‘We’ve Got A Lot Of Overpriced Properties’ In Arizona
A pair of reports from the East Valley Tribune in Arizona. “Home buyers have the upper hand in the Valley’s real estate market for the first time since the record run-up in prices began two years ago, but industry-watchers say most are waiting to see when values will bottom out.”
“‘There’s a lot of negative information coming at them about the bubble bursting and the market falling,’ said Jan Montgomery, a realtor in Mesa. ‘Everything is all negative and they’re taking that on themselves, thinking ‘Maybe I shouldn’t do anything. I should just wait until it settles.’”
“The number of realty signs that continue to linger in neighborhoods shows the market is in transition. In the past few months, home builders are finally beginning to respond by lowering prices to get rid of inventory. Some sellers are finally starting to realize their asking prices are too high and are cutting them.”
“The numbers show buyers are indeed in the driver’s seat. ‘If you define a buyer’s market where there’s a lot of available inventory, this would be a buyer’s market,’ said Bob Rucker, CEO of Arizona Regional MLS. ‘We have 45,000 active listings now.’ Rucker’s data also shows prices are declining.”
“Most builders are doing whatever it takes to discount inventory left over when buyers cancelled as the the market began to cool and moving up to a larger home was no longer an option. In many cases, the opposite reaction is happening on the existing home market, said Valley housing analyst RL Brown.”
“‘The opposite thing is happening because the sellers are not organized and the sellers..have a basic distrust of their realtor in the sense the seller says ‘That guy is just telling me I need to lower my price because he wants an easy sale.’ Even though he’s hired this professional to market his house, he’s not following the professional’s advice. At the same time, you’ve got some of those professionals that are afraid, just plain afraid, to tell a seller the real story about the value of his house today.’”
“‘Some of them are in denial because they’ve refinanced..they took out equity loans and bought the boat, the cabin, the new car for the wife and now they’re basically upside down,’ Brown said. ‘Those guys can’t sell now. The best advice you can give to the seller of a resale home is now is the worst time you could sell unless you have to.’”
“Those that can stand pat are better off waiting until a price floor is reached, he said. ‘I don’t think we’re there yet in the resale market,’ Brown said. ‘We’ve got a lot of overpriced properties out there.’”
“Dawn McLaren, research economist at Arizona State University, says creeping interest rates won’t cool home sales.”
“‘It’s not going to stifle sales as much as it’s going to cause people with these creative financial instruments to either go bankrupt or foreclose,’ she said. ‘We’re already seeing an increase in foreclosures and an increase in bankruptcies. People with no money down, people who bought as investments who aren’t living in the house who at a certain point may say I’m just going to walk away from this. And just like back in the 1980s, it’s the banks that end up having to deal with these creative financial instruments and the losses from them.’”
“In the hot and heavy real estate run-up, many buyers weren’t thinking, McLaren said. ‘They thought the house value was going to take care of whatever interest they paid so they didn’t think about it. So now it’s time to pay the piper,’ she said.”
“Home buyers have the upper hand in the Valley’s real estate market for the first time since the record run-up in prices began two years ago, but industry-watchers say most are waiting to see when values will bottom out.”
They can thank Ben Jones for having the wisdom to do so.
Foreclosures in the Phoenix Metro area are nowhere close to a level that indicates a distressed market. I expect the current rate of approximately 750 per month to TRIPLE by June 2007. At that time, FEAR will replace DENIAL and it will be finally be a buyers market. June 2007 prices will have dropped 25% from the peak of August 2005, on the way to a drop of 60-80% from peak prices. This is just the beginning of a long, slow decline in asset prices and equities that will occur on a global basis.
Maricopa County Arizona Notice of Trustee’s Sale number:
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
JUNE 2007: 2250 = Distressed Market
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
Jun 06 797
Jul 06 851
Foreclosure.com reports 6,581 Notice of Defaults for Maricopa County (phoenix). They even give you the exact address.
There is a blood bath of foreclosures in Phoenix.
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I’m getting info directly from the Maricopa County Arizona recorder. Maybe their counting YTD or last 12 months, but there’s no bloodbath yet. Check for yourself: http://recorder.maricopa.gov/recdocdata/GetRecDataSelect.asp
They’re not their. Ughly.
I think you guys are probably both right — NoD vs REO sales. Over the past 5 years, by far most NoD ended up in a ReFI or sale to clear the slate. We are now entering a new phase in the default cycle where ReFIs or sales won’t occur because appreciation won’t be sufficient to make deals happen, even passed over by the vultures.
