Gravity Brings Speculators ‘Down With A Loud Bang’: AZ
The Arizona Republic has this editorial. “News flash: The law of gravity wasn’t suspended in the Valley. In last year’s sizzling real estate market, home prices and sales kept going up. At least one of four sales was to a speculator. Prices skyrocketed 55 percent in 2005.”
“And now, an astonishing number of people are startled to find that the law of gravity still applies to the Phoenix area. They’re stunned that prices are leveling off. Amazed that houses take nine weeks to sell instead of flying off the market in three. For some, the market came down with a loud bang.”
“Those who treated the Valley’s housing market like a casino, buying homes sight unseen and expecting to cash in a big winner every time, deserve no pity if their gamble isn’t paying off.”
“Average buyers..got caught in the middle. But some of them, too, have been caught up in a risky round of flipping property, letting greed overcome good sense. Good sense was also missing among homeowners who rushed to tap equity and will owe more than their houses are worth if prices decline.”
“The truly sad tales are home buyers left in the lurch by construction companies that stop projects in midstream. It may be a cold comfort for buyers left holding the bag, but at least the state Department of Real Estate and the Registrar of Contractors are investigating Turner-Dunn.”
“The boom-bust cycle is so much a part of the Arizona landscape, and real-estate history has repeated itself so often, that it’s unlikely any lessons will sink in.”
“But here are a few things we should learn: The definition of a good market depends on your point of view. The run-up in prices last year was great for people in the real estate business and buyers who could cash in. But it jacked up the price of housing in a place where affordable rents and mortgages used to offset relatively low wages.”
“Two years ago, the typical metro Valley household had more than enough income, 114 percent, to buy the average existing house. Now, that household earns just 84 percent of the amount needed for an average home.”
“The innate value of our housing market wasn’t driving prices here. Favorable interest rates, low returns on other investments and demographic changes have fed a wave of speculation in places like Dublin, London and Singapore, according to Jay Butler, at Arizona State University. The next time around won’t be different.”
Some related links:
‘Trend Homes, a Gilbert-based builder, will close fewer houses this year than last, but it expects to make more money. How is that possible? ‘A lot of our 2006 closings were homes that we sold in 2005,’ Porter said. Now, the market for new and resale homes has slowed, and buyers and sellers are both still trying to figure out the new market, Porter said.’
‘Last year, investors were drawn to affordable housing in Pinal County, contributing to the drive up in housing prices,’ said JayButler, at Arizona State University. ‘But the higher prices are probably limiting the investor’s role in the local hosing market today, thus, there are many reasons for the slowing market and issues that will have to be overcome for any future recovery.’
‘Coolidge has grown to the north, where developers plan to build at least 3,000 homes over the next decade or more. Even with housing sales flat all around Arizona, Smith is optimistic. Smith explained that because Coolidge was one of the last areas to cash in on the real estate boom, its run hasn’t ended as early, either. ‘I think what happened is, Coolidge was just starting to experience some growth and so prices didn’t go crazy in Coolidge,’ Smith said. ‘Whereas other markets that had been established, like the Johnson Ranch area or the Maricopa area, housing prices really took some big jumps. And then all of a sudden they had to come back down off those prices. It really hurts the market when you have to drop back significantly from where you were.’
NBC Nightly News in 60 seconds: Housing on the Bubble and ARM re-sets. The MSM is full of the bubble.
Oh, boy, check out the NBC background graphic for the story: Dollar signs in floating bubbles.
And the NBC news site has an article discussing that a growing minority of economists are starting to talk about stagflation due, in part, to the housing crisis.
http://tinyurl.com/mwbby
Damn!!! I said about a month ago that Stagflation was here. Now I am concerned that there is a growing number of economist agreeing. As we all know, most if not all economists are dead wrong on their predictions.
Not one of the top economists for Wall Street or Money Center banks has ever forecast correctly a stock market correction or an interest rate cycle.
I remember some 20 years ago when I was a young pup in the finance industry, I learned very quickly how the game is played and what role “economists” have as essentially lapdogs to the industry. The saying we knew then was, ” I never met an economist with only one hand, because they will ALWAYS say when their forecasts are wrong… on the other hand….”
