Caution! Home buyers! Possible price correction coming to Phoenix! (Scottsdale: balloon payment, foreclosed)
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I know the taxes are very high in Texas the way to fix that is to get an over 65 exemption if you can then the taxes are actually lower in Texas then they are in Arizona but insurance is still higher I've done the math before and yes a house in Texas that is 200k has a higher payment than a 300k house in arizona that is true
I bought 2 houses in Maricopa in 2011 for investment and then another in 2013 for us to winter in. My best friend told me to buy in Scottsdale (where he lives) but I thought that Scottsdale hadn't fallen as much and opted not to...now I wish I had bought at least the house for myself in Scottsdale.
I would say that the 2 rentals I bought in 2011 have a better ROI (counting rent and increase in value) than my stock average but not by that much.
I bet they have. Who would have ever predicted the PHX area would have rebounded like it did? I was reading articles saying they might have to bulldoze homes down and it might take 20 years to heal.
re: ROI. With the outer burbs, we all learned that the best ROI was to buy in the nicest neighborhoods and the smaller single family homes. It seems that every home in our development went up around $200K. So if you paid $100K in 2011 for a 1800 square footer, it's worth $300K now. If you bought a 2500 square foot home for $150K, it's worth $350K. Our 3700 square footer is also worth $200K more. That's because now a days, people come in all leveraged up with the minimum amount down. That extra payment keeps the larger homes in check. That's not the case in Scottsdale. Live and learn as I won't make that mistake again if there is another round of corrections and a buying opportunity.
I know the taxes are very high in Texas the way to fix that is to get an over 65 exemption if you can then the taxes are actually lower in Texas then they are in Arizona but insurance is still higher I've done the math before and yes a house in Texas that is 200k has a higher payment than a 300k house in arizona that is true
Interesting, does that work for 2nd home owners paying taxes in another state?
Tell that to the people who bought here in 2007. They might disagree with you. But I understand what you are saying.
People buy house payments (cheap debt) which goes along way in explaining why the housing market is so expensive/overpriced. That's a less than ideal approach IMO. I'm all about being debt free and living under my means. But that's not how most Americans roll.
On the other hand I bought an affordable two bedroom condo for 220k 9 months ago in a great area in Paradise Valley on the Scottsdale border near Shea and Scottsdale Road. Love this area. My complex is quiet, well run, and near a ton of stuff such as restaurants, shopping, etc. and located on a quiet street with little traffic. Similar condos in my complex are now selling for 235k. That's beside the point. I got a low interest rate and put 20% down. My payment is $930 a month, plus a HOA of $220. I really don't care if my property takes a 20-40% dive over the next decade. A locked in $930 a month with a total cost of $1150 a month with a chance, of course that the HOA could go up some, but I don't care.
I can own my place, still invest in a stock market that averages 10% annually...(sure we will probably get decent corrections bear market, but I'm talking long term) and I've got plenty of money invested in addition to a pension and social security and don't have to pay cash for my place which frees up money to be used or invested now if I so choose. I could have easily paid cash for my place, but to me that's a less than ideal approach given my situation.
Certainly different way to do things. Just pointing that out.
The next market crash will occur in 2026, according to Harvard Extension School professor Teo Nicholas. He bases that on a study by economist Homer Hoyt. Real estate booms-and-busts have followed an 18-year cycle since 1800. The only exceptions were World War II and stagflation.
In 2017, Nicholas said the real estate market was still in the expansion phase. The next phase, hypersupply, wouldn't occur unless rental vacancy rates begin to increase. If that occurred while the Fed raises interest rates, it could cause a crash. https://www.extension.harvard.edu/in...housing-bubble
I was involved in both ends of the Great Phx metro housing crash.
2005
3/2 bed/bath
East Mesa - 189,000
East Mesa- 216,000
East mesa - 207,000
Chandler - 235,000
Peaked early 2006
256,000
245,000
240,000
306,000
2009 value
85,000
85,000
85,000
120,000
2019 (roughly)
250,000
250,000
250,000
290,000
Homes bought in 2010
4/2 bed/bath
Gilbert
128,000
158,000
Chandler
170,000
2019
320,000
320,000
350,000
Today I live off my rental income although I have a bit of savings.
Unlike many when the housing crash occurred I was able to ride out the nightmare. By 2010 I had an acquaintance who watched the Phx market closely. Many people on this forum talked about a shadow inventory and another down turn in prices. My acquaintance said different.
When went looking to buy again in 2010 the sharks were out in full force.
All three homes I bought in 2010 were short-sales and just like in 2005 there was intense competition.
I'm surprised the OP who is or was an RE agent bought in 2007 because the market was clearly in a downturn at the time.
In any event I never want to go through that nightmare again.
Dr. Michael Sklarz and Dr. Norman Miller wrote up a pretty good article that linked employment numbers to house prices back in september. The graph of the Phoenix market, shows prices and employment numbers are in lockstep.
With that being said I have seen some questionable loans come over the wire in the last 12 months. Most of these loans are not for the Phoenix market as we operate nationally, but it is still concerning that home buyers are not putting much down.
If we do have a correction I believe it will be modest similar to the Australian housing crisis that has been on going since about January of 2019.
i.e. At most we could see declines of 10-14% which most home owners and investors should be able to handle.
Last edited by Mike from back east; 12-08-2019 at 11:15 AM..
