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Yeah and it's been like that for decades. People have twice the salary their parents did in the 70s or whatever, but houses cost literally more than 10x as much. I rented a room in a house from 2009 to 2014 in Silicon Valley where the guy bought it in 1979 for $74k. It's worth over $2 million now. Wages have certainly not gone up 27x. Granted that's a dramatic difference, but the idea is still the same. Wages have not kept pace AT ALL. But, "oh well" and "supply and demand" and yadda yadda. Ok, fine, but if it keeps up, history says that's not going to end well, socially / politically / economically.
We know that asset prices inflate faster than pure consumer good prices. For example, the stock indexes increase on average by 10.5% since 1957, whereas CPI rose by 3.6% during this time. That's why anything with asset characters has been eliminated from CPI calculations over time, to show lower CPI inflation. For example, home prices have been removed. Homes have both asset and consumption good characters. The land underneath is an asset, whereas the structure built is mostly a long-duration consumption good (which in itself is again partly an asset...). We could get into much more details but you get the idea - home prices will always exceed CPI and wage inflation over a long period of time because they are partly an asset. This will never change and continue to make home prices less affordable compared to wages.
The second very important aspect of assets (like homes, stocks etc.) is their volatility (risk). All asset prices have much higher volatility compared to pure consumer goods. Bread prices have virtually no downside volatility / risk. But homes or stocks do. So this is something you have to learn to manage. Home prices will go down again at some point and experience a bust. This happens to all assets. This is where you have to become an expert and ruthless. No other way out.
IMO the current upmove ends around 2024 and then we have ~4 year downcycle, albeit much less severe than the 2006-2010 bust. Between now and the peak ~2024 prices can still escalate dramatically. Typically the runaway boom phase lasts 4 years and it began IMO 2020. Right now I'm just watching and do not plan to buy anything additional until 2026/27.
Not quite. One of the concerns that many people have expressed on this forum and elsewhere is the overall wages aren't keeping up with rent & home prices. According to the link below, Phoenix ranks 18th on the list of cities in terms of average salary ... however, our average home prices are higher than many of the cities which rank above us in wages. While I'm often the first one to say "quit your bitchin'" to the ones who are priced out of the market, I can certainly understand the sentiment when it comes to wages vs. real estate.
Yes. Average wages have not kept up with the cost of housing specifically with regards to PHX metro. For the people who have locked in long ago, average wage increases can easily manage the COLA. Unless people are financially dimwitted and pulled out their equity to buy cars, etc. Additionally, as hikernut pointed out, PHX is attracting young professionals that are pulling down fantastic salaries to afford $1M homes. This is no different than my situation albeit my hood doesn't attract young professionals. No way would I pay multi-hundreds of thousands more for my exact house in 2022 than I did in 2020. Yet, there are 200 people on the home building waiting list even with a 2 year lead time with close to $600K lot premiums with premium views. And as I mentioned, 60% are paying cash. In my small little microcosm and in two short years, I am seeing the people arrive that are very top wage earners. Think multi-millionaires. This new crop is either in top management or owns their own company. I was chatting with a couple of people at a neighborhood party last night. One guy came from a top tech company that produced several billionaires (the company is a fairly recent household name). Another had multi-hundred employees and owns several companies. Then there was little old me. lol I was missing a couple of zeros in comparison to one of them. lol Both were down to earth. Anyways, the change is happening right before my eyes. All I know is big money is entering into this state.
Last edited by MN-Born-n-Raised; 02-27-2022 at 06:04 AM..
This guy is predicting lower demand in phoenix.
Some parts of CA will be doing better than Phoenix if he's right.
He'll get it right one of these days!
I mean, that's (finally) the FED's goal (lowering demand and cooling off the market). i.e. to slow down housing inflation. One tool is the cost of money. That's a Hell of a lot different than calling for a housing crash.
Here is what I know. Whenever the crazy appreciation stops and there is a correction, people will say "I told you so". So if the PHX metro goes up another 20% this year and it corrects down in double digits (10-20%), a very small group of people are going to get hurt. I bet when February numbers come in, Jan and Feb combined will be close to 5% up in two months. Therefore if Zillow's 20% appreciation happens, I double my value since 2020. And if it comes "crashing down" 20% at the end of the year, guess what the FEDs will do? Drop the rates again. I'm still up big time.
As an interesting side note, I was looking at buying a 2nd home in the East Bay area. Homes built from 2014 till 2020 have not gone up a nickel. So PHX metro is in a very unique massive appreciation situation.
home prices will always exceed CPI and wage inflation over a long period of time because they are partly an asset. This will never change and continue to make home prices less affordable compared to wages.
If true, in the long run very few will be able to afford housing. It’s not possible, for example, to spend more than 100% of income on housing.
Last SFH I rented (late 2021) there were roughly 80 inquires. Rented home in 2 days. If the rent is $2200 I require 3.5 x rent or minimum 7700 gross per month. The days of 4500 (gross) a month are gone. 50-60k a year usually won't work. Not for a 1500 sq. ft. 3 bed/2 bath SHF in a decent area of the Phx metro.
But it's not difficult getting current rental rates. There's still the working husband/stay home wife with the kids. The husband usually earns at least 90k. All good.
However, many inquires are 3 and sometimes 4 working adults. This is what I saw for years when I was renting a SFH in San Francisco. But multiply adults brings about a new problem. 3 adults can cover the rent but that means multiply cars. No over-night street parking. Cars must be parked inside garage or in the driveway. The HOA doesn't play games.
When I see four adults looking to apply I know it's not going to work. You can get away with 3 cars but 4? There are going to be problems. (Plus I don't want four adults anyway.)
Most recent renters (married couple) moved to AZ from Cal. a few years ago.
Just remember at some point Phoenix is going to face serious heat increases and problems. When avg summer temps near 130 I doubt those valuations will hold.
Give me a heads up so I can get outta here before Phoenix boils over.
Give me a heads up so I can get outta here before Phoenix boils over.
In the year 25,000,025.... you and the next million generations have plenty of time to get out before then. It's going to be thousands of years before Phoenix gets as hot in the summer as Saudi.
Zillow was predicting a huge drop in housing prices at the beginning of the pandemic so who knows. I think interest rates will be the biggest x factor.
Yes. Average wages have not kept up with the cost of housing specifically with regards to PHX metro. For the people who have locked in long ago, average wage increases can easily manage the COLA. Unless people are financially dimwitted and pulled out their equity to buy cars, etc.
Yep, those who were wise enough to buy when the deals were better aren't hurting as much with the cost of living increases (especially those of us who paid off our mortgages long ago). My point was that when you compare Phoenix to other large cities, we're still not doing so well when it comes to overall wages. I've used San Diego as a perfect example of a beautiful city, but not such a great place to live because the prices are ridiculous while average salaries remain on the mediocre side. That's one big reason why San Diego's growth has remained rather stagnant compared to other large western cities. Wonderful year round weather & recreation aren't cutting it. I don't want Phoenix to end up like San Diego in this regard, but I see it heading in that direction.
Also, lots of people use home equity to pay for major repairs (especially those in older homes). Plumbing is one of the more common & more expensive items on that list, and a lot of that results from the original cheaper quality of materials when the homes were built. The house I grew up in was piped with galvanized plumbing, which rusted out in a short time: partly due to the bad quality, but also partly because of the hardness of the water here. Equity loans are meant for projects like this ... but yes, some people use equity for frivolous matters.
Quote:
Originally Posted by MN-Born-n-Raised
Additionally, as hikernut pointed out, PHX is attracting young professionals that are pulling down fantastic salaries to afford $1M homes. This is no different than my situation albeit my hood doesn't attract young professionals. No way would I pay multi-hundreds of thousands more for my exact house in 2022 than I did in 2020. Yet, there are 200 people on the home building waiting list even with a 2 year lead time with close to $600K lot premiums with premium views. And as I mentioned, 60% are paying cash. In my small little microcosm and in two short years, I am seeing the people arrive that are very top wage earners. Think multi-millionaires. This new crop is either in top management or owns their own company. I was chatting with a couple of people at a neighborhood party last night. One guy came from a top tech company that produced several billionaires (the company is a fairly recent household name). Another had multi-hundred employees and owns several companies. Then there was little old me. lol I was missing a couple of zeros in comparison to one of them. lol Both were down to earth. Anyways, the change is happening right before my eyes. All I know is big money is entering into this state.
Professionals are trickling in more than before, but it's still at a rather slow rate. The fact is that a large share of transplants are still moving here because they're attracted to the dry/warmer weather (which is a blatantly stupid reason given the drought situation we're in) ... however, moving here for a cheap way of life isn't valid anymore. More people are simply going to have to work harder & seek jobs which pay higher in order to afford to live here comfortably. Those like a certain ex poster who has been mentioned are the ones who are getting the short end of the stick ... mostly from their own doing.
I am not smart enough to KNOW the long term ramifications if this level of increase continues - or even if the soon to come rate increases may at least moderate it.
All I can say is down here in Casa Grande - building permits are still on fire, the "single family rental/build to rent" products are popping up in every neighborhood and resales - though not as hot as last spring - are still plenty robust. No end in sight with Lucid Motors more than tripling in size and employee count with construction underway, and others like Kohler, and several semiconductor suppliers moving in here. A land broker friend tells me - every parcel with even close to infrastructure is getting daily interest. Buckeye, Goodyear, East Mesa, and South Phoenix are all seeing similar activity.
In my Robson Active Adult Community (same as Sun Lakes, Pebble Creek developer ) here in ELOY - where we bought last summer after taking some cash from our home sale in Casa Grande at the peak - we are up 20 percent already since last June. There are 1200 completed homes in this development and as a rule there are less than FIVE for sale at any given time - and this week for a couple of days there were ZERO available. When you start seeing 600K pricing in ELOY - albeit a nice neighborhood for sure - it is a bit surprising. As MN says - new builds here are 15 months out. I get several postcards from realtors asking us to sell every week.
AS it has been said - "we are living in interesting times".
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So if the PHX metro goes up another 20% this year and it corrects down in double digits (10-20%), a very small group of people are going to get hurt. I bet when February numbers come in, Jan and Feb combined will be close to 5% up in two months. Therefore if Zillow's 20% appreciation happens, I double my value since 2020. And if it comes "crashing down" 20% at the end of the year, guess what the FEDs will do? Drop the rates again. I'm still up big time.