” I never met an economist with only one hand, because they will ALWAYS say when their forecasts are wrong… on the other hand….”
Wasn’t it Harry Truman who said he wanted a one-handed economist?
Yeah I took “corporate economics” in college and was annoyed by all the contradictions in things like the IS/LM model. I actually tried to use them with real economic data for a project and there was no way I could make the numbers work without the independent variables gyrating wildly and randomly around from year to year. I later read some trade cycle theory (austrian school) which made a lot more sense.
Mr Smith, can you explain to me why I should want to move to the boonies for low housing prices when prices are falling in places I’d actually want to live ?
Mo Money — that is IT — the point I have been trying, far less succinctly, to make. That, precisely, is why this bubble and crash will affect virtually every housing market in the U.S. Glad you put it the way you did.
Mo Money — that is IT — the point I have been trying, far less succinctly than you, to make. That, precisely, is why this bubble and crash will affect virtually every housing market in the U.S. Glad you put it the way you did.
Ahhh… the ignominy of a double-posting after cocktail hour. The blog site is as forgiving as Clint Eastwood at his best.
That is the point. When prices go crazy people move to places they would never consider pre-bubble. When prices come back down there is no reason at all to move there.
Well put.
Many speculators from California’s hot markets tried to repeat in not so hot markets and got stuck. I think many cannot afford to move back to California. Meanwhile in the next 6 years LA/Orange County/San Diego/Silicon Valley prices will continue a long slow deflation to 2000 levels or even 1999 levels. And all four of those areas are more desirable (great jobs, education, weather, conviences) than the boonies.
I would argue that this is a special case “geographicly undesirable” case of the “when there is more supply than demand, the least desirable commodity will have the worst price drop.” Usually condos are also disproportionitly hammerd in a falling market. Because of large price-runups, builders have been cranking out housing at a prodigious pace. It is this oversupply that will cause even the fundamentals themselves (Owner equivalent rent) to go down even as the reduction in speculation drives the purchase price/rent ratio down.
second paragraph — “local hosing market” — has to be the best typo ever.
‘But the higher prices are probably limiting the investor’s role in the local hosing market today, thus, there are many reasons for the slowing market and issues that will have to be overcome for any future recovery.’
The local hosing maket. Apt description or Freudian slip? -
Not from Bahston…Maket=Market.
Ben, you asked about the ratings of the homebuilders earlier, here’s the homebuilder S&P ratings. BBB is the best, B is the worst in this case (I excluded HBs with no S&P rating from the search). Interesting to note that there are no A-rated home builders.
BEAZER HOMES USA BB
CAP PAC HOLDINGS B-
CENTEX CORP BBB
COMSTOCK HOMEB-A B+
DR HORTON INC BBB-
HOMEPLEX MTG INV BB-
HOVNANIAN ENT-A BB
KAUFMAN & BRD-SP BB+
KB HOME BB+
LENNAR CORP BBB
M/I HOMES INC BB
MDC HOLDINGS INC BBB-
MERITAGE HOME-WI BB-
NEWMARK HOMES B+
NVR INC BBB-
PETERS (JM) CO B-
PULTE HOMES INC BBB
RYLAND GROUP INC BBB-
SAUL (B.F.) REAL BB-
STANDARD-PACIFIC BB
TECHNICAL OLYMPI B+
TOLL BROTHERS BBB-
US HOME CORP BBB-
WCI COMMUNITIES BB
WILLIAM LYON HOM B+
“For some, the market came down with a loud bang.”
It’s not a soft landing — it is a sonic boom…
OFF TOPIC…
I got a new post up!
SoCalMtgGuy
http://www.housingbubblecasualty.com
Woohoo!!! You’re back! Stories about f’d borrowers for everyone!!!
I’ve been to that site before, its very good. I agree about the numbers, these borrowers are over there heads and I don’t think many will be getting big increases in salary soon. I’m out of RE and waiting on the sidelines, it got too crazy for me.
