Where do you see the Phoenix real estate market going? (foreclosure, renters)

[MN-Born-n-Raised]

Originally Posted by DougStark

I heard a local expert on the Phoenix area housing market say that soft wage growth in AZ keeps a lid on how high prices can go here. (Arizona Horizon, PBS channel.)

That ^^. ESPECIALLY because of the low wages in the trades. For instance I can easily find people who will put in pavers WITH $2 caliber material for $5 all in ( $2.50 for labor and $2.50 for materials). That would cost me $20 a square foot in MN. To install ceramic flooring, I can find people for $2-$3 a square foot to install with adhesive materials. The cheapest ceramic flooring labor is $7 a square foot in MN.

Like you said, lower income overall means less buying power and a smaller pool to be able to afford a nicer home. In our area, if you get over $400K on a house, you lost nearly all of the people who are willing to buy your place. Hence, the large house we bought in 2011 for $52/square foot (sold for $136/sq foot new). Currently, it is about $100 a square foot tops. That's still 27% off peak.

The other reason why homes cost less are related to substitutes. In AZ, you can drive 50 minutes away from the airport and be in an outer burb that has no shortage of land that isn't developed. In spots like LA, Boston, DC, and other locations, everything is either land locked or miserably far away. So here, outlying area commutes are doable. i.e. substitutes exist. In the Bay area or LA or DC, you have no option but to be closer in and the housing prices are pushed up (no substitutes). OF course, higher home prices push up the need for higher wages (so the cycle begins). So until the labor in the trades rise (illegals) or land gets sold out FAR away from the airport and downtown, expect much cheaper home prices as compared to national locations. Therefore, I don't expect and brisk rise in RE prices over and above inflation. When new home prices cost a lot more to build, that's when housing prices will rise above inflation. We don't need an economics degree to figure this all out. The writing is on the wall because there is no pressure to have home prices rise back up to pre-bubble pricing. Well... I should correct myself on one point. If we give out lair loans again, that will drive speculation and people who really cannot afford a more expensive home. Then we can finally get that bubble ear back.

[Zippyman]

Originally Posted by Prickly Pear

I think Phoenix will always be a boom and bust market depending on the nearby "more desirable" areas, think California which most people prefer than our city. Arizona as a whole, not just Phoenix, places way too much value on building homes in the desert far, far out of town, and our real estate market is valued too much considering it's volatility.

The worst part though, at least from what I remember regarding the last recession, rents were fairly affordable. Now, they are not. So the next real estate recession is going to sting quite badly, as people who foreclose will now not be able to afford renting either.

A huge percentage of the people who foreclosed in the last crash were foreclosing on 3-5 or more homes. That's why it was so bad. It wasn't one person or family losing one house, it was one speculator losing three or five or more homes, the banks booting several families out of those speculative rentals & everyone looking for rentals at the same time.. That's what moved the rental pricing - and it really can't happen again without liar loans & speculative financing.

Phoenix is rapidly approaching rental parity pricing, and there isn't much room for rents to rise versus incomes.

When rent costs the same as buying, there's no incentive to be a landlord. Before the last crash, you might pay $2500 /mo to buy a median home with market-rate financing, $700/mo to buy with a suicide mortgage, and $1,000 /mo to rent.. The spread between the suicide loan and the rent was enough to entice unqualified landlords into the business, as was the $0 down. Now you need a down payment & rents & mortgage payments are pretty much equal.

Phoenix will definitely have another crash as pricing exceeds incomes - likely because of a blip in the economy- if a lot of people lose jobs, they'll lose their houses.. But they won't lose five houses, and displace four other families the same time. However bad it is, it won't be 2009 again.

A bigger danger to the average Phoenix homeowners is the stock market and corporate landlords. The last big burp of foreclosures was sold off to the big banks & hedge funds at teeny-tiny pricing.. If those corporate landlords need cash because the stock market goes nuts again, they own enough properties to move pricing on single-family homes if they decide to dump them quick. So another mega-bank crisis could disproportionately tank Phoenix property values, in addition to foreclosures due to job losses.

[DetroitN8V]

I don't know if low wages are as big of a factor as it would seem. There are still plenty of people here with money. I've been closely watching 85018 for the past 6 months or so and it's amazing how many $1-1.5mm homes pop up and how quickly they sell. Maybe that pocket is an anomaly, but there are a significant amount of buyers with good incomes.

[MN-Born-n-Raised]

Originally Posted by DetroitN8V

I don't know if low wages are as big of a factor as it would seem. There are still plenty of people here with money. I've been closely watching 85018 for the past 6 months or so and it's amazing how many $1-1.5mm homes pop up and how quickly they sell. Maybe that pocket is an anomaly, but there are a significant amount of buyers with good incomes.

Agreed on the bold statement. There are a lot of people with high incomes. Some or many (??) are leveraged too. But if wages were higher in the trades, it would cost a lot more to build new and the substitutes would cost more. It's squarely related of cheap supply of illegals. Disclaimer: I have had plenty of (I assume) illegals working on our place. It positively keeps down the labor costs on painting, rocking, roofing, etc. It is what it is and I would not want to compete in the trades. There is a lot less wage with pressure with electricians and plumbers. Also, it would also cost more to maintain a home too if labor was higher slightly pushing up the cost of a $1.5M home.

