Can buying in Arizona be any more confusing??? (Phoenix, Queen Creek: mortgage, credit)

[aaron kristen]

Thanks for the responses so far.
Good point on the gated community. Basically a rent a cop is hardly a secure feature.

We will be travlling down to AZ in April, and spending a few days touring homes and areas. Basically, that is the only way to actually know what we are getting into.
The overwhelming supply of homes on the market just confuses the whole situation. With so many homes being dangerously close to foreclosure, thinking about an area right now, let alone what it will look like 5 years from now when the subprime settles out, is HUGELY important.
Damn I wish that magic 8 ball would work.

[aaron kristen]

Steve22
Interesting angle for sure. Being up here in Canada, we also have to factor in the exchange rate on our dollar versus the American. Right now, we are basically at par.
A few cents drop in our dollar though amounts to some big coin being left on the table.

[steve22]

Originally Posted by aaron kristen

Steve22
Interesting angle for sure. Being up here in Canada, we also have to factor in the exchange rate on our dollar versus the American. Right now, we are basically at par.
A few cents drop in our dollar though amounts to some big coin being left on the table.

This is another great point that you raise. The value of the American dollar is continuing to sink, and likely will even further as the Fed continues to cut interest rates and spiraling inflation becomes an ever-increasing danger. The Canadian dollar may in another year's time be worth appreciably more in value than the U.S. dollar, making the deal for a U.S. vacation home for you that much sweeter in the future.

[Patrick754]

I'd take any economic predictions from posters on this site with a huge grain of salt. They're even less likely to be correct than real economists, which isn't all that often. The old joke is Why did god create economists ? To make weathermen look good.

[steve22]

And I'd take any postings refuting the reality of the housing situation in this country from posters on this site with a grain of salt. This website is a hotbed for realtors, and they're likely to paint a much rosier picture than what reality dictates. Also, it's quite understandable that residents and/or posters on here would be skeptical and defensive about such economic forecasts- after all, it's a natural response for most people to react defensively to grim forecasts when the consequences are likely to affect them adversely.

Predicting the economy in this type of situation isn't anything nearly as random as trying to predict the weather. It's actually simple mathematics, really. The housing boom was driven by easy credit, speculation, and lax lending standards, which created the largest qualified pool of prospective buyers this country had ever seen. The drive-up in prices outpaced the actual growth rate of housing values to the point of absurdity, while Americans consumed themselves into massive debt and incomes remained stagnant. The inflation-adjusted average appreciation for homes in this country from its independence until about '96 was roughly 0.4% a year. From '96 to '05, that growth rate went through the roof. Just look at the graph from this article in Business Week, read the accompanying story, and you'll see what I mean:

Housing Meltdown (http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm?chan=top+news_top+news+index_be st+of+bw - broken link)

The bottom line is that there has to be a correction in order for prices to come back down to the level that they would be according to the actual inflation-adjusted appreciation rate, and to the level of affordability for most Americans earning average incomes. In other words, to bring values back to where they would have and should have been before the subprime industry created an unprecedented situation which drove them through the roof.

How long will the downward spiral go? The answer is long enough that the speculative buyers are driven out of the market, and real estate once again is priced realistically to what working wage-earners actually can afford and money borrowed to finance such purchases can actually be repaid out of the borrower's real cash flow. If nobody's buying, then nobody's selling, until something gives.


The other bottom line is that the debt-fueled economic engine we've been riding for so long is coming to a screeching halt. We've become a consumer-driven economy, & for the past decade we've been buying more than we can afford, spending more than we save, and importing more than we export. That can't last forever. Well, the bills have come due, the days of easy credit & creative home loans are gone, and lending standards are much, much tighter than they were a few years ago. A much smaller qualifying pool of buyers exists today than did a few years back. At the same time, housing inventory is at its largest surplus in recorded history. All this while the foreclosure rates nationwide are skyrocketing. The writing's on the wall, my friend, and it doesn't take a clairvoyant to figure it out. Just add it up.

[Patrick754]

I don't have any argument with your underlying thesis Steve. The problem is timing the bottom, it will only be visible in the rear view mirror.

[steve22]

Originally Posted by Patrick754

I don't have any argument with your underlying thesis Steve. The problem is timing the bottom, it will only be visible in the rear view mirror.

This is true, and I don't think it's a good idea to try to time that exactly. But I tend to agree with the prediction by many analysts that when the market does rebound, it will likely rebound slowly, more in line with the trends we saw before the latest boom cycle. If that's true, then even if you aren't completely accurate in timing the bottom, you're still going to find good deals for a long time before value rise again past their current level.