I alos think rates will continue up, we have inflation and its getting imbedded.
My friend, John Smith, a usual man,
urging his bomber from the earth,
heard his life end in a loud bang
and took fire with his last breath.
from the poem”delinquent elegies” by Donald Baker
THAT”S the soft landing we’ve heard so much about.
“Average buyers..got caught in the middle. But some of them, too, have been caught up in a risky round of flipping property, letting greed overcome good sense. Good sense was also missing among homeowners who rushed to tap equity and will owe more than their houses are worth if prices decline.”
Nice summary here of the consequences of greed (flippers) and foolishness (suicide borrowers) and to those unfortunate enough to unwittingly get caught in crossfire (people buying houses appropriate for their income level in order to live in them).
Interesting to see Dublin (Ireland) get a mention in that piece. The market here is about a year behind the US market. The media is growing increasingly concerned about the damage a bursting bubble will have on the Irish economy. Price to income ratios are approx 10:1 rental gross yields are 2.5-3% average price for a three bedroom townhouse in Dublin is $500,000- 600,000; prices have stopped rising at double digit rates, mid summer. When news starts to sink in that the US market has tanked, well fear and loathing shall abound.
http://irish-property-bubble.blogspot.com/
At least the Irish media has the decency to get concerned and sound the alarm. US media did everything they could to pretend the bubble didn’t exist, now NBC will be having a regular series entitled “Housing on the Bubble”. Wonder how FBs will feel having it shoved in their faces on the nightly news while eating dinner? Maalox, anyone?
Palmetto
I’d say that sentiment in the Irish Media is 90% bullish 10% bearish. Property advertising is a lucrative source of revenue.
Irish exposure to housing is gob-smacking; the Irish invest billions in overseas markets (Spain, Hungary, Turkey, Bulgaria, Dubai UK and US (Florida and New York esp)
The Spanish Costa’s market has fallen 15-20% from the peak and other E European markets are on the edge.
However we are promised a ………..wait for it …………you guessed…. a soft landing !
Look at the ads on the left of this piece on the mythical Soft Landing; guess what member of the Sopranos cast is helping sell 100% interest only loans?
http://www.rte.ie/business/2006/0802/houses.html
Aha, so it’s YOU guys who are running up the property prices here in Florida!! Just kidding. But that’s interesting, here we’ve been blaming the New York sharks and the Californicators. If you have any friends invested in Florida property, you might want to tell them to unload any way they can prior to the November elections. I have a feeling the poo is going to hit the fan in Florida after that.
Those ads aren’t showing up, but the article is interesting and sounds a lot like the articles here. And the picture of the signs on the right looks like similar pictures of properties for sale here.
Duplex, OT, but is it true the Dingle Peninsula’s climate is almost sub-tropical and that the sea around there is warm enough to swim in comfortably?
I wouldn’t call any part of Ireland subtropical, but it is bathed by a warm current (the Gulf Stream) along with the rest of the British Isles. The climate is therefore mild, and even in the middle of winter you tend to get rain rather than snow near the coasts.
Consider that Ireland starts at over 51 degrees North (the 49th parallel between US and Canada gives a useful comparison).
It would, however, only be comfortable to swim year round in a wetsuit.
I’ve swum in Kerry, West Cork in the summer months (sans wetsuit). The climate is best described as mild temperate. Sub tropical plants do well on South West coast thanks to the Gulf stream (as ajh mentions).
Agreed.
The same logic meant that one of the castles in Western Scotland, which is even further North, could sustain sub-tropical plants in its gardens, once the owner planted a screen of trees to stop freezing air falling off the surrounding hills.
I’ve been there, and it’s quite startling to see what they’ve got growing.
Irish economy still going strong?
Well going strong on unsustainable debt growth. We rely for 70% of our exports on American MNC’s (Intel,Dell,Microsoft, Google being the most notable). Ireland’s very low corporation tax rate at 12% attracted much of this business, however foreign direct investment has all but stopped with the emergence of E. European low cost competition. House building/construction now accounts for 1 in 8 jobs, spin-offs probably another 1 in 8. And the ECB announced a quarter point increase in borrowing rates today which may be the straw the camel was worried about.
