Home prices falling??? Wait to buy?

[Winkelman]

Everyone is going to give you their opinion on what they think will happen. I see real estate agents posting here about how it's a great time to buy. The fact they are here trying to find clients instead of out selling houses tells a lot about the true state of the market.

I have been an investor both here in Arizona and other states for the past several years. I have done extensive research on other housing booms in the past (Southern California in the late 80's to mid 90's and New York / New Jersey in the mid to late 80's) to get a sense for how these things play out. All this info is easy to find on the internet.

The current Arizona market reminds me of the Antelope Valley north of Los Angeles. If you research the ups and downs out there you will see what may happen in Arizona. Currently prices are down about 15% from their peak. Prices have just started coming down the past few months. Their market seems to be a little ahead of Arizona in the real estate cycle. Go to ziprealty and the massive price cuts taking place. Lots of short sales.

When prices peak they tend to level off for two to three years. At the same time sales plummet. Inventories increase as does the amount of time it takes to sell a house. Sellers want to get full price and are not willing to cut prices. Buyers hold out for the best deals. Eventually foreclosures increase and begin to push prices down. Sellers begin to panic and lower prices to sell before their house drops more. in the CA and NY booms it took 3-5 years later for prices hit bottom. Then inventories drop and sales increase.

Right now in Maricopa County there is a 10 month supply of homes on the market. Sales have fallen about 40% from the peak of the boom. And now with tighter lending practices it will be harder for many to qualify for a loan. Add a flood of foreclosures and things might get worse before they get better.

My feeling is prices will probably fall way lower than they should, just like they rose much more than they should have. At that point I will buy everthing I can and ride it back up, just like I did a few years ago. When will that be? When sales rebound back to previous levels, when inventories fall to about 1/2 where they are now, when the sub-prime and foreclosures have worked through the market. I'm not worried about prices, they may correct 5% or 30% who knows, when the above factors occur prices will go up. I am not worried about trying to predict now when that will be. If you open your eyes and watch the data, it will be obvious when it actually happens.

[nehazaidi]

A friend of mine just bought a new house in the Occottio area (sp?) 2,700sq ft listed as 407,000 for 100,000 less.........just food for thought

[SHEPNYC]

From past experience, look for an approximately 10 year cycle. 3 years down from peak prices, 3 years at the bottom, 3 years up, to get back to original peak prices and than a steady climb up. Translation, look for 2005 prices to come back in 2015.

[jco]

The original forecast was that things would even out in summer '07 and pick up in spring '08. Phoenix has already picked up some, but there are still the burbs that are trying to catch up.

Goodyear, Avondale, Surprise, and Buckeye are all on the top ten growing cities in the entire nation. I think a lot of people are coming here because our home prices aren't quite as high as the east valley. I would think that the west valley will see a greater jump in prices than the east, so the cities you mentioned should stay the same a longer.

[Winkelman]

"The original forecast was that things would even out in summer '07 and pick up in spring '08".

Who made that forecast? Most likely the NAR or its Arizona equivalent. Not really a forecast at all but a marketing tool to try to keep houses selling.

SHEPNYC is correct about Real Estate cycles. The only problem is the Phoenix area has never had a run up like this, so you have to look at other areas which have had this situation. CA and NY/NJ back in late 80's is a good place to start. You have to wait until sales pick up to pre-bubble levels and inventories decline to pre-bubble levels.

[azjack]

Lending standards are far more restrictive today than they were a few months ago. Lending standards will become ever more restrictive in the near future. The speculative frenzy in Arizona and elsewhere is over. People without money thankfully no longer will be buying houses with loans that, absent mania-level "appreciation," they would (will) never pay back. The house that I bought for $110K in 2002 was not worth the $230K that I sold it for in 2005. It is probably really worth under $130K in a rational lending environment.