[Patrick754]

Originally Posted by steve22

This is true, and I don't think it's a good idea to try to time that exactly. But I tend to agree with the prediction by many analysts that when the market does rebound, it will likely rebound slowly, more in line with the trends we saw before the latest boom cycle. If that's true, then even if you aren't completely accurate in timing the bottom, you're still going to find good deals for a long time before value rise again past their current level.

Agreed, I doubt you'll ever see another boom like this in the next few decades. The wildcard in all of this is how much government intervention is going to take place. Left to it's own devices, I expect many of the most dire predictions about the housing market would come to pass. I'm not sure the government is willing to let that happen though. Look at the Savings and Loan crisis, the government was willing to pump about 124 billion in early 1990's dollars in order to bail out that situation, and I expect they would be willing to significantly increase that number in order to bail out the current mortgage crisis.

[londonbarcelona]

Originally Posted by steve22

And I'd take any postings refuting the reality of the housing situation in this country from posters on this site with a grain of salt. This website is a hotbed for realtors, and they're likely to paint a much rosier picture than what reality dictates. Also, it's quite understandable that residents and/or posters on here would be skeptical and defensive about such economic forecasts- after all, it's a natural response for most people to react defensively to grim forecasts when the consequences are likely to affect them adversely.

Predicting the economy in this type of situation isn't anything nearly as random as trying to predict the weather. It's actually simple mathematics, really. The housing boom was driven by easy credit, speculation, and lax lending standards, which created the largest qualified pool of prospective buyers this country had ever seen. The drive-up in prices outpaced the actual growth rate of housing values to the point of absurdity, while Americans consumed themselves into massive debt and incomes remained stagnant. The inflation-adjusted average appreciation for homes in this country from its independence until about '96 was roughly 0.4% a year. From '96 to '05, that growth rate went through the roof. Just look at the graph from this article in Business Week, read the accompanying story, and you'll see what I mean:

Housing Meltdown (http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm?chan=top+news_top+news+index_be st+of+bw - broken link)

The bottom line is that there has to be a correction in order for prices to come back down to the level that they would be according to the actual inflation-adjusted appreciation rate, and to the level of affordability for most Americans earning average incomes. In other words, to bring values back to where they would have and should have been before the subprime industry created an unprecedented situation which drove them through the roof.

How long will the downward spiral go? The answer is long enough that the speculative buyers are driven out of the market, and real estate once again is priced realistically to what working wage-earners actually can afford and money borrowed to finance such purchases can actually be repaid out of the borrower's real cash flow. If nobody's buying, then nobody's selling, until something gives.


The other bottom line is that the debt-fueled economic engine we've been riding for so long is coming to a screeching halt. We've become a consumer-driven economy, & for the past decade we've been buying more than we can afford, spending more than we save, and importing more than we export. That can't last forever. Well, the bills have come due, the days of easy credit & creative home loans are gone, and lending standards are much, much tighter than they were a few years ago. A much smaller qualifying pool of buyers exists today than did a few years back. At the same time, housing inventory is at its largest surplus in recorded history. All this while the foreclosure rates nationwide are skyrocketing. The writing's on the wall, my friend, and it doesn't take a clairvoyant to figure it out. Just add it up.

Cuz you're just so smart! *smile*

I agree with what you said.

[steve22]

Originally Posted by londonbarcelona

Cuz you're just so smart! *smile*

I agree with what you said.

Wow, thanks, that's really nice of you . But it's actually not that complicated, when you think about it. I think the lesson in all of this is that there is a price to pay in a free-market society, if you don't take responsibility for your own financial well-being and education. If people would learn to live within their means, and not be misled by the perception created via easy credit access that money is dispensible and seemingly infinite, then a recurrence of this situation would be avoidable in the future. People by nature tend to think in terms of the here and now, and not consider future ramifications of living beyond their means. Maybe after this, even the lesser-financially educated among us will be a little wiser in the future.

Which brings up Patrick's point about the proposed government bailout. I guess I'm just not sure how much the government really can help, because the government can't create wealth, it can only redistribute it. Any proposed bailout is going to require money, and if the government pays for it, then that money is going to come from- you guessed it- taxes. And that means you and me. There's no such thing as a free lunch. So in all honesty, I just don't see any government mortgage crisis bailout or, for that matter, their so-called "economic stimulus" package, helping things that much.