Caution! Home buyers! Possible price correction coming to Phoenix! (Mesa: 2015, apartment)
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I sold in August 2005 in Rio Rico, and bought a condo, a townhouse, and a house in 2009-2010. The incomes didn't support the size of the debt. Wages had been flat. The low down loans are a big problem, as down payment is the single biggest factor in determining default risk. Prices are in bubble territory in Phoenix. The house I paid 18,500 for in 2010, just went under contract at 199,000 list price. Small, 1946 house, on a 7700 st lot, about a mile east of the IS light rail stop. Schools are hideous, crime not terrible. Globally, the 70 trillion dollars equities markets are fine. Can't say the same about the 540 trillion dollars derivatives markets, though. A home is not an investment are the words of a sucker and a fool. Interest is the largest aggregate expense during the average american's lifetime. The more you can minimize that, the better off you will be relative to others. I would say the Phoenix economy is vulnerable, but somewhat stable. It has always been hard to pinpoint what the core of its economy really is...retirees, service jobs, and of course real estate...Maybe it will take a Black swan type of event..slowdown in jobs will mean many have to sell, and will owe more than they are worth (them and the property). Most know that walking away isn't nearly as bad as it should be..I am not making any bold predictions, but something has got to give.
Regular people are part of the problem, just like in the drug problem, just like in the alcohol problem.
People get sucked in by tax ill-conceived tax policies written by the banking lobby that work to increase the number of mortgage loans so banks can make more money.
Such a law as I envision will never get enacted as long as our Congress is for sale to lobbyists with briefcases of Benjamins. If it ever does it will be phased in over years to engineer a hopefully soft landing as owners of rental properties start to unwind their positions. As with most everything, our laissez-faire capitalism will let anything go until it's too late to do much about it besides a band-aid and screeching about mission accomplished.
Restricting private property ownership is one of the first steps taken by good communists, claiming it's like alcoholism and drug addiction is so far beyond the pale that it almost comes across as humorous.
Thank God your ideas will never be enacted, as you said.
Oh, human nature. Here we go again. I want to issue a note of caution to anyone who is thinking about buying g a house In the Phoenix area right now.
I know there will be people who are going to disagree just like they did when I told them in 2007. They will say that im crazy and "where is your proof"? I went through this the last time. As well as in 1992 and 1986 when overspeculation in the outlying areas of Phoenix led to another crash.
If you are fairly new or are not familiar with the history of housing in the Phoenix market then be advised.
Right now the Phoenix housing prices are the highest they have ever been. That is great news for anyone who bought their home 5 to 8 years ago. It is not good news for anyone who is buying today.
13 years ago home prices in Phoenix were almost as high as they are now. But then the home values dropped dramatically. IT COULD HAPPEN AGAIN!!! On a smaller scale but it can and more likely WILL happen again.
I understand that the last housing crash was a rare event and will not happen again. But even without that Phoenix may experience another correction especially if a recession comes along. It will be provoked by a domino effect originating in California.
You see home prices in Phoenix have a history of being cyclical. That means that they go up and down in value. Well if right now prices are up to the highest point ever then what can we expect to happen next?
Let's see, you're a real estate agent who tried this Chicken Little act on the Las Vegas forum and a couple other forums a few months ago and that didn't work well...so now you're trying it in the Phoenix forum?
Housing as an investment is a LONG TERM investment. It goes up (mostly) and it goes down (periodically). Anybody that can't swallow that shouldn't be buying a house. Anybody that tries to time the market is a fool. And you don't strike me as someone from whom I would take advice.
You've never lived anywhere near Riverside in the past few years, have you...
Last edited by Vic Romano; 12-09-2019 at 01:48 AM..
I would like to see the numbers on the multiples..how many times rent are people willing to pay. For some basic condo, it should be 8-12. For better single family homes 15-16....for a very special property with a high land value 20+. So for a house selling for 360k..can you get 2000 per month..AND actually get a tenant, whose income allows him to spend that much on rent...that can be where cracks start to surface. Is it at the point, where the rent, rent, rent chorus is in full gear? Seems like that was a precursor last time. And land is mostly very cheap in Phoenix..The spaces on the outer edge of the circle are way bigger. Not a ton of compelling reasons live downtown, nor are there many reasons to live on the 606 or the 707, but people have always favored new builds. Would appreciate some comments on rent price vs. sales price. At 12x annual rent, you are barely netting 4%, and still could face some huge problems..evictions, HVAC, foundation...why not just buy some REIT ETFs or even utility yielders.
Part of your comment touches on why apartments are so expensive here and rents keep rising - commercial property investors. PHX is on of the hottest multifamily resale markets in the country. Rent goes up every time a property is sold since the new debt is higher. Also, a large number of private rentals have been removed from the longterm rental market and flipped to shortterm rentals (AirBnB, VRBO, etc).
As a landlord I can only get what the market dictates.
In the last 5 months I put two homes on the rental market. One in Chandler and one in East Mesa. The phone rang off the hook. The problem is 8 out of 10 people who call don't earn enough, and have poor/very poor credit.
Now, a couple wanting to live in East Mesa with two kids and a combined gross income of $5000 a month/poor credit isn't a good bet to pay 1500 a month in rent on time.
Such families were able to afford a $1150 3/2 bed/bath home several years ago but that's gone.
