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Supply/demand fundamentals still look strong for appreciation over the next couple years or so. People are still moving here (lots of them) and new housing is being built at a rate not nearly fast enough to satisfy new demand, not to mention pent-up demand from 4-5 years of hardly any building activity. Inventory is still low. While the market has softened this past few months due mostly to interest rates and seasonal lull, it's still going to go right back up once the snowbirds return (in this next month!) and more sharply once January rolls around barring some economic shock occurring. The supply/demand is going to make up for higher interest rates and I'm confident in that for the next couple years, so long as they don't shoot up to 8,9,10%, which is highly unlikely.
I'm going to go out on a limb. I predict that the inventory is going to increase in Phoenix are "dramatically" from Sept 1st 2013 to Sept 1st 2014. Some towns and neighborhoods will soften and depreciate off of September 1st's pricing. Buyers will have much more choice all across the Valley. As I said earlier, the buyers seem to be on "strike". Inventory will be more balanced and it won't be a sellers market (nor a buyers market a year from now).
To the people who have a house backed up to a busy road or if it is less than ideal floor plan, now is the time to sell. I am hoping I get 5% appreciation over the next year. I will call that a success. Putting it another way, if I was here purely for an investment, I'd be putting my home on the market.
MN, I can see where you are coming from but I think there is some overstating of how much inventory will increase. I don't think it will be nearly enough to make up for the demand. Also, I think once the shock of the initial interest rate rise lets up and people realize that they are not going to go any lower again, we'll see buyers back out there looking for homes. New home prices are continuing to increase, and builders are still having trouble keeping up with demand. I work for a new home builder and I just did an analysis of sales per community by month looking back the past several years and we are still higher than last year at this time, even with higher interest rates. That's a good sign that the buyer pool is stronger and it should only continue to get stronger as people who had bad credit because of foreclosures get that erased off their credit reports and start looking to buy again. That is helping to make up for the higher interest rates, too. The other possibility is that some people who were looking to buy a 3,000 sf house might now just have to settle for a 2,500 sf house to get payments to where they need to be. People will still be buying but they will just accept that they won't get as much for their money as they could have a year or two ago. That's part of the danger of waiting and should also help keep the appreciation uptick going a little longer.
I will admit I'm not as bullish as I was a few months ago about how high appreciation might get over the next couple years. A couple months ago I would have said to expect maybe about 10% on average over the next 3 years. Now I"d say that 7-9% for this next year might be more realistic, tapering off to closer to normal rates (3-4%) over the next three years.
Shampoo. I'm only speaking from what I feel. It shocked me how quickly the market bounced back. I'm not going to be shocked if the market drops some in a year from now. As I said, if I was an "investor", I'd be planning to sell off some properties come December. This is a gut feeling.
The 1% higher interest rate doesn't both me as much as the 30-50% added sticker price for the house. Thankfully I already own and I bought at the right time. I would go out on a limb and say that prices aren't going down either, they will appreciate strongly for another 5 yrs.
From my own experience, I am just amazed at how drastically different the world is today from the late 90s. The salary I was earning then is pretty on-par with what I am making today (maybe ~10% more), yet from the late 90s to today, houses have doubled or tripled, cars have doubled, the only thing that is cheaper is computers! Looking back at what homes were in scottsdale in the 90s, you could have got a 2500 sq ft house for under $200,000! Today that house is in the high 500s.
I have four investment homes, and plan to sell one in January. I'll keep the others for several years, or until I see a trend that shows me that the market prices are abnormally high and will be dropping. That trend will be a decrease in demand, increase in inventory, and a continuing increase in price - just what we saw happening in 2005-06. That trend takes about one year to pan out.
Currently, we have a slowing in demand, a little more slowing than is normal in the slow season. The inventory grew from 19,000 to 22,000 during a two month period this summer - not because of added listings, but because of fewer signed contracts. The upward pricing pressure is still there because the weakened demand has not overshadowed the low supply.
Mike Orr of the Cromford Report asked this question: "Will the continued rise in prices cause buyers to back off even more, or will they realize that they need to get off the fence and get back in the market before affordability gets worse?"
