Phoenix MLS Predicting Lowest Median September Price in Nine Years (subdivision, wage)

[Zippyman]

Originally Posted by Howard Roark

Minnesota, I like your strategy that you pointed out. Yes most people do not have the time or energy ... or patience! Being a cash buyer with several times more savings than what you will put into a house means you can certainly be patient.

However, are you willing to put up with that house for at least another 12 years, maybe 13 of no appreciation in your Phoenix house value, potentially no growth in stock market indices, when you could be in some CDs or government securities investments that yield 2% annually? A ten year note yields a little above 2.7%. I have AAA and AA Arizona issues yielding around 4% - a big chunk of my nest egg. I'm thinking for myself, getting a lease on a white BMW M6 would bring me more thrills buying a house now. Maybe I will change my mind in three years.

Yeah those yields seem impressive, but the "street value" can and will differ. You seem to have forgotten the events over the past couple of years - Bank of America Preferred stock was an "AAA" issue that went from $1000/share to $287 a share... The yield at $287 was approaching 30%. Now it's back to nearly $1000, and rated a "buy"...

There have been several posts referring to a "deflationary spiral" - while that might be an option, it would also be very unpopular politically. The "easy fix" is inflation. If the minimum wage hits $15 an hour, who's going to complain about $6 gas? Everybody wins, except those holding the "paper" bag. Suddenly, a trillion-dollar shortfall in social security isn't a big deal, budgets get "balanced", and the sheeple are happy. Well, except those on fixed incomes, but better they suffer than the banker-class.

Last summer, a Whopper without cheese was $1.99 at the BK down the street from my home...

Now...they're $2.99.

I'd rather invest in whoppers than 4% cd's...

We're all just a bunch of "lobsters" in a pot that's slowly being heated up.

When your neighbors start yelling about "inflation" it'll all be over.

[Howard Roark]

Zippy, I think real estate is not an inflation hedge if we get severe price inflation. I will consider it inflation when real wages go up 5% per year. Real estate already reacted in price to the inflationary outlook by skyrocketing in the last decade. The only inflation hedge that stayed the same or fell since the year 2000 is stocks. So if you want a hedge with more likely an upside than real estate or precious metals, choose a low expense stock index fund, maybe all you need is one global stock index fund. Be the owner of the world. I think Europe will recover before the U.S. because they are undergoing austerity programs. The U.S. still has a socialist (OPM) mindset and will go through austerity later. That's why a global fund will hedge you out of the U.S.'s potential slow growth.

I have more equities than government securities, so I'm hedged.

[Zippyman]

I think the real lesson from the past couple of years is that there is no safe haven. Remember the run on money-market funds, and the resulting government guarantee? (I'm pretty sure it's expired now, FWIW).

Remember the exasperated pontificating on CNBC speculating on when the DOW would hit ZERO?

We're in a mess now like we've never seen before, but the one fact you can take to the bank is that the government will take the "easy" fix every single time.

Google "helicopter Ben Bernanke" for a preview.

I believe his quote was something to the effect of "we have printing presses, and we know how to use them".

The easy fix isn't allowing real estate to slide to zero, any more than it was allowing the banks to fail, even if they earned that outcome.

"Nice" houses in Tijuana, Costa Rica, and Bolivia cost more than "nice" houses in Phoenix or Vegas right now. Nature hates a vacuum, just as surely as god hates trailer parks.

[MN-Born-n-Raised]

Zippy. I cannot give you any more feedback for a while ("I need to spread the positive reputation"). But you are spot on.

I will expand this by saying the government has already tired to spur inflation by printing money. Foreign borrowers didn't appreciate it (and have bargaining power to resist printing more money).

IMHO, we are not in inflationary times when we printed trillions because we lost even more TRILLIONS that we put in. For instance every drop of 1000 of the Dow is a Trillion of wealth evaporation. So there is about 4 Trillion of wealth gone right there. Next is the housing equity which lost north of $4 trillion in wealth (see U.S. housing value down at least $4 trillion | Philadelphia Inquirer | 09/05/2010 )

So we are down a good $8 trillion during this housing mess / stock drop while Bush and Obama raised the debt by "just" under $3 Trillion. Now combine the fact that American's are in Hawk and is de-leveraging. Even extremely low rates cannot get some people to borrow.

So while I agree that there policy is trying to inflate our way out of this mess, is doesn't have traction yet.

[MN-Born-n-Raised]

Originally Posted by Howard Roark

Minnesota, I like your strategy that you pointed out. Yes most people do not have the time or energy ... or patience! Being a cash buyer with several times more savings than what you will put into a house means you can certainly be patient.

However, are you willing to put up with that house for at least another 12 years, maybe 13 of no appreciation in your Phoenix house value, potentially no growth in stock market indices, when you could be in some CDs or government securities investments that yield 2% annually? A ten year note yields a little above 2.7%. I have AAA and AA Arizona issues yielding around 4% - a big chunk of my nest egg. I'm thinking for myself, getting a lease on a white BMW M6 would bring me more thrills buying a house now. Maybe I will change my mind in three years.

My math is a little different. I want a home for 5-6 months a year every year. I don't "need it" for a couple of years from now. I could rent it out for $1200 /mo annually to cover some of the costs. I'd have to pay $2K-$2500 a month for a jazzed up spot on VRBO® is Vacation Rentals By Owner that's $12K in rent furnished. There is a freedom using this approach. BUT. I'd rather have my stuff all locked up and just get there. By the way, my wife would say rent by the month for the freedom. She might be right. I just sold a home in Mexico (took 1.5 years of stress trying) and finally came away with more than I paid. I got lucky because they bought cash flow as well as a beautiful condo on the beach. I offered to rent it out for them so long as I can use it for free. So I have $400K in my pocket and can still use the place I decorated a few weeks a year. It doesn't get any better than that. I diverge...

