Wikinvest Wire

A quasi-boom in the Phoenix housing market

Monday, May 18, 2009

Evidence is mounting that when home prices tumble by more than 50 percent and the Fed keeps mortgage rates at freakishly low levels, people will buy houses. This report from the LA Times talks of a resurgence in home buying where prices have fallen the furthest.

After four years of renting because they were priced out of the real estate market, Jamia Jenkins and Scott Renshaw concluded the time had arrived for them to buy.

They saw that home prices had dropped so fast here -- faster than in any other big city in the nation -- that mortgage payments would be less than the $900 they paid in rent. The city is littered with foreclosed houses, so the couple figured they could easily snatch up something in the low $100,000s.

Three months later, they're still looking. They have submitted 13 offers and been overbid each time. "It's just pathetic," said Jenkins, 53. "Investors are going out there and outbidding everyone."
While many now cheer the arrival of a housing market bottom this year - more likely in real estate sales than in prices paid - you have to wonder what's going to happen in another year or two when long-term interest rates are much higher.

For example, at today's artificially low mortgage rates, you can get a 30-year loan of $170,000 for about $900, similar to what the couple above is planning. But at the far more typical rates of seven or eight percent, that payment moves up by one-third to about $1,200.

Stated another way, that same $900 payment only buys $130,000 worth of housing - not the $170,000 as indicated above - absent the freakishly low interest rates, something that is a near certainty in the years ahead.

Naturally, that doesn't stop people from buying, as the 2006 fever seems to have returned...
Phoenix's housing bust has turned into a quasi-boom, a sign that its market may have hit bottom and a sneak preview of what a national housing recovery could look like.

More homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers are once again finding themselves in frantic bidding wars -- only this time over foreclosed houses selling at deep discounts rather than ranch homes listing for vast sums.

"The free market is at work," said Shannon Hubbard, a real estate agent and blogger here. "Prices got driven down so much that people said, 'I'm going to come out and play.' "
IMAGE Home prices continue to plummet or tread water in much of the nation, but there have been tentative signs of life. Pending home sales rose 3.2% nationally in April, the second month of increases after a record low in January.

John Burns Real Estate Consulting in February identified Phoenix as "the most unique market in the nation," where affordability was better than at any time since 1981 and buying a house was once again cheaper than renting.
It should be an interesting summer as waves of new foreclosures battle waves of new buying interest from a bargain hunting public that is still fearful of more job losses.


Anonymous said...

The offspring lives in the general Riverside, CA area (Ranch Cucamonga, actually) and has recently been making noises about buying a house, especially since a mortgage payment is dropping to what a rent payment would be. (Although I had to helpfully point out real estate taxes, insurance, etc.)

I also think that certain aspects of a house (general neighborhood, quality of home) are even more important than they used to be, because the days of living in your "starter" home for 5-7 years and then moving up are probably gone. Of course, we bought our starter home and then lived there for 18 years, so maybe that trend was a side-effect of the housing boom anyway.

~Mrs. Marku

Anonymous said...

It's like living in the middle of a giant sweltering parking lot.

Dan said...

rents are too high.

albrt said...

This article is somewhat consistent with what I'm hearing locally, with a couple of exceptions.

Most importantly, the market has been heating up in moderately priced central neighborhoods, but the demand in the outlying areas cannot possibly put a dent in the inventories. If it appears suburban supply is drying up, it is only because foreclosing on a house that will sell for $60,000 or less is a very low priority for the banks. The total supply in the Phoenix burbs is unbelievably huge.

My conclusion - if people are already buying properties in the crappy outlying areas, it means we are probably only weeks away from the central Phoenix market breaking down again.

The other major issue they don't address in any detail is the high end market. You are currently looking at 6 to 10 years of inventory in high end areas, meaning anything priced over about $400,000.

mtpockets said...

Lets get this article straight. Did I read "the investors are outbidding everyone?" The investors don't ever outbid anyone. Why would I as an investor pay more for a house than market value? I don't and I won't. Jenkins has no concept of market value. The investors apparently do know the market and they are on the bottom buying for cash flow and appreciation. I seriously doubt they are all being taken by investors either. Jenkins needs to step up to the plate and not give excuses why he can't buy a house. He doesn't want to pay market.


Anonymous said...

This will all end in tears yet again. People are truly stupid as they apparently never learn a thing from past mistakes (bubbles).

Anyone that thinks this is a bottom will think differently in a few years.

Anonymous said...

anyone that thinks this is a bottom will think differntly in a few years... I am a loan officer in Phoenix and I can tell you that purchase loans I did 6 months ago on foreclosures are already drastically upside down. This will take years to correct. We are nowhere near the bottom.

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