By far the majority will transition from NoD to REO. That’s when the entire RE picture will get dangerous, as lending institutions get into Loan-Loss reserve trouble at the same time regulators increase oversight.
Reading the Foreclosure.com site, it’s misleading. The “preforeclosure” count of 6581 you’re referring to probably includes property tax liens. Look at the Maricopa County Arizona “foreclosures” count under the “Foreclosure’s tab, currently showing 818. In Arizona, mortgage loans are typically non-judicial proceedings that fall under one category, i.e. a Notice of Trustee’s Sale, wherein the Trustee has filed a Notice on behalf of a Beneficiary that a Trustor has defaulted under the terms of a Promissory Note secured by a Deed of Trust. I am somewhat of an expert in this area (said modestly).
The Notice of Defaults is the Pre-foreclosure listings on Foreclosure.com. The county recorder only reports actual REO sales. It is the NOD’s that create motivated sellers, who try in cash in before the house goes to the trustee’s sale. That is where the short sales occur (bank accepts offer below what is owed). If you try the free 7 day trial for Foreclosure.com, you will be able to get the
actual legal documents number that the lender has filed to start the foreclosure process. Las Vegas has a Legal Newspaper that publishes every NOD and Trustee Sale.
The NOD’s are running 125 a day, and Vegas has 20,000 listings. With maricopa county running about 50,000 listings, the number of trouble loans would be close to 300 a day. Except if you tell me Phoenix is different.
Ok, tried to be nice. Re: Arizona, sorry, but you don’t know you are talking about.
I think you are right on, in your prediction
I second that. Last year I sold my place in Texas for a modest profit as I was transferred to Seattle (sadly, no Moose here).
We were in shock as we looked for a new house. I quickly discovered that we could only afford (20% down, .28 payment ratio) a house “in da hood”.
We were crushed. I had been blissfully unaware of the housing bubble in Texas (we sold just before the CA ELs descended on TX) but now we were bouncing on the top of the bubble…and didn’t know it.
Since there was no media coverage of the bubble I was grasping for how a 6 figure professional could no longer afford a decent home:
Things that went thru my head
1) Everyone was making more than me and my salary which I thought was good had actually fallen behind (wage inflation)
2) The dollar had fallen and foreigners were buying up America (dollar inflation)
3) Microsoft had made everyone here millionaires
I had no clue about the real cause of the lack of affordability but at least I had enough common sense to sense something was wrong…but what?
Then I found this blog and immediately it became clear what had happened. Consequently we found a rental and are now “bubble sitting”.
THANX BEN for doing the job that the media absolutely failed to do.
A lot of people like me owe you….big time.
So glad you decided to rent instead of trying to fit a square peg in a round hole. And besides that, I wholeheartedly think that it is best to rent first when relocating, bubble or not. Unless you have spent a huge amount of time in the area where you are relocating to, you really don’t know the new area well enough to know which neighborhoods are the best ones to look at when you decide to pull the trigger and buy.
Congrats on the rental decision. Now you can tour the area at your leisure while you bubble sit and REALLY scrutinize the neighborhoods.
BayQT~
I think your prediction is right on
In many cases, the opposite reaction is happening on the existing home market, said Valley housing analyst RL Brown.”
“‘The opposite thing is happening because the sellers are not organized and the sellers..have a basic distrust of their realtor in the sense the seller says ‘That guy is just telling me I need to lower my price because he wants an easy sale.’
- Call me confused in Southerrn CA. How in the hell does a ’seller’ need to get ‘organized’?
This comment shows how clueless many analysts are when it comes to basic economics. The beauty of the housing market is that it is highly decentralized, driven by the decisions of many individual buyers and sellers. There is no need whatever for sellers to get organized, but a dose of rationality in place of collective denial would do them a great deal of good…
There is one group of sellers who are organized, the home builders.
Watch what they do, and expect the resale sellers to follow suit 6 to 9 months later.
Those flippers who are reselling “unused” inventory in new developments are toast.
From my last post on Friday:
‘President Federal Reserve Bank of Atlanta Mr. Guynn addressed the Council on in Atlanta. ‘I remember a longtime Fed policymaker, a veteran observer of housing cycles, used to describe the housing industry as a big group of independent thinkers. Regardless of the warning signs, he observed that each developer, builder, or lender would decide there’s room enough for one more project, his or her project, of course.’
He means that the sellers are not organized with each other. They don’t know what the others are doing, unlike the builders which probably look at each other’s projects and pricing to determine what to do themselves.