Obviously, that remains to be seen as January rolls around and the buying season gets into gear.
We know that the builders are not building enough homes to keep up with the projected population growth, and there is no reason for them to want to build more homes as long as they can continue to raise prices in a low inventory situation.
Here are some Phoenix Metro Area Price increase stats to ponder:
+38%..... Since the bottom in 2011
+18.9%.. Since Sept 2012
+5.2%.... Since 3 months ago
+1.46%.. Since 1 month ago
Long Term Price Increases, Phoenix Metro 2001 to Present
1.3% Per Year
Mike Orr refers to the following cities as the "Golden Rectangle", where prices have increased the most since 2001:
Chandler,
Tempe,
Scottsdale,
Ahwatukee,
Arcadia,
Paradise Valley,
Northeast Phoenix,
Carefree and
Cave Creek, as well as
western parts of Gilbert and Mesa
While the Metro area as a whole increased 1.3%, the Golden Rectangle averaged a +2.525 annual appreciation rate, with Scottsdale being the highest, at 3.0%.
If a home is priced at the market, and in a desirable location, it will still, today, sell right away at or above list price. One recent listing of mine in a desirable area of Gilbert was listed on August 10, and had a contract on August 12 over list price.
Another listing was listed in June. It was a great home, highly updated, but in a less desirable are of Mesa, although the community itself is very nice. It took 100 days to get a contract at full list.
In both of these homes, some potential buyers had either gotten bad information from their agents, or they ignored their agents, seemingly thinking that this was a buyers market. Because of the bad, or ignored, information, several agents submitted lowball offers on both properties.
Also, some sellers are not being realistic in their pricing. On one listing appointment in early September, the absolute maximum price that I could justify listing at was $370k, and that was slightly above the comps, and most likely not sell in 30 days at that price. The seller said they wanted no less than $460k. When asked how he arrived at that price, he said it's because of all the money they put into the house over the years.
He refused to understand that the house would not sell at that price, and if he tried to sell at that price, he would not get showings, and would possibly end up selling later for less than $377k because the buyers would sense desperation after the home has been on the market for a while and only the scavengers would be coming around. He held tight to that price, so I had to refuse the listing.
Buyers and Sellers must be in tune with the current market if they want to buy or sell a home within a reasonable amount of time.
There's no reason at all for anyone with a degree of experience to be drawing conclusions now. Absurd. Summer numbers aren't a basis for drawing conclusions. No need for knee-jerk. Prices will continue up, demand up, supply still low. Higher interest rates aren't yet a proven issue.
Obviously you'll see occasional examples of greed trumping common sense on ask now that the masses realize prices are higher. Those stories are cute but in these cases, aren't relevant to overall trends.
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The recent jump in housing values has just been the ~15% pop in prices that always occurs after the bottom, when investors snatched up all the good deals and inventory therefore decreased. Prices will stabilize and values will increase more slowly now, with slow, steady economic improvement and more people listing their homes (in fact, I think we've already started to see this in the last couple months, where values haven't been rising as much as they were before). When things get really crazy in the future, prices will rise dramatically, then we'll have another crash. All of these steps happen in every cycle, it's nothing new.
Bingo. Our likely future. Forget summer numbers and wait 'till Christmas or spring before drawing conclusions.
With the pent up demand, population growth, "new money" from recent equity, low inventory, and the sense of urgency with climbing rates, there is another 30-40% increase that will probably happen within 2 yrs. We the profiteers baby If you haven't bought yet and have the means, you better jump before it's too late. I can see days of scottsdale getting $500 a sq ft and other areas getting around $300. You are all going to wish it was peak pre-crisis 2006 again by the time we get to 2016. Probably the avg joe won't be able to afford crap here with his new part-time minimum wage job at the new strip mall and he'll be forced to rent his old house that I snatched up half price at auction, oh the irony
Last edited by vince3vince; 09-28-2013 at 08:45 PM..