Today it's the couple renting a house in Tempe for $1475 but now has to pay $1750 who decides to leave Tempe and moves into my home in E. Mesa for $1460.
It's either move to E. Mesa or downsize to an apartment in Tempe.
And those in E. Mesa who can't afford the higher rents will move towards W. Mesa where rentals are less expensive but the area less desirable.
Let's see, you're a real estate agent who tried this Chicken Little act on the Las Vegas forum and a couple other forums a few months ago and that didn't work well...so now you're trying it in the Phoenix forum?
Housing as an investment is a LONG TERM investment. It goes up (mostly) and it goes down (periodically). Anybody that can't swallow that shouldn't be buying a house. Anybody that tries to time the market is a fool. And you don't strike me as someone from whom I would take advice.
You've never lived anywhere near Riverside in the past few years, have you...
It's a great game. Out of state investors trying to chicken little high growth markets. IF they say it enough people will believe them and maybe people will hold off buying until pricing goes down. If prices go down low enough, they can swoop in and start buying inventory again.
Price stagnation is here, I don't think prices will keep climbing at the rate they are now unless wages are able to catch up.
Restricting private property ownership is one of the first steps taken by good communists, claiming it's like alcoholism and drug addiction is so far beyond the pale that it almost comes across as humorous.
Thank God your ideas will never be enacted, as you said.
I stand by my POV that people are the problem, be it drugs, alcohol or GREED that leads to terrible tax policies which escalates home prices. Attitudes and behavior need modification; let's change what we can.
Most SFHs and THs appreciate in value, not depreciate, so I'd settle for getting rid of the depreciation allowance for rental SFHs and THs, that will largely kill the tax dodge aspect that draws "investors" to rental properties. Doing so would lower the demand for such properties and thus ameliorate price escalation which will allow more people to be owner-occupants and not just rent forever.
If the tax incentive isn't there it largely meets my restrictions on owning rental homes. People can still buy them and rent them out in the expectation for long term appreciation but the hit to the Treasury goes away when the tax dodge ends. Ending other Federal policies (written by lobbyists) to 'encourage' home buying should also go away, it distorts what is supposed to be a marketplace that's free to find it own level. All it does is raise the demand for more mortgages for lenders to loan out all that tax cut money.
I'd still want my restrictions on the Air BnB type stuff in residential neighborhoods as explained earlier -- else it makes a mockery of residential zoning when the house next to me is a de facto Motel de Jour.
It would help if tax cuts were done in a smart, targeted manner rather than what we saw in 2001, 2003, and 2017 where trillions were slam dunked into play and disrupted markets that were operating in an orderly manner. I'd want a much higher income tax rate, cutting corporate tax rates to 15%, with special incentives for investing in productive plant, equipment and worker training IN THE USA coupled with strong SEC limits on corporate stock buybacks.
There are a whole lot of aspects at work here that are causing bubbles in the housing market and stock markets. IMO things are hosed up pretty badly, to our detriment, and to the benefit of the big money that runs congress and many state and local governments ... to include zoning issues. It's all connected and it's a wild west environment where anything goes; when NINJA and Liar Loans reappear the end of the bubble is at hand.
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Last edited by Mike from back east; 12-09-2019 at 11:20 AM..
As a landlord I can only get what the market dictates.
In the last 5 months I put two homes on the rental market. One in Chandler and one in East Mesa. The phone rang off the hook. The problem is 8 out of 10 people who call don't earn enough, and have poor/very poor credit.
Now, a couple wanting to live in East Mesa with two kids and a combined gross income of $5000 a month/poor credit isn't a good bet to pay 1500 a month in rent on time.
Such families were able to afford a $1150 3/2 bed/bath home several years ago but that's gone.
Today it's the couple renting a house in Tempe for $1475 but now has to pay $1750 who decides to leave Tempe and moves into my home in E. Mesa for $1460.
It's either move to E. Mesa or downsize to an apartment in Tempe.
And those in E. Mesa who can't afford the higher rents will move towards W. Mesa where rentals are less expensive but the area less desirable.
SF rentals are a different market from MF rentals.
I'm not surprised you're seeing family applicants with low credit scores. If they had better credit, they'd buy a house.
I think there is some truth to what the OP posted. I'm seeing more small apartment complexes being sold and turned into condos. More often that not, that tends to be an early indictor of upcoming market drops. (The exception being waterfront property.)
SF rentals are a different market from MF rentals.
I'm not surprised you're seeing family applicants with low credit scores. If they had better credit, they'd buy a house.
SF and MF are different but it's still the market which dictates what an owner can charge in rent. Not mortgage/**operating cost.
A poor credit score will disqualify many from receiving a mortgage loan but that sometimes happens when a couple owes money on a 35 grand truck and a 25 grand car on a $5000 monthly gross combined income.
Another revelation I noticed when I started renting properties myself and reviewed credit reports was the amount of money many owe on their credit cards. 10,15, 20 grand isn't uncommon to find.
I don't need a calculator to realize while many applicants seem like nice people they are going to have a hard time making ends meet esp with a couple of children.
As far as buying: Until they learn to get their finances in order the government shouldn't jump in and lower Fannie Mae qualifications for such risky applicants.
Unfortunately, the government did just that which helped fuel the housing crisis.
**biggest mistake I made in 2005 beside buying at the worst possible time was underestimating operating costs.
Last edited by john3232; 12-09-2019 at 12:33 PM..
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