I’ve attached an article from David Mc Williams a respected commentator on our economy. Gives a flavour of the debate in the Emerald Isle.
http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=373
And now, an astonishing number of people are startled to find that the law of gravity still applies to the Phoenix area. They’re stunned that prices are leveling off. Amazed that houses take nine weeks to sell instead of flying off the market in three.
There’s no way that current inventory in PHX (and Tucson) could be cleared in anywhere near ‘nine weeks’. Add to current inventory those who are waiting in the wings for the market to ‘improve’ before listing their properties, and we have a recipe for prices to fall back to where they were a few years back, and for the market to slow for years.
Prices leveling off?? Nine weeks to sell??? Nice try but understating the problem doesn’t serve your readers, just the ponzi brokers. How about some truth in reporting?
“How about some truth in reporting?”
WTF is that??????
Point taken!
“Nine weeks”
Tell that to the sellers and see what they do.
YOU WANT ANSWERS?
I WANT THE TRUTH!
FLIPPERS CANT HANDLE THE TRUTH
Arguably, neither can the financial system.
The Phoenix market is off the rails. I live in Meridian, ID near Boise and the market here is like in miniature version of Phoenix. I just checked the MLS and there are over 1200 homes on the market- for a city of 62,000! Thats one house for every 51 residents. The sub I live in has 10 spec homes on the market- none have sold in at least 2 months.
A local “big shot” builder in Bakersfield cashed out to Pulte in the summer of 2005 and then claimed his next fortune would be made in Idaho. I hope he gets his a$$ handed to him!!
Sounds too smart for that. Cashing out in summer 2005 is getting out at the top. The ‘next fortune’ comment is bravado. I think he knows better.
just have the sellers give hummers away with the purchase. never fails.
if that doesnt work, have them throw in a Ferrari instead
and dont be afraid to get them both
Maybe they should sell the Ferrari and throw in a house.
beautiful!
Which one moves faster??
Unlike the house, Ferrari’s value will increase over time.
How about a Bugatti Veyron. I’ll start looking when they throw that in.
In the early 90’s exotic car prices crashed along with RE.
Just learned that CFC is closing at least one office in Chicago suburb due to fraudulent loan writing. It seems that the office manager quit and wasnt replaced so it turned into free-for-all with the foxes in charge of the hen house. Guess these idiots needed some deals to apy for all their smartly-employed leverage. So they just started approving their own deals or something along those lines. I read where this may include as many as 3 offices. Sound familiar?
Like the first plate at an all-you-can-eat lobster house. Much, much more of this to come.
Oh Man! I get visions of a bunch of 2nd graders playing like the grown-ups and handing out monopoly money. Can you imagine working in this group where they all sat around having serious discussions about the various loans they were putting through just like the “grown ups”! Then they actually got them approved! Hahahahahaha, is this america or what!
Check out the insider trading for CFC. It’s astonishing that they have anytime left for real work.
Also see Keith’s letter to the editor, same edition.
Now that his ad has been removed, maybe it’s time for a truce, and to add a link to his site. We’re all on the same side, here, in the bubble blogosphere.
ad? what ad? What’s the deal? I go over there sometimes too. Is there some bad blood or something? Please provide dirty details.
Keith had a banner ad on Ben’s blog calling it boring.
Yep, I raised this in the bit bucket thread a couple of days ago.
I’ll go look for it.
Funny, I never saw the ad and I missed that whole conversation in the Bits Bucket. Sounds like an ongoing thing. Keith was whining about how Ben wouldn’t add his link on the blog roll. Gee, wonder why?
Thanks!
Keith’s letter:
“Regarding “As Valley home market cools, emotions heat up” (Republic, Sunday): I commend The Republic for focusing on what is truly happening with the Phoenix housing market, from the street level. The epic real estate Ponzi scheme (a k a “housing bubble”) has burst, the speculators and flippers have fled, and Phoenix homeowners are left holding the bag. A 50 percent-plus rise in home prices in 2005 will now be followed by a significant decline - what goes up must come down. The price-to-earnings ratio of housing did not support 2005 values, as rents remain flat. Flat Phoenix income levels did not support a 50 percent rise in home prices or current valuations.