So if I get a foreclosure below traditional pricing I hope to get a $160K home in Glibert or East Mesa that would normally sell for $180K (using my "buy it when there isn't demand and prices are falling"). If things turn around even back to this April of 2010, I'd pick up $20K, more than enough to discount mine below others and extra dollars to pay for the selling fees. If it continues to drop to that $160K on average level, I'm still o.k.

$160K won't make me go broke if I lost it all, so I feel pretty comfortable with this approach. I don't want to buy during an era like this past April with a bidding war. That $160K home (assuming I can get a steal on one) was $200K in April because of the bidding wars.

[EnicAZ]

Originally Posted by Howard Roark
However, are you willing to put up with that house for at least another 12 years, maybe 13 of no appreciation in your Phoenix house value, potentially no growth in stock market indices, when you could be in some CDs or government securities investments that yield 2% annually? A ten year note yields a little above 2.7%. I have AAA and AA Arizona issues yielding around 4% - a big chunk of my nest egg. I'm thinking for myself, getting a lease on a white BMW M6 would bring me more thrills buying a house now. Maybe I will change my mind in three years

Currently, according to my ARMLS stats, our sales levels and prices have started falling below April of 2009 already. The new decline in home prices, lower than April of 2009, threatens to put people who bought in the last 18 months in the dangerous position of being underwater. This will bring additional inventory to the table, on top of what we are already dealing with from 2006 to early 2009.

I'm closely watch local job statistics, looking for any good news to come out.

[Zippyman]

Originally Posted by EnicAZ

The new decline in home prices, lower than April of 2009, threatens to put people who bought in the last 18 months in the dangerous position of being underwater. This will bring additional inventory to the table, on top of what we are already dealing with from 2006 to early 2009.

You're oversimplifying and making assumptions with no basis in reality.

I'm one of those people who bought last year. Rents in my neighborhood have went UP not DOWN for single-family homes, and the selection is miserable. The home I bought would rent for several hundred more a month than it costs to own. Little bro bought one last summer too - his one-bed apartment rent was over $650, and his house payment is under $500, including taxes, insurance and HOA. Similar houses in his neighborhood pull $800+ and rent in just a few days. How "dangerous" is it to be in that situation?

30% of buyers over the past year have paid CASH. That's 20% more than historical norms in Phoenix. There's no loan to default on, and if you're planning on waiting for that "inventory" to hit the market again due to default, you'll be a very old man before that happens.

Once again, I'll ask you to think back a little bit - What was on the news 24/7 last April? People who were willing to buy last year weren't all ninnies chasing a tax credit - none of them used a "liar loan", some of them had waited for years for the opportunity. Plunking down a pile of cash last year on a house took some pretty big grapes - Very few people in my circle of friends and family thought it was a very good idea, but it's already starting to pay off in my case. My house payment went down $50 a month this year because I found a better deal on insurance and my property taxes went down.

Thanks to the tax credits and cheap labor, I was able to upgrade my insulation and get a top-notch HVAC system that lowered my energy consumption significantly. Rental homes don't have two-stage 18 seer heat pumps and R-50 in the ceiling. According to APS, I paid $100 less than my neighbors with similar-sized homes for energy last month. There's $150 real dollars back in my pocket, and I haven't even mentioned what having a mortgage does to your income taxes.

It's cheaper to own my house than equivalent rent by a significant margin.

Sure, these buyers could lose their jobs - but to assume the psychology and financial acumen is in any way similar to the specuvestors of 2006 is really ignorant.

[Zippyman]

Originally Posted by EnicAZ

Zippy, I'm just going by the numbers reported in our sales database. Sales have fallen dramatically as well as prices, and they fell below April of 2009's numbers in less than 3 months. Without the tax credit, the housing market has taken a dramatic turn for the worse.

Without a government incentive, the market has become paralyzed. I am hoping for some sort of positive sparkle in the job market, but I don't know what it will be.

You've obviously missed the point - economists are historians. They told us a couple of months ago, that the recession "ended" nearly a year ago. There still is no consensus - and there won't be one until the music has stopped. Being a part of the "herd" may be comforting, but it isn't the way to get the best deal for yourself.

When no one else is looking is the ideal time to cherry-pick for the properties that slip past the herd - the house on the end of the block that has an "extra" sliver of land... The house just a little higher on the hill than the others... Getting that 3 car garage instead of a 2-car. Those homes will be off the market and out of play when the "experts" tell you that "it's the best time ever" to buy a house.

Rents never doubled in Phoenix for SFR's, even though "values" did double.

They aren't going to fall by half either.

If the math works, it works. If you've got to wait for others to do the math for you, you'll get the leftovers. Enjoy your meal, don't forget to tip your server.

[MN-Born-n-Raised]

But Zippy. You don't get it. . EnicAZ's office has projected prices to fall over the next 9 months.

He wishes there were some better economic data but the RE office experts are pessimistic.

[EnicAZ]

Hi Zippy,

I feel like you are upset with the data which came out of our formulas for the 25-40% price declines in the Phoenix area. Believe me, we are very upset too, but the data is what it is. We can't change the facts by complaining about how we don't like them. I try to focus my energy on thinking of ways to improve the job market, as wage deflation is taking a very heavy toll on both home values and rents.