As I mentioned, if the area was more land locked, it would cost even more. Hence, Boston proper is 3X more than Scottsdale (part labor and part land). The Bay area is 4X more (labor and land). Land locked (high cost of dirt) + higher labor== the premium. But you are right, the the "haves" do have. So $1M home here ==$4M + in other parts of the country. therefore, $1M-$1.5M is affordable to more people than most people realize. The people who are getting squeezed is middle income and lower income Americans. Not so much people plunking down $1-$1.5M as they see that as a "deal".

[DetroitN8V]

It's houses like this that are getting snatched up quickly.

https://www.redfin.com/AZ/Scottsdale.../home/28020462

$420/ft with only 3 bedrooms. Went under contract in two weeks. That stacks up with some of the pricier markets in the country.

[DougStark]

MN--There must be some reason why the trades don't pay more here. Supply and demand? I know the building industry in general is SHORT on skilled labor. Have you ever seen Mike Rowe (Dirty Jobs guy) talk about the skilled trades shortage? It's real. I don't know how the illegal worker issue factors in, but its impact here is probably significant given our border location.

Good point re: our seeming unlimited amount of land here for development. The thing is, that factor alone doesn't always make housing cheap. Example: Denver area. They have miles and miles of high plains to the east to sprawl, yet their housing prices have spiked into nose-bleed territory. I don't get it.

[MN-Born-n-Raised]

Originally Posted by DetroitN8V

It's houses like this that are getting snatched up quickly.

https://www.redfin.com/AZ/Scottsdale.../home/28020462

$420/ft with only 3 bedrooms. Went under contract in two weeks. That stacks up with some of the pricier markets in the country.

You have opened my eyes Detroit. You are right. At the risk of someone taking it the wrong way, that home (not location) would be worth FAR less to me. It's nice inside but with a typical rambler style. At $1M, no thank you. But to each their own.

[MN-Born-n-Raised]

Originally Posted by DougStark

MN--There must be some reason why the trades don't pay more here. Supply and demand? I know the building industry in general is SHORT on skilled labor. Have you ever seen Mike Rowe (Dirty Jobs guy) talk about the skilled trades shortage? It's real. I don't know how the illegal worker issue factors in, but its impact here is probably significant given our border location.

Good point re: our seeming unlimited amount of land here for development. The thing is, that factor alone doesn't always make housing cheap. Example: Denver area. They have miles and miles of high plains to the east to sprawl, yet their housing prices have spiked into nose-bleed territory. I don't get it.

Denver is "land locked" to the mountains. When you turn around and look at the high plains, it's Nebraska. The anything that is worth anything has great mountain views. Or in the foothills like Boulder.

[Tall Traveler]

Originally Posted by Zippyman

A huge percentage of the people who foreclosed in the last crash were foreclosing on 3-5 or more homes. That's why it was so bad. It wasn't one person or family losing one house, it was one speculator losing three or five or more homes, the banks booting several families out of those speculative rentals & everyone looking for rentals at the same time.. That's what moved the rental pricing - and it really can't happen again without liar loans & speculative financing.

Phoenix is rapidly approaching rental parity pricing, and there isn't much room for rents to rise versus incomes.

When rent costs the same as buying, there's no incentive to be a landlord. Before the last crash, you might pay $2500 /mo to buy a median home with market-rate financing, $700/mo to buy with a suicide mortgage, and $1,000 /mo to rent.. The spread between the suicide loan and the rent was enough to entice unqualified landlords into the business, as was the $0 down. Now you need a down payment & rents & mortgage payments are pretty much equal.

Phoenix will definitely have another crash as pricing exceeds incomes - likely because of a blip in the economy- if a lot of people lose jobs, they'll lose their houses.. But they won't lose five houses, and displace four other families the same time. However bad it is, it won't be 2009 again.

A bigger danger to the average Phoenix homeowners is the stock market and corporate landlords. The last big burp of foreclosures was sold off to the big banks & hedge funds at teeny-tiny pricing.. If those corporate landlords need cash because the stock market goes nuts again, they own enough properties to move pricing on single-family homes if they decide to dump them quick. So another mega-bank crisis could disproportionately tank Phoenix property values, in addition to foreclosures due to job losses.

I don't disagree completely but I think the 2008 crash was a once in a lifetime crash the likes of which we aren't likely to see again. About reaching the limits of pricing for incomes, not sure about that because Phoenix is the most affordable city in he West after factoring income and cost.

[DetroitN8V]

Originally Posted by MN-Born-n-Raised

You have opened my eyes Detroit. You are right. At the risk of someone taking it the wrong way, that home (not location) would be worth FAR less to me. It's nice inside but with a typical rambler style. At $1M, no thank you. But to each their own.

Exactly my thoughts. It's in one of the nicest neighborhoods in the best location in the valley IMO, but I'm shocked at the pricing and the demand in that area. Lots of well off families that have no problem paying the premium to live in Arcadia.