‘…there’s room enough for one more project, his or her project, of course.’
“Those that can stand pat are better off waiting until a price floor is reached, he said. ‘I don’t think we’re there yet in the resale market,’ Brown said. ‘We’ve got a lot of overpriced properties out there.’”
Those buyers that can stand pat are also better off waiting until a price floor is reached. Sellers in denial believe the same rule applies to them, but many will sadly learn in retrospect that they could have avoided a large loss of net worth by selling earlier in the downturn.
And we have a lot of overpriced properties out there all across the USA. It s^cks to be a Realtor (TM) when both buyers and sellers believe their best course of action is to sit on the sidelines until prices bottom out.
But the sellers are waiting for different reasons . They expect a bounce after the inventory clears ,just like their realtors told them .
The best advice you can give to the seller of a resale home is now is the worst time you could sell unless you have to.’”
____________________________________________
YES! These forced sales will be the next step down as many here have predicted! job losses, divorce, job transfers, illness,etc… Let the blood letting begin!
“‘If you define a buyer’s market where there’s a lot of available inventory, this would be a buyer’s market,’ said Bob Rucker, CEO of Arizona Regional MLS.”
This time is different.
The new paradigm has redefined the term “buyers market” as follows: record inventory with at leat 50% price cuts.
Sorry Bobby…
‘They thought the house value was going to take care of whatever interest they paid so they didn’t think about it. So now it’s time to pay the piper,’ she said.”
_____________________________________
They thought this because there was a billion dollar industry telling them this! The NAR, NAHB and the MBA pushed this idea to no end. RE never goes down, buy now or be priced out foever, Suazzane researched it,….
Also the, “Why, I can do that too”, dumbass greed mentality took over as bagholder chumps took the bait. They saw their bonehead brother-in-law, high school buddies etc etc cash in big and figured it was a never ending gravy train. It was dumb greed that the NAR encouraged.
These FB chumps became the final greater fools in the RE pyramid scheme…
“Dawn McLaren, research economist at Arizona State University, says creeping interest rates won’t cool home sales. It’s not going to stifle sales as much as it’s going to cause people with these creative financial instruments to either go bankrupt or foreclose,’ she said. ‘We’re already seeing an increase in foreclosures and an increase in bankruptcies. People with no money down, people who bought as investments who aren’t living in the house who at a certain point may say I’m just going to walk away from this. And just like back in the 1980s, it’s the banks that end up having to deal with these creative financial instruments and the losses from them.’”
Dawn, what planet are you living on? I know it is not my planet, Southern California, where recent statistics suggest the pace of home sales is off by 30% or so since this time last year.
The Latin word for Dawn is ‘Dipshit’
lol
Not only that, crispy, the reason homes have been selling at obscene prices it that people could get them wiht toxic mortgages.
Without these ‘creative’ instruments, either sales volume or sales price falls. Period.
“…either sales volume or sales price falls.”
or both.
I’m really tired of the “buyers have the upper hand…” B.S. that seems to preface every story I’ve read over the last few months. It’s just another psychological trick that attempts to flatter would be buyers into doing something because of the new found power they have. How does one figure I’ve got the upper hand if the property I’m looking at is priced at twice the amount I’d be willing to pay for it? I’ve always had the option to walk away and laugh to myself at how ridiculous something is priced, it’s not because I’ve got some imaginary upper hand.
Proclamations such as “Buy now or your rent will go up!” and “Rents are rising!” are part of a concerted effort on the part of organized real estate to scare and flush-out any remaining buyers from the “rental pool”. REFUSE to buy, and REFUSE to pay higher rent. Enough of this nonsense! RENTERS OF THE WORLD UNITE!!! Have a great day!
Between 1991 & 1994 rental rates DROPPED in the Sacramento metro area. There were so many homeowners upside down after the 1990 peak, they could not sell, so they rented. this added thousands of units to the rental pool. Apartment complexes fought back, offered free rent, and reduced rent. Some apartment properties, which were built or purchased in the late 1980’s (with S&L funny money) went into foreclosure by 1993. The upside down homeowner took the slow burn of negative cash flow for 3-4 years, before finally dumpling the home for a loss. Nothing appreciated until the late 1990s. Buyers should hold tight for a couple of years to really win. Look around at the rental units available. More nice homes that ever, all at 30-50% of the cost of buying anything in this overpriced market. Take advantage of it.