With the pent up demand, population growth, "new money" from recent equity, low inventory, and the sense of urgency with climbing rates, there is another 30-40% increase that will probably happen within 2 yrs. We the profiteers baby If you haven't bought yet and have the means, you better jump before it's too late. I can see days of scottsdale getting $500 a sq ft and other areas getting around $300. You are all going to wish it was peak pre-crisis 2006 again by the time we get to 2016. Probably the avg joe won't be able to afford crap here with his new part-time minimum wage job at the new strip mall and he'll be forced to rent his old house that I snatched up half price at auction, oh the irony
pretty sure $300- $500 per sq/ft is a pipe dream, just like it was in 2005, and just like $35 per sq ft was unreasonably low in 2009-2010-2011.
i think they actually backed off on jerking the interest rates up like they were planning - Desert schools had 3.25% on 15 year loans last week - for a while they were pushing 4%.. (which still is pretty darn cheap money)..
pretty sure $300- $500 per sq/ft is a pipe dream, just like it was in 2005, and just like $35 per sq ft was unreasonably low in 2009-2010-2011.
i think they actually backed off on jerking the interest rates up like they were planning - Desert schools had 3.25% on 15 year loans last week - for a while they were pushing 4%.. (which still is pretty darn cheap money)..
What area ever went as low as $35 a sq ft?
If we look back at household incomes, you will see the avg household income in the states increased by just $10,000 or by 25% since 1999 (Median Household Income History in the United States)
Year No. of Households Nominal $ Inflation Adjusted $
2012 122,459,000 $50,099 $51,017
2011 121,084,000 $49,158 $51,100
2010 119,927,000 $48,415 $51,892
2009 117,538,000 $48,916 $53,285
2008 117,181,000 $49,406 $53,644
2007 116,783,000 $49,341 $55,627
2006 116,011,000 $47,317 $54,892
2005 114,384,000 $45,496 $54,486
2004 113,343,000 $43,544 $53,891
2003 112,000,000 $42,560 $54,079
2002 111,278,000 $41,624 $54,127
2001 109,297,000 $41,458 $54,766
2000 108,209,000 $41,262 $55,987
1999 106,434,000 $39,985 $56,080
Now look back at the cost of living. How far houses, property taxes, education, gas, groceries, cars, everything has gone up unproportionally to the avg. joe's salary. When I was in college, I could work the 3 months of summer and save enough to pay for the following year of school. Can students still do this today?
If we look back at household incomes, you will see the avg household income in the states increased by just $10,000 or by 25% since 1999 (Median Household Income History in the United States)
Year No. of Households Nominal $ Inflation Adjusted $
2012 122,459,000 $50,099 $51,017
2011 121,084,000 $49,158 $51,100
2010 119,927,000 $48,415 $51,892
2009 117,538,000 $48,916 $53,285
2008 117,181,000 $49,406 $53,644
2007 116,783,000 $49,341 $55,627
2006 116,011,000 $47,317 $54,892
2005 114,384,000 $45,496 $54,486
2004 113,343,000 $43,544 $53,891
2003 112,000,000 $42,560 $54,079
2002 111,278,000 $41,624 $54,127
2001 109,297,000 $41,458 $54,766
2000 108,209,000 $41,262 $55,987
1999 106,434,000 $39,985 $56,080
Now look back at the cost of living. How far houses, property taxes, education, gas, groceries, cars, everything has gone up unproportionally to the avg. joe's salary. When I was in college, I could work the 3 months of summer and save enough to pay for the following year of school. Can students still do this today?
lots of serious (cash) investors were buying in 2009-2011 at the trustee's sales for $35-40 per sq ft. Nearly new homes in Casa Grande, Queen Creek, Buckeye, Goodyear.. older sfrs, condos & townhomes closer in. At the time, I remember joking with my little bro about buying one of those way-out 4,000 sq foot monstrosities that had the "full disneyland" backyard as a weekend "retreat" .. they were selling at about the original cost of the fancy pool upgrade. the values at the time were irrationally low.
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I am hoping I get 5% appreciation over the next year. I will call that a success. Putting it another way, if I was here purely for an investment, I'd be putting my home on the market.