Getting back to realistic home values will be good news for Phoenix families long term, albeit there will be significant short-term pain to come. It was all one big fool’s game, a classic speculative fervor, and it’s over. - Keith Brand, Tempe”
I read the AZ Republic almost every day, and this is the first time they’ve printed a letter like this. Funny that the editor decided to speak out about the housing bubble on the same day.
What was the deal with Keith’s blog? I found his housingpanic blog by accident and was lurking over there and that’s how I found this blog. But then, when I tried to get on his blog a while back, it was gone. And this is the only bubble blog I go to ever since.
Never mind, I found it.
I live in Meridian, ID near Boise and the market here is like in miniature version of Phoenix. I just checked the MLS and there are over 1200 homes on the market- for a city of 62,000! Thats one house for every 51 residents.
Well, consider average household size and typical time to sell, and those figures might not seem extraordinary. Eg, if Average household size is 2, you have 1 house listed per 25 households. If each household sells once every 6 years on average, and a house is on the market for 3 months for each sale, then for each household, we’d expect a house to be on sale for 3months/(6×12)months = 1/24ths of the time. So with the figures I’ve assumed, 1 house listed per 25 households would seem about average.
So you’re saying that average household size there is 2, or very close to that?
The average household size of Meridian is 2.93, so we would have 1 out of 17 homes on the market- not including FSBO. One thing to consider is that half of the 1200 homes are either new construction or “new and never occupied”.
Like Phoenix, Idaho was hit by speculators and prices skyrocketed. Contractors built as fast as they could and the houses kept selling like hotcakes up until a few months ago. Prices reached a point where Idaho was no longer a bargain and a lot of locals are priced out of the market. The average wage in Boise is 17.24 an hour while the while the median home price is now around $286K- almost as high as Chicago.
Talked to someone who lives in Tucson today. This is what he told me:
1) He believes housing prices are going to continue to appreciate at a high rate for at least 10 more years.
2) He bought a home about 7-8 years ago. He was laid off a few years back, and lived for a while off credit cards. When he found out how much his home appreciated, he got a second mortgage and rolled his CC debt into his home. He says “he still has some equity”… He is working now.
3) Same guy also claims to be “debt-free”. I said “wha?”, and he said, oh yeah, of course I still have housing debt.
4) Before getting his 2nd mortgage, he converted his garage into a “bonus room”. The appraiser from the loan company came to look at it, but didn’t measure the “bonus room”. The appraiser just wanted to make sure the bonus room existed, and took his word for the square footage, then approved the loan.
5) Same guy says he doesn’t know how so many people get appraisals online without the appraiser even seeing the home. Seems he knows of such situations.
6) He said everyone always thought baby-boomers would retire to FL, but actually they all want to retire to AZ, New Mexico, or Colorado. Hence all the “problems” with the housing market in FL. He still thinks there aren’t enough homes in AZ/NM/CO to handle the demand coming from baby boomers starting in the next year.
7) Says his “RE agent” told him last year 50% of the buyers were folks from CA wanting to invest in AZ homes using equity from their CA homes. Same agent apparently says this year all the “CA investors” have dried up.
This was the first time I talked to an Arizoner about housing there. I was surprised by the contrast between what he told me and what I read online, in blogs, etc. Of course, names will be witheld to protect the guilty.
-
people will believe what they want to believe.
Tell him AZ heat also brings the wackos out. Like the Serial Baseline killer and the Serial snipper. Where else would you find 2 serial killers? BTW, they just murdered another one.
Seattle has a couple of serial killlers loose.
So your hypothesis is heat or gloomy rain.
Exactly. Only an idiot would make such a generalization about hot weather.
San Diego and FLA condos for everyone.
Arz SFH for the rest.
