent-child since they share a last name. There were two loans made at the time of this transfer. March refinance loan #1 was for $408,000. March refinance loan #2 was for $76,500.

So loan amounts total $484,500 for this house that is listed for $300,000.

Here is the MLS Listing:

Please include in contract that sale is contingent upon short sale approval from bank. Bank will not contribute towards buyer s closing costs and/or pre paids and/or any unnecessary fees related to the sale. Bank will be reviewing multiple offers for consideration. A signed multiple counter offer sheet will be requested.; Gorgeous home on large lot; Kitchen has granite countertops, stainless appliances w/ceramic top stove; Large tile in major walkways, beautiful medallion in entrance; 5th bedroom could be used as a bonus room or den; Dual sinks in guest bathroom.

And here is a photo of the "beautiful medallion" of tile by the house entrance:

Phoenix Bubble is Bursting Big Time

2006-09-30T12:23:00.000-07:00

As one watches the Phoenix Area Housing Bubble come to a financially devastating end (devastating for many, that is), I have heard some try to convince people that prices in the Phoenix area are rising, or that a drop of 10 or 15% is the worst case scenario. Some try to convince you that a three-year boom period will be followed by a multi-"months" bust.

There are some who want you to believe that the endless range of vacant houses and even near-empty subdivisions do not exist. We do have many vacant houses in the Phoenix area. Roughly 44.6% of current Phoenix area house listings are VACANT!!!

And those thousands and thousands of new residents in the Salt River Valley each year will NOT "fix" the problems arising from the 2004-2005 speculative fervor in housing. Will people and companies still move to the area? Of course. Will as many move to the area with houses 100% more expensive? Of course not. Cheap housing was a lure. That lure is gone.

Many of those new Phoenix area jobs were in construction and housing related industries. The downturn will be cumulative.

House sales drop month after month after month. When taking a narrow view of the Phoenix area, housing inventory has grown exponentially.

When taking a wider view of the Phoenix area, housing inventory has grown exponentially.

And to address one other issue, Arizonans and Americans everywhere, please stop borrowing crazy amounts of money and using ridiculous types of loans. If you need to borrow on a 15 or 30 year fixed to buy a house as prices drop, go ahead. But that is it. Option A.R.M.s are bad. Why should you trust me? Because I am not trying to sell you a loan or anything else, I have 155 IQ points, and two degrees from two top universities. And I don't lie.

One last thing on mortgage loans and tax "benefits," DO NOT PAY THE BANK 10 DOLLARS TO AVOID SENDING WASHINGTON 3.

IMPORTANT BUSINESS WEEK ARTICLE

2006-09-06T17:45:00.000-07:00

So-called exotic (or toxic) mortgages such as interest-only, option ARMs and negative amortization loans are quite scary. The fallout from these types of loans is really going to play a significant role in the crash of the housing market here in Metro Phoenix and elsewhere.

BusinessWeek's article, "Nightmare Mortgages," sheds a lot of light on the subject. I really recommend that you check it out.

Over 25% Price Drop on Surprise, AZ House!!!

2006-06-29T17:32:00.000-07:00

16118 North 168th Lane, Surprise, Arizona

Price Reduced: 06/26/06 -- $269,900 to $199,900
Days on Market: 17

-I guess that the owner must be in a hurry to sell. He will lose some money, having closed on the house for $202K on 11/14/05. Considering the lag time in building in '05, the $202K price probably was the list price from several months earlier when he contracted with Centex Homes. Of course, carrying costs and commissions will be a factor too. What is more interesting is that the same model in the Surprise Farms subdivision sold at a peak price of $272K with a closing date of 04/05/06. Even allowing some reasonable sums for better upgrades, over $72K less is a significant reduction in this price range.

From the MLS listing:

This home in surprise farms at over 1900 square feet has 4 bedrooms and 2 full baths, 9' ceilings, formal living & dining room plus family room. Open eat-in kitchen with breakfast nook and breakfast bar. Out front this home has a ton of curb appeal with stone front and upgraded landscaping. All of this close to schools, shopping, and easy access to loop 303.