Reason: Typo: shows, not shoes
I agree with the OP who is concerned that there is a growing possibility of a correction in housing prices. My only question is will it be a soft landing or will it be a bubble bursting gully washer that sweeps away everything downstream (that would be us, the buying public). I expect the landing will be more quick and hard then a soft landing. I'll go with the hard landing based on my experience in 2005 where we sold in the DC area in June 2005 at the peak of the bubble. A few months later, as we were safely ensconced in COLO SPGS, our realtor back in VA told us the market in the DC area came to a full dead stop in August 2005, and spread nationwide from there.
As I see it, the same dynamic that caused the 2006-2010 housing debacle was put into play, again, with the recent round of tax cuts, just as it did when taxes were cut in 2001 and 2003.
All of these tax cuts put unholy sums of money into the hands of the upper brackets who had no intention to "build factories" which is a totally fictional mantra that politicians trot out at election time. Then, as now, that money went two places: stock market and housing market. Bubbles ensued. The stock market and financial crash in 2008-2009 was beyond anything we've seen since the Great Depression.
There are only so many shares of stock out there to buy and only so many homes available for sale; all of us were taught the workings of "supply and demand" for which these two markets are prime examples.
When a big supply of money hits the streets the demand goes up for investible ways to earn yield; real estate and stocks/bonds are easy targets for loose money of which there are trillions of dollars sloshing around the globe looking for any opportunity that might increase the cache of cash.
Corporate America alone is said to be sitting on $1.2T in retained earnings as they have no way to invest it, so they do stock buybacks and bonuses for fat cats. Stock buybacks take shares of company stock off the market, leaving a smaller supply of shares available to buy. More money to spend but smaller supply of stocks means 'supply and demand' are unbalanced thus the price of stocks go up, which is partly why the stock markets are at all time highs.
With fewer shares of stock outstanding, it artificially inflates the earnings per share (EPS) which in turn gooses the stock prices even higher as talking heads on CNBC keep touting the record breaking run of continued EPS increases. People keep wondering how the corporate world keeps showing increased EPS and it's partly this very case of smoke and mirrors. It's a growing bubble and when it breaks (and bubbles always do) the markets will collectively exhale and blow away all that smoke to reveal the rosy scenario was only an inch deep and a mile wide.
The same dynamic for the stock market is also at play in the housing market. It can take years of lead-time to go from buying a block of land to getting houses built and available for sale. It can take just as long to get a new hotel built. But you can buy an existing home very quickly, especially with all cash, and a lot of tax cut money, both for individuals and corporations, went into buying up homes to play the rental market. It costs about $450/sf to build a hotel room, and it takes quite a staff to run the place, but you can buy existing homes today for $150-300/sf and slam dunk them into the rental and Air BnB markets within weeks. Such a deal.
Hundreds of thousands of foreclosed homes from the Great Recession were sucked up at fire sale prices by venture capitalists whose pockets were stuffed with money; those houses went into rentals to include some national Air BnB firms. Generous tax policy makes rental homes a darling of investors. Like most industries, the banking industry writes its tax laws and policies via its lobbyists in DC where at least 33,000 registered lobbyists ply the halls of congress or work on congressional staffs and whose job it is to protect their industry's turf and enhance it via "all new and improved" legislation. FYI: The entire staff of Senator McCain were registered lobbyists. Things will get worse / stranger before it corrects.
So here we are again, sitting like fat ducks, as a perfect s--tstorm swirls on the horizon. It will not end well. Again.
I may embellish this long post later as I recall more info, but my bottom line is the OP is right to worry.
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Last edited by Mike from back east; 12-08-2019 at 03:44 PM..
As I see it, the same dynamic that caused the 2006-2010 housing debacle was put into play, again, with the recent round of tax cuts, just as it did when taxes were cut in 2001 and 2003.
All of these tax cuts put unholy sums of money into the hands of the upper brackets who had no intention to "build factories" which is a totally fictional mantra that politicians trot out at election time. Then, as now, that money went two places: stock market and housing market. Bubbles ensued. The stock market and financial crash in 2008-2009 was beyond anything we've seen since the Great Depression.
Tax cuts weren't really major causes of the housing crisis. The community reinvestment act that was modified in the 90's put initial pressure on banks to make loans to individuals who should not have been buying homes. This combined with HUD's affordable housing goals caused a general breakdown in underwriting standards from what I understand. This lead to houses prices increasing passed what they normally would. Many saw these price increases and wanted in on the action.
e.g. Investors bought homes with small down payments and with adjustable rate loans, as they intended to flip them to make a quick buck.
Tax cuts weren't really major causes of the housing crisis. The community reinvestment act that was modified in the 90's put initial pressure on banks to make loans to individuals who should not have been buying homes. This combined with HUD's affordable housing goals caused a general breakdown in underwriting standards from what I understand. This lead to houses prices increasing passed what they normally would. Many saw these price increases and wanted in on the action.
e.g. Investors bought homes with small down payments and with adjustable rate loans, as they intended to flip them to make a quick buck.
The difference between getting a FannieMay loan in 2005 and 2010 was as different as night and day.
In 2005 I wasn't working in the country and couldn't provide verifiable income. Still I could get a loan. Granted I had to provide a larger down payment.
In 2010. No such deal. Income had to be clearly verified and verified a second time two weeks before closing.
Don't know how easy it is or isn't to get such a loan today
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