This housing market is unsustainable. Why? And when will things cool down again? (Phoenix: fit in, apartment complex)

[Burning Madolf]

Originally Posted by MN-Born-n-Raised

There is no debate that this ultra overheated RE market will settle down. And the faster and higher it goes up, I bet we both agree that it will probably fall more. Interest rates are certainly a large driving force as to why homes have shot up. And the FED cannot let this go on forever. I mean, if you were the govt guaranteeing loans, how comfortable would you be right now?!

As we all know, what is unique right now is people are "cocooning" in this COVID era. People are also working from home, we have a strong stock market or irrational scr_w-you $$'s, sense of urgency is a HUGE part of the insanity that could change on a dime, possible mortgage forbearance could add homes on the market, and if the market looks like it is softening, we could get a lot of investors and people who have been holding off listing leave the PHX market quickly. Add to it the hyper-inflated cost of materials that have to drop back in line one day. All that said, the small amount of homes listed has me baffled. But that's a different conversation.

But if you believe the Cromford report, we have more appreciation to go. So the question is when will it change. If it takes a year, then add on another 10-15% appreciation. If it is two years, then waiting is probably not-so-good of an option. Right now, it's so out of balance that we are going to get many months of hints as to when it turns the other direction and becomes a buyers market. That's the beauty of RE investing. Shy of a world disaster, it takes months to play out.

With this next paragraph, keep in mind I would have already sold a couple of homes that you are renting and I posted accordingly. If memory serves me, 2 years ago, I posted that I would have a couple of your rental homes. That would have proved to be a mistake. If I was in YOUR shoes right now in 2021, I would be a little trigger-happy to sell some of them. So I see why you are more cautious.

So my crystal ball is trying to read the Cromford report tea leaves. I'm also watching for when the fed starts to worry about inflation (housing). Because right now, they are focused on jobs and keeping the economy propped up.

I think we can all conclude that we are taking educated guesses. And I'm guessing that we have another year+ before it turns. When it turns, it might mean a balanced market or "just" 4% increases a year.
Plus, we will all find out how much another couple trillion will mean to overall inflation. Also, never forget that the government doesn't want people to default on their loans. So price drops in RE can mean a lot of pain if people default. So if it starts to drop, watch the interest rates to drop back down to hold the gains.

I picture a group of bankers standing around a giant cash pipe looking around for the spigot handle.

[MN-Born-n-Raised]

Here is a list of home appreciation from April 15th 2020 to April 15th 2021. Read https://cromfordreport.com/rankings.html

Paradise Valley has the highest price per square foot at $477 and also the lowest appreciation of 8.9%. Carefree is over 20% appreciation (now averaging $302 a square foot).

I'm happy to finally announce that the foreclosed home that we bought in early 2011 at $52 a square foot FINALLY got back to 2006 pricing when it originally was built. So April of 2021, it's finally back to $136 a square foot. Mind you, I took it up several notches and it was in a desirable neighborhood.

I mention this because some areas took 15 years to crawl back from 2006! As a reminder, 2 stories, as well as larger square foot homes, fetch less cost per square foot. So when you see Surprise is now at $162/square foot, those include a lot of new builds, smaller homes, and single-level homes.

Yet other zip codes obviously have taken off well beyond 2006 because the following graph is a combination of all of the PHX metro. See https://arizonarealestatenotebook.co...glance-charts/ John Wake's site use to have a PHX are graph adjusted for inflation. But it looks like that link is broken.

[Valley Native]

Originally Posted by FirebirdCamaro1220

I will guarantee get rejected or outbid where I want to buy, that's all that matters. I'm not willing to settle. Again, if I continue to rent until retirement, so be it. I can save up enough cash to buy a house or condo outright in Kingman, where I plan to retire

The problem with renting is: the amount you pay in rent will almost always increase, and the rent prices have gone up so much in the last few years that it's actually more beneficial to have a mortgage. Those who think they can save money while renting are badly mistaken with they way things are. We get that you don't want to pay PMI. Who does? Of all the downsides to owning, there are many more downsides to renting.

[Katera]

My wife told me last night how happy she was that we finally pulled the trigger and bought a house in Sun City Grand. I asked why....she said because no matter what happens, we have finally locked in our "rent" payment. It was a great point.

[hikernut]

Originally Posted by Valley Native

The problem with renting is: the amount you pay in rent will almost always increase, and the rent prices have gone up so much in the last few years that it's actually more beneficial to have a mortgage. Those who think they can save money while renting are badly mistaken with they way things are. We get that you don't want to pay PMI. Who does? Of all the downsides to owning, there are many more downsides to renting.

