Illusory Housing Shortage and the Echo Bust (Phoenix, Scottsdale: bank owned, short sale)

[Captain Bill]

Originally Posted by markas214

What happens in December? The tax credit disappears and foreclosures continue. We move to the area in 4 weeks and I'm looking for a 6 month rental. I feel no urgency. Many homes priced sub $150,00 seem like good deals. The type of house I want is still over $100,000-$200,000 over the last sales in '02. When they hit that level, pre-boom, I'm in.

Technically, we could ask what will happen in November. The tax credit ends on November 30. However, the property has to close escrow by that date. For an FHA loan that means the contract may have to be signed by Oct 15, or earlier to get closed on time.

A conventional may have to go to contract by Oct 30 to be closed by Nov 30.

The requirement of closing escrow on a day certain was a big screw up in my opinion because escrows can have many delays and some may go to escrow on Nov 15 hoping to get the credit, and it doesn't happen. It may be better if they said that escrow must be opened by a specific date.

There have been some changes to the tax credit program, but I haven't been able to get all the details yet.

[Ponderosa]

Originally Posted by markas214

What happens in December? The tax credit disappears and foreclosures continue. We move to the area in 4 weeks and I'm looking for a 6 month rental. I feel no urgency. Many homes priced sub $150,00 seem like good deals. The type of house I want is still over $100,000-$200,000 over the last sales in '02. When they hit that level, pre-boom, I'm in.

2002 is seven years ago. You want to discount 7 years of wage increases and inflation. Home prices pretty much follow wage trends. If prices were "correct" then, they would be higher now in a "normal" market. How much, I don't know, but historical appreciation has been maybe 3% or better per annum in my experience. So that puts the appreciated price of 02 up maybe 15-25% depending on circumstances. Admittedly this is not a normal market. Still, I think one should at least consider the trend line and the lapse of time.

[Howard Roark]

There is a huge abundance of houses. And most of them are priced pre-ARM reset still. There are several years of resets ahead. Plus, do you want to buy into a neighbohood of knife catchers? Better to build up savings in cash. Cash will be what you need to fall back on when your unemployment checks run out anyway. Because unemployment will go up in a few years. That will be due to the second round of the Housing bust.

[markas214]

Originally Posted by Ponderosa

2002 is seven years ago. You want to discount 7 years of wage increases and inflation. Home prices pretty much follow wage trends. If prices were "correct" then, they would be higher now in a "normal" market. How much, I don't know, but historical appreciation has been maybe 3% or better per annum in my experience. So that puts the appreciated price of 02 up maybe 15-25% depending on circumstances. Admittedly this is not a normal market. Still, I think one should at least consider the trend line and the lapse of time.

You are omitting the excess inventory built during the bubble. Supply vs demand. Perhaps historical trends would have been followed but we just came through an unprecedented bubble.

[Howard Roark]

Have any of you seen the Phoenix, Arizona page from http://www.city-data.com? Look at the graph of real estate sales. It's been recently updated and was at 2007 prices for quite awhile. Looks like the average sale price is cllose to $100,000 in Phoenix for the first quarter of this year. It was as high as $250,000 a few years previously.

Remember, just because the average house price is down lower than the year 2004 certainly does NOT mean Phoenix real estate reached a bottom. I think the bottom will be no sooner than the spring of 2012.

[Captain Bill]

Originally Posted by Howard Roark

Have any of you seen the Phoenix, Arizona page from http://www.city-data.com? Look at the graph of real estate sales. It's been recently updated and was at 2007 prices for quite awhile. Looks like the average sale price is cllose to $100,000 in Phoenix for the first quarter of this year. It was as high as $250,000 a few years previously.

Remember, just because the average house price is down lower than the year 2004 certainly does NOT mean Phoenix real estate reached a bottom. I think the bottom will be no sooner than the spring of 2012.

Median price in the city of Phoenix:

May 2002..... $126,000

May 2009......$120,000

Average price in the city of Phoenix

May 2002..... $159,000

May 2009......$164,000

[Howard Roark]

True. Thanks for your post.

Now what are the stats of the unemployment rate in Phoenix in 2002 versus 2009?

Betcha the unemployment rate was less than 4% in 2002.

Originally Posted by Captain Bill

Median price in the city of Phoenix:

May 2002..... $126,000

May 2009......$120,000

Average price in the city of Phoenix

May 2002..... $159,000

May 2009......$164,000

[Ponderosa]

Originally Posted by Howard Roark

True. Thanks for your post.

Now what are the stats of the unemployment rate in Phoenix in 2002 versus 2009?

Betcha the unemployment rate was less than 4% in 2002.

It was around 6%. It rose through most of 2002 in the recession that followed 9/11. It had been near 3% prior to 9/11 and doubled in the months that followed. Housing prices also fell in that recession as I recall. So today's prices, in some areas, are still lower than in the recession that followed 9/11 NOT adjusting for inflation. Phoenix metro recovered quickly and a couple years later lead the nation in job creation and population growth.

[azjack]

"You are omitting the excess inventory built during the bubble. Supply vs demand. Perhaps historical trends would have been followed but we just came through an unprecedented bubble."

Of course.

"Phoenix metro recovered quickly and a couple years later lead the nation in job creation and population growth."

It did not recover. It was propped up by the largest lending/housing bubble in American history. And yes, I am including the years of 5% to 10% house price inflation in the bubble period, as well as the 30%-plus years.

The federal funds target rate was kept below 2% from December 2001 until November 2004. And with that target rate at essentially zero since late 2008, various tax credit gimmicks in place, and an executive branch intent on emptying the Treasury for decades to come, re-starting the bubble appears to (thankfully) be a lost cause. Of course, the economic consequences of these actions may be more dire than another bubble.

[markas214]

Watch the 10 year note. Friday May 22 saw the yield rise 30%. If the US bond market tanks mortgage rates will go much higher. In that case the high end market will drop like a lead balloon. That is where I see the risk as opposed to sub $120,000 (depending on location) houses. $50-80 a ft/sq in Litchfield Park seems like a better bet than $100-150/ft sq in Scottsdale at this point. I see quite a few homes priced around $270,000-300,000 that I'd be willing to buy if I had any feeling of stabilization. We aren't there yet. Still way too much downside in that range.