“his “RE agent” told him last year 50% of the buyers were folks from CA wanting to invest in AZ homes using equity from their CA homes. Same agent apparently says this year all the “CA investors” have dried up.”
But, not to worry. The boomers are coming! The boomers are coming!
What a great editorial!
Coincidentally, Seattle also had it’s first “hmmm… maybe we’re not that different..” newspaper piece this week and it was also an editorial.
In a place where everyone’s screaming prices here are based on “fundamentals” and “we’re so special”, the title of the editorial was:
“Easy credit driving home prices?”
Prediction: in a couple months that “?” will be gone and it’ll become a statement.
After hours:
Levitt Corporation Reports Financial Results For The Second Quarter 2006:
OK, where are the cancellation rates? No going on record about cancellation numbers is disturbing to me….
Revenue up, but For the three-month period ending June 30, 2006, Levitt Corporation (the “Company”) had a net loss of $0.7 million, so things don’t look good to me…
Heard on the radio that one of the builders in AZ is auctioning off 25 new builds in Queen Creek.
Wait until the media discovers Fibonacci Retracement Ratios.
Meridian ID family size of 2? Has to be much higher than that. Large Mormon population there. Here’s to hearing about all of these flippers turning into big time FLOPPERS.
Meridian IDAHO houses for all.
And, now toss in a house with the purchase of a HUMMER.
I live in Tucson and prices are going down fast! A lot of homes around me have been for sale for over a year, the jobs here are really low pay and a lot of winter visitors would rather go to Yuma than Tucson. There are a LOT of over-priced homes here for sale, just sitting. My Chriopractor last week was bitching about his house not selling while he is building a new one farther out of town to escape the high crime ghetto that most of the city has become.
were are the good parts of Tucson?
Palmetto
liked your idea of future ‘climatic refugees’ escaping the heat of the center of the country in the near future, also the inferno in AZ- and the sea rise and storms of Florida- ‘repopulating’ other areas- as A Geographer by training- and also climatology, those new areas as you suggested will be New England and the Pacific NW- but also northern coastal California and the Canadian Martimes. By the end of the century the climate in southern New England will be similiar to Raleigh NC- I wonder what Houston and St. Louis will be like? Florida- many parts submerged.
On the Today show this morning Bubble vision Queen from CNBC Marie Bartralomo, interviewd by Campbell Brown said ‘There is NO chance for a recession’ saying the stock market and economy are ‘Vibrant’ and with an unemployment rate of 4.6% everything is fine- she said she was told by Treasury sec. Paulson that there ‘would be no recession’… so its silly to think the ‘economy will have a slowdown….’
CNBC is the worse media outlet for news- its a wonder NBC interviews them for information.
So let me see here? Marie Bartralomo, who was hired as a “spokeswoman” on a financial news show AND who’s main job has been to report the dow and nasdaq numbers as well as interview “financial experts” from various arenas, is now herself being interviewed as a “financial expert”? Hmmmmm?
Gee, I always wanted to be an engineer. I guess I’ll go hang around a few of them, asking their opinion on various engineering related issues, for a couple of years and become one. Great! I’ve got a new career!!!
Im surprised no one called this guy out on his quote.
“Rising interest rates..shift more consumers into the rental market, boosting apartment rates, and that gets factored into the federal government’s Consumer Price Index, signaling more inflation, Seiders said. ‘It turns out that Fed tightening is inflationary. How crazy is that,’ he said.”
How crazy was it that they didn’t factor the price of a house into inflation? You can’t not factor it and then factor it.
Same with rents, when everyone was buying and driving up prices causing rents to stagnate, no one complained then, so why complain now that things have reversed?
If you can’t stand the heat, then get out of the kitchen. This guy would probably want Jeffrey Skilling running the fed so he could always fudge the numbers to his liking.
Does anyone have the latest lising/homes for sale numbers in the greater Phoenix area. A link with source would be helpful. Thank you.
The only good parts of Tucson are on the far East side, Catalina Foothills, Western foothills and on the outskirts of town.
Thanks. I think Tucson has much nicer weather than Phoenix. Far east side is near Sagauro Park East?