I don't see it being so clear cut. There are plenty of downsides to each.

Houses need to be maintained, and eventually "updated" if a person wants to sell at a market price. Transaction costs are large, and at times it can be very difficult to sell a house if one needs to. They can be an anchor that prevents a person from relocating for a better job opportunity.

Over the very long run the stock market has grown at 2x-3x the rate of housing, so all of those principal payments that are part of the monthly mortgage payment are being invested at a much lower return than they could have been. (I suppose one could get an interest-only mortgage to get around this, but AFAIK they all have balloon payments after a few years, so a person would be exposed to the risk of higher future interest rates).

It's actually a pretty complicated comparison to make, and the outcome can shift from preferring renting vs owning with a small change in assumptions. My guess... I would be better off financially if I'd been a renter my whole life, and I certainly have not lost money on any home I owned. With that said, I do prefer owning but that's purely a personal lifestyle decision.

[FirebirdCamaro1220]

Originally Posted by hikernut

I don't see it being so clear cut. There are plenty of downsides to each.

Houses need to be maintained, and eventually "updated" if a person wants to sell at a market price. Transaction costs are large, and at times it can be very difficult to sell a house if one needs to. They can be an anchor that prevents a person from relocating for a better job opportunity.

Over the very long run the stock market has grown at 2x-3x the rate of housing, so all of those principal payments that are part of the monthly mortgage payment are being invested at a much lower return than they could have been. (I suppose one could get an interest-only mortgage to get around this, but AFAIK they all have balloon payments after a few years, so a person would be exposed to the risk of higher future interest rates).

It's actually a pretty complicated comparison to make, and the outcome can shift from preferring renting vs owning with a small change in assumptions. My guess... I would be better off financially if I'd been a renter my whole life, and I certainly have not lost money on any home I owned.

The bolded paragraph applies to my mother. She owns her house outright in Rochester, NY, but it needs work and is currently appraised for $30k less than my parents paid for it. And my mother is a widow and doesn't work, so she's stuck. And having to pay the property taxes ($10k per year) out of what my dad left her. She'd like to sell and relocate down here, but she's trapped

[Sno0909]

Originally Posted by hikernut

I don't see it being so clear cut. There are plenty of downsides to each.

Houses need to be maintained, and eventually "updated" if a person wants to sell at a market price. Transaction costs are large, and at times it can be very difficult to sell a house if one needs to. They can be an anchor that prevents a person from relocating for a better job opportunity.

Over the very long run the stock market has grown at 2x-3x the rate of housing, so all of those principal payments that are part of the monthly mortgage payment are being invested at a much lower return than they could have been. (I suppose one could get an interest-only mortgage to get around this, but AFAIK they all have balloon payments after a few years, so a person would be exposed to the risk of higher future interest rates).

It's actually a pretty complicated comparison to make, and the outcome can shift from preferring renting vs owning with a small change in assumptions. My guess... I would be better off financially if I'd been a renter my whole life, and I certainly have not lost money on any home I owned. With that said, I do prefer owning but that's purely a personal lifestyle decision.

There is much more to home ownership than the financial aspect. It's actually owning a piece of land in our country. Something you can pass along to your children (if you have them). It's more than just money - it's your home. Something you can never have with renting.

[hikernut]

Originally Posted by Sno0909

There is much more to home ownership than the financial aspect. It's actually owning a piece of land in our country. Something you can pass along to your children (if you have them). It's more than just money - it's your home. Something you can never have with renting.

Sure, I absolutely agree that it's not about the financial aspect. Lots of people, myself included, prefer to own their home for differing reasons.

I'm just offering a different viewpoint on the (seemingly prevailing) notion that a person will never get anywhere in life if they don't own their abode.

[Ex New Yorker]

Originally Posted by Valley Native

The problem with renting is: the amount you pay in rent will almost always increase, and the rent prices have gone up so much in the last few years that it's actually more beneficial to have a mortgage. Those who think they can save money while renting are badly mistaken with they way things are. We get that you don't want to pay PMI. Who does? Of all the downsides to owning, there are many more downsides to renting.

The biggest of which is that you'll have nothing to show for it.

[Ex New Yorker]

Originally Posted by Sno0909

There is much more to home ownership than the financial aspect. It's actually owning a piece of land in our country. Something you can pass along to your children (if you have them). It's more than just money - it's your home. Something you can never have with renting.