Flipper Fights Back - Media Should Ignore Phoenix Housing Bubble.

2006-06-25T12:40:00.000-07:00

A fellow named Stephen Pauken voiced his concerns in a recent letter to the Arizona Republic about a June 18th, 2006 article in the newspaper, "How low will it go?" While I think that the original Republic article on the 18th was a rather tepid look at the coming severe correction in Phoenix area home prices, Pauper (sorry) voiced his objections:

Real estate reports hurt economy
Jun. 20, 2006
Regarding "How low will it go?" (Republic, Sunday):The real estate market is bad enough in Phoenix without The Arizona Republic publishing articles like this. The articles are doing nothing but fueling the idea that prices are going to drop and further scaring the few buyers that exist into waiting to buy because of what they read in the paper. These articles are harmful to our economy. - Stephen Pauken, Gilbert

I am not sure what to make of the letter, other than it sounds like a plea from a desperate house flipper. So, I did a little research. I only found one house purchased by Pauken in 2005 or 2006 in Maricopa County. But what struck me was the date of this purchase, 02/14/06. Let's explore:

He purchased the house at 2426 South Brighton Circle, Mesa, Arizona.

Built in 1994, it has 3 bedrooms with a den and has 2,343 square feet of living space. It was put under contract on 12/01/05 after 89 days on the market. Pauken purchased it for $330,000 after it had been reduced from its original list price of $375,000. He borrowed, you guessed it, $330,000, for the house using an adjustable rate loan. You can view a copy of the Deed of Trust.

While Pauken apparently does read the Arizona Republic, he was not aware of the direction of the metro Phoenix housing market in December 2005. Perhaps if he had read about the fast growing inventory in the Phoenix area and some Housing Bubble-related articles before December 2005, or at least before his February 2006 closing, Pauken would have opted not to buy to flip.

So, Pauken bought his house for $330K that would not sell for $375K or at other price reduction levels, and then put it in on the market two months later for $424,900!!! Unreal. Guess what? It did not sell, and is now priced at $389,900 with 69 days on market as of 06/25/06. Partner, you can keep it on there for 690 days. The house was not a wreck when you bought it. It simply was not worth $375K at the end of 2005, ergo it is not worth $389K in Summer 2006. You lost. Your lack of success in finding a fool to overpay for your house is not bad for the economy. I think that fiscal sanity by potential house buyers is beneficial for our economy.

Here is the MLS information for the current Active listing (sorry for the caps, pasting original):

BACK ON THE MARKET, DEAL FELL THRU !!!!! REDUCED AGAIN $9,000 PLUS $ 26,000 GRANITE COUNTERTOPS*** TRAVATINE FLOORS*** BLACK GLASS APPLIANCES*** CUSTOM PAINT*** NEW PLUSH CARPET **** HUGE CULTASAC/CORNER LOT** 3 CAR GARAGE**SPLIT MASTER W/ 8' SLIDER AND DUAL SINKS** LG FULL LENGTH REAR PATIO WITH GAZEBO***VALTED CEILINGS** EAT IN KITCHEN/GREAT ROOM WITH 8' SLIDER** GAS HEAT AND WATER** SURROUND SOUND**SIZE FOR RV GATE***** HOUSE IS GLAMEROUS-- BRING YOUR MOST DEMANDING AND DISCRIMINATING BUYERS !!!!!!!!!!!!!!!!!!!! GILBERT SCHOOLS******* SHOW AND SELL *** PLEASE LEAVE CARD
REALTOR® Remarks: BACK ON THE MARKET, REDUCED A TOTAL OF $ 35,000 *****VACANT ****** VACANT** LOCK BOX******** VACANT ********

While I have always wanted to live in a glamerous house on a cultasac in Mesa like some movie star, I think I will pass at the inflated price. Seriously, some folks make a lot of typos and should use a spellchecker. Some folks are also functionally illiterate.

Let's end with a sweet shot of those $26K granite kitchen countertops: