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I'm in the process of saving up to try to get a place for myself and I'm basically at the point where I can enter the market now. Just seems very discouraging to see what's available. I am still seeing decent things in my price range (though still somewhat overpriced many of the options), but they are going so quickly that one cannot even tour and get a feel for it because they are selling within a day or two at the very latest, which is a problem if it comes on the market on a Tuesday.
How are people so comfortable making one of the biggest purchases in their life site unseen? Especially all of these out-of-towners. At least me, being a long-term resident, know if I will generally like a neighborhood or not...
What I really don't understand is how our housing market is like this here in Phoenix but it also seems to be this way in about 98% of other American cities. I know not all of these buyers are from the same 2% of cities, there's not enough of them to be feeding the insane housing markets of all these different places simultaneously.
I'm mostly ranting but hopefully I am not the only one feeling discouraged especially since my other option is insane rent increases... feels like a lose-lose situation.
I don't have numbers to back this up, but I've heard anecdotally that many buyers are coming from high cost of living areas around the country, such as California and NY. For them, our real estate is cheap, and when something is cheap one tends to do less due diligence for their purchase.
I think the housing bubble is being fed first by low interest loans and then the 401K and investment accounts have shot up in a bubble making people confident to buy ever more expensive housing. Anyway, I've watched several videos predicting a crash coming after the loan and rent suspensions due to covid cause a turmoil in the market plus expected inflation rearing its head causing higher interest rates.
Most of these experts that I've watched are predicting a 30%-50% housing crash starting soon. I've reduced the houses I own in the last couple of months from four to two to sell off near the top of the bubble hopefully and to stockpile money to buy some houses that are cheap if the crash happens. Maybe these self proclaimed experts are wrong and this bubble will keep running for awhile.
One difference here in the Phoenix area between the last housing crash in 2007-2011 was the overabundance of houses at that time and now there aren't enough houses for the population growth.
I think the housing bubble is being fed first by low interest loans and then the 401K and investment accounts have shot up in a bubble making people confident to buy ever more expensive housing.
Yep! People are buying "payments". Think about it for a moment... If you borrow $700K, the interest is $21,000 a year or $1750 per month. A lot of people can afford that amount. And people who justify interest as a tax write-off calculate another 20-40% (marginal tax rate) write-off. Their 401K/stocks are also sky-high. Talk about overheated (the market). I digress.... So people they have the confidence to toss in a few hundred grand more (or under $9K a year in interest less tax deduction) to supercharge their home. But the problem is, the house values are creeping up so fast that their buying power is eroding.
And let's not forget the sense-of-urgency! It's a POWERFUL motivator to 80% of the people walking the planet. In fact, I can hear how anxious the Op is right now! To a fault, I have plenty of patience. But waiting for a bubble to burst may prove to be a huge financial mistake. i.e. you lose a decade or more "being patient". And if the Op waits and it crashes, will they have job security to buy? After all, how come we didn't all buy 5 homes at $100K back in 2011? Because it felt a little risky. We all googled (our confirmational bias) that said its houses needed to be bulldozed down. And it might be decades for it to return. So I didn't buy more than one home.
Next, there are the haves and have-nots. And the halves are gaining tremendous (widening) economic ground which isn't exactly good for society. The have-nots are losing ground with housing appreciation. Home value as a percentage of net worth has been pretty constant over the past 8 years. And the halves net worth has climbed up a lot recently and therefore, so is housing prices.
Quote:
Originally Posted by Tall Traveler
Anyway, I've watched several videos predicting a crash coming after the loan and rent suspensions due to covid cause a turmoil in the market plus expected inflation rearing its head causing higher interest rates.
Be careful what you google as confirmation bias will have you believe it. The thing is, because we are a massively in-debt nation, we need super cheap money. So expect ultra low-interest rates to be the policy for decades to come. We are in a headlock. But IF interest rates surge, we will have a RE bubble. And it's another reason why policymakers are going to be careful in raising the rates. In fact, the Federal Reserve said that they do not foresee rate hikes in coming years, at least through 2023. And yea, they would be blind if they didn't see inflation coming.
I realize lenders price their mortgage rates long-term. And certainly, their expectations for future inflation will impact the rates. Currently, they see the economy as weak and therefore, the mortgage rates are priced low. If and when, the interest rate goes to 5%, that works out to another $14,000 a year on that $700K loan example. A 3% interest rate, raising up to 5% rate is almost a 70% increase in the cost of money. So in the end, cheap rates are driving up this fast appreciation. People who are buying "payments" and allowing others to cashout and overpay for another home. And maybe take out another $300K-$500K in cheap money. It's why the luxury market is doing so well and appreciating like mad!
Quote:
Originally Posted by Tall Traveler
Most of these experts that I've watched are predicting a 30%-50% housing crash starting soon.
"Starting soon?! No F'en way! But all cycles will come to an end. We just don't know the when and how scenario. If could be 10 years from now or even longer? If people's stock portfolio correct fast and people have big loans, I could see the luxury market having a biggER pullback if the rates go up to 5%. Or something as simple as COVIDII might be the eventual catalyst.
Both of my kids currently rent. So like the Op, I'm a little concerned with their buying power as this housing inflation continues.
Last edited by MN-Born-n-Raised; 03-23-2021 at 05:58 AM..
I think we all know that Real Estate (at least in the Phoenix area) runs in an approx 10 year cycle. When was the last "bottom"? 2012? 2013? I don't know what impact COVID is going to have on this but there has been a construction slow down as infill has put new units into most of the desirable areas and there has been a general distaste for more sprawl. Throw in cash laden investors who are dumping properties in higher priced markets to take advantage of our median rental rates (which are ridiculous) and homes are NOT staying on the market long as there are significantly fewer units available.
As with any market...trying to predict the rise and fall of pricing is a fool's game. Inflation/mortgage rates/higher CoL could play into the future but for most homeowners...the question is "Do I sell now and put the cash either back into another home or move to another vehicle (stocks, etc)." and "If I sell now, where will I go? Rent is high and staying in the same area is just swapping mortgages while having to compete with Out of State buyers".
Should be interesting to see how this plays out. Our outlying towns (Payson, Prescott, Show Low etc.) are seeing a huge increase as well as more temperate climates with retirement/remote work buyers are a draw. I think the biggest factors in the metro Phoenix area are:
1) Can you stand the heat in the summer?
2) If you have kids, can you mitigate the school systems shortcomings?
3) Are there enough employment opportunities to allow for career advancement?
Everything else is on par or better than other cities our size.
How much better do the wages paid in Phoenix support housing prices, than they did in 2008? If the answer is they didn't then and don't now, then let's look at the "evil" out of area buyers. I haven't heard of any tour busses taking people to the exhurbs to buy homes yet to be built, but it does seem like even more of them are cashed up. It doesn't seem nearly as relatively cheap to CA, DC, etc., this time around, but prices could still easily be considered half price if you could make a like comparison, which would probably be Sacramento or even Northern Virginia. That is still a hefty discount. Buying anything on payment is incredibly naive. My dad likes to repeat a story of my grandma talking about the new houses being built after WW2, with easy terms. Yes, it is a beautiful house, but how could we possibly sleep at night, knowing we owed 4000 Dollars?
How much better do the wages paid in Phoenix support housing prices, than they did in 2008? If the answer is they didn't then and don't now, then let's look at the "evil" out of area buyers. I haven't heard of any tour busses taking people to the exhurbs to buy homes yet to be built, but it does seem like even more of them are cashed up. It doesn't seem nearly as relatively cheap to CA, DC, etc., this time around, but prices could still easily be considered half price if you could make a like comparison, which would probably be Sacramento or even Northern Virginia. That is still a hefty discount. Buying anything on payment is incredibly naive. My dad likes to repeat a story of my grandma talking about the new houses being built after WW2, with easy terms. Yes, it is a beautiful house, but how could we possibly sleep at night, knowing we owed 4000 Dollars?
Bulk investors aren't touring homes. They go to a broker, pick out a number of homes on the market that are going to fit their portfolio and goals and buy what they want/need. Normally median priced homes that they can pick up for cash...say $2M / $340k home = 5 to 6 homes...which should net around $13k/mo+ income. About an 8% annual return, which may not be great but then you figure in appreciation, taxes, etc. Real Estate can form the "stable" foundation for an overall portfolio.
I've owned a house in Glendale since 2007. We paid $225K, then watched its value plummet, now is worth easily more than we paid (agent says could sell for $260K to $300K).
After the market crashed I said, "I have the world's worst timing. Everything I buy, goes down." However, it did come back up.
I have no doubt it will crash again sooner or later. Maybe even this year? Probs not, with trillions in debt being pumped into the economy to prop it up. But next year? 2023? Very possible.
I would say, save up and buy a house you can reasonably afford, if your finances are solid and you're confident of keeping your job and riding out the next recession. You may have to settle for something smaller than ideal. Don't worry; you can trade up eventually. It's a place to live.
But don't worry about timing. Yes, the market's hot. But since we really don't know how long the boom will go on, you may as well just buy when the time is right for you and don't bother trying to predict the market peak.
How much better do the wages paid in Phoenix support housing prices, than they did in 2008? If the answer is they didn't then and don't now, then let's look at the "evil" out of area buyers. I haven't heard of any tour busses taking people to the exhurbs to buy homes yet to be built, but it does seem like even more of them are cashed up. It doesn't seem nearly as relatively cheap to CA, DC, etc., this time around, but prices could still easily be considered half price if you could make a like comparison, which would probably be Sacramento or even Northern Virginia. That is still a hefty discount. Buying anything on payment is incredibly naive. My dad likes to repeat a story of my grandma talking about the new houses being built after WW2, with easy terms. Yes, it is a beautiful house, but how could we possibly sleep at night, knowing we owed 4000 Dollars?
That's the question. How do incomes today compared to 2008? Another question is just how easy is it to qualify for Fannie Mae loan in 2021?
If requirements are loosened and interest rates remain low well... here comes 2005 again.
What I've seen with my Mesa properties are applicants with better incomes. Not a whole lot but say 70 grand (combined income.) This should be fine for a house in the 300-340 range.
Gilbert: Newest renters earn 200 grand a year. They plan to wait for a year or so before buying. Moved in from out of state. Should have no trouble buying a 450 grand home
Chandler: Newest renter earns 85 grand a year. Moved in from out of state. Single fellow with child looking to buy a year or two later.
It's being reported this morning on CNBC that new home sales are starting to sag under the twin issues of higher prices and a slight uptick in mortgage rates. They reported that lumber prices are way up which adds to the cost of homes which they said are out of reach of most working class folks and that mostly the better paid white collar types are main buyers today, along with the corporate / tax cut money.
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So in the end, cheap rates are driving up this fast appreciation. People who are buying "payments" and allowing others to cashout and overpay for another home. And maybe take out another $300K-$500K in cheap money. It's why the luxury market is doing so well and appreciating like mad!
