The Next Phase Is Enthusiasm
A reader suggested this for the weekend topic. “This is the text of an email I was forwarded today. Seems like 2006 all over again. April 11, 2013 – Scottsdale, AZ. Greetings! I thought I’d share some great, up-to-the-minute information. Today I had a client who is thinking about upsizing to a larger home tell me that a friend of hers in another town had warned her of impending doom and another forthcoming housing bubble here in the Valley. I reassured her this isn’t the case and told her I get asked this question all the time. I thought I’d also check and see what the most reliable source I know has to say about it. Turns out Mike Orr, Director of the Real Estate Center at the W P Carey School of Business at Arizona State University, wrote this TODAY in his daily observations for The Cromford Report, which he also produces, providing the most current statistics and information regarding the Valley’s real estate market. I don’t want to burst anyone’s bubble, but THIS is the information you should know.”
“From Mike Orr: It’s hard not to notice the plethora of silly articles suggesting the Greater Phoenix housing market is in another bubble, or that prices are soon going to fall. There are a variety of theories but they can all be seen as bogus when examined carefully.”
“Ten reasons why there is NOT a bubble in Phoenix housing right now: The population of Maricopa and Pinal Counties is growing much faster than the housing stock – this is fundamental, yet is hardly ever mentioned.”
“Prices are being driven up by a chronic lack of supply, not by excess demand. Demand is close to normal. Bubbles always have excessive demand from foolish trend followers.”
“Prices are still at the same level as 9 years ago. They still have a lot of room to increase yet.”
” Most buyers are putting their own money in with cash or large deposits, not borrowing it all from foolish lenders as in 2004 and 2005.”
“Lenders are still being ultra cautious. Demand could increase if they ease up.”
“Investors are mostly buying to rent and filling their homes quickly with tenants – if and when these landlords sell it is a neutral event for the market – one extra home becomes available and one extra family needs a home to live in.”
“If investors started to sell off the small number of empty rentals it would slightly improve our market balance, not create a glut of supply.”
“There are several major long term obstacles for developers trying to increase the supply of new homes. Shortage of labor and affordable, accessible land are just the first two.”
“We have a low vacancy rate both in homes for rent and for sale. Multiple generations and even multiple families are sharing single homes.”
“No bubble has ever occurred in the same market twice in the same generation. However after a recent bubble everyone is hyper-sensitive to every price increase and numerous false cries of “bubble” are par for the course.”
“Given the unprecedented imbalance we now have between population growth and new home building, we have several years of rising prices in front of us. How fast and how high they rise I cannot tell, but the idea that prices could fall significantly in the near term because of excess supply is foolish. The only circumstance that could unravel things is a sudden collapse in demand caused by people leaving Central Arizona in droves. Far more likely is a surge in demand from both people and companies deciding to migrate from California. Compared to most of California, housing in Central Arizona is still ridiculously affordable even if interest rates were to double.”
“Multiple studies have shown no significant statistical correlation between homes prices and interest rates. So when interest rates eventually rise, as they surely must one day, this is as likely to increase demand as it is to decrease it. This event would definitely decrease affordability, but we note that one of the times of highest demand (February 2005) was also a time of very low affordability. In fact large numbers of people signing up for mortgages they could not afford was the key characteristic of the February 2005 market.”
The Arizona Republic. “The region’s population growth was also one of the most popular topics at a panel discussion on the housing market last Saturday at Arizona State University. I joined W.P. Carey School of Business real estate experts Mark Stapp and Mike Orr at the event.”
“Orr told the crowd metro Phoenix’s housing market is currently in a state of optimism after falling to despair during the crash in 2008-09. He said the next phase is enthusiasm, and the last time the market was in that state was during the run-up to the boom.”
Minnesota Public Radio. ” Over the past 35 years, real estate investor Dan Grohs has bought and sold hundreds of Twin Cities homes. Because of what’s happening with the supply of housing, he’s convinced that the recent trend of double-digit annual price gains is sustainable. The supply of homes for sale in the Twin Cities is at its lowest point since 2004. The flow of foreclosed properties is dwindling. And homeowners who bought at the peak of the market may still be underwater and reluctant to sell at a loss.”
“As result, Grohs and many realtors report multiple offers and bidding wars on homes. That makes Grohs eager to list some properties he had been renting out. ‘The supply is just not there and the demand is there with the low interest rates. I just think right now is the time to go for me,’ Grohs said. ‘I don’t believe the market will level off. I think it’s going to keep going up.’”
From CNBC. “For the first time in over six months, the supply of homes for sale is beginning to rise. While inventories are still down nearly 20 percent from a year ago, they did rise more than the seasonal norm in February from January, according to a new report from the National Association of Realtors. The raw number of for-sale listings rose 10 percent month-to-month, and when seasonally adjusted, they were up 2.6 percent, the biggest jump in over two years.”
“Low inventory has kept first-time home buyers, who largely seek lower-priced homes, out of the market. Newlyweds Brian and Ali Earle have been looking for a home in Northern Virginia for almost a year. ‘There’s not a lot out there,’ Brian said. ‘It’s actually amazing. We see houses go under contract in a day or two, and so we really have to be on top of the game and be willing to drop everything and run and go check out a house, or it’ll be gone.’”
“Brian and Ali are qualified for a mortgage, but many sellers today still favor the all-cash deal. That puts them at even more of a disadvantage. ‘Everywhere we’ve looked there are at least five or six offers going in within a 48 hour period,’ Ali said. ‘It’s a little stressful.’”