In the early 1990’s there were so many vacant homes in Palmdale Ca that ‘Homesteaders’ would occupy a house, change the locks, turn on the utilities and set up housekeeping.
Or they would film movies and blow up the entire development. See Leatheal Weapon or the malibu mug shot.com!
>Buyers should hold tight for a couple of years to really win.
Two years? How about 5 to 8 years?
Their objective is to always try and create a “Sense of Urgency” with buyers. It’s a basic sales technique. But effective, as it keeps people from putting much thought into their decissions. And when it comes getting someone to overpay for real estate and put themselves into decades of debt, you don’t won’t them to think about it to much. As conditions change they just change the spin.
The term “buyers market” is RE code for “we’re in some deep shit now”.
This entire industry is quietly(soon to be noisily) slipping into a coma. Soon you will have starving realtors saying WTF, no paycheck for 6 months! Time to sell cars again or do that pole dancing gig! This country is so FUC+ED and doesn’t even know it. Will be all that much funnier when these brainless lemmings get a pole run thru them.
rudekarl wrote “I’m really tired of the “buyers have the upper hand…” B.S. that seems to preface every story I’ve read over the last few months.”
Me too, because this bubble will take a few years to deflate. It’s not a buyer’s market now. People buying now are buying merely at less overinflated prices than if they bought 6 months ago. But “less overinflated” is still overinflated.
Also, demographically, real estate in the U.S. is a losing proposition. Boomers will be trying to dump second homes in a few years to finance their retirements. Imagine if stocks could only be bought in 100,000 shares at a time and there was no such thing as mutual funds. Then your risk of investing in stocks grows substantially. Joe Sixpack would never invest in a company if that was the case. Yet Joe Sixpack buys a house in the boondocks on the outskirts of Phoenix where there is abundant land and pays locks into a $500,000 loan. Go figure. An international mutual fund investing in dozens of companies is far less risky than buying a house. You cannot diversify by buying a house. Even an individual stock is better than buying a house. You can put a trailing stop on the stock and bail out. You can compare the company’s earnings from previous years. But how do you really compare the earnings of a neighborhood that is new?
The irony is that there is very likely going to continue to be a mixture of deflation (houses, personal computers) and inflation (oil, raw materials, food, health care, college expenses) the next 6 years. The inflation pressures are worldwide, driven by emerging markets of hundreds of millions of people who want big SUVs, televisions, PCs, and vacation packages. Also the cost of the war on terror, and more entitlement spending in all the industrialized nations mean more government programs, which are run very inefficiently, by nature. There is a population explosion in many countries still. The Middle Eastern countries are an example where population is exploding.
People in the U.S. typically have blinders on and think that whatever is happening in the U.S. means it happens in the rest of the world.
Americans won’t understand, from our own Americentric point of view, why oil prices, food, health care, automobile prices, insurance, and college education will continue to escalate while their own houses lose value. Interest rates have temporarily peaked, but I am confident that they will be well above 7% in 2009.
Bottom line is we renters have the upper hand. Buyers of houses do not, and will not for another 5 years, in my opinion.
Why are so many Americans committed to living in America when it is clearly a losing proposition? Move! In the late 1990s, up here in Canada, the media was focused on the “brain-drain”, where fresh graduates were moving to the US for better opportunities. Well, times have changed, and it’s time for Americans who see the light to get out (of the way of this huge demographic train).
You heard it here first - educated people with savings leaving the country. Not smart money, not the uber-rich, just Average Joe with six figures saved up (although I get the feeling that’s not so average anymore, is it?).
It would be nice if were that easy, Sol. Other than marriage, it is VERY difficult for an American to move abroad and take up residence - let alone obtain citizenship and a passport. Believe me, I have looked into it. The US Government is not interested in losing any of its tax slaves.
I would consider dual citizenship only if I was independently upper class (i.e. an annual income adjusted for inflation of $120,000 per year). I would figure that would take $2.5 million in Treasury bills earning 5% or so. I am almost 1/3 to that goal, so I’ll continue to work and save. British Columbia, Ireland, and New Zealand are on my list of interesting places where I might want to park myself.
“The US Government is not interested in losing any of its tax slaves.”
What measures are put in place by the govt that they do this.
It is hard for Americans to move to Canada. Your job market prefers Canadians, even if they are less qualified.
Excellent post, well said.
“Imagine if stocks could only be bought in 100,000 shares at a time and there was no such thing as mutual funds. Then your risk of investing in stocks grows substantially. Joe Sixpack would never invest in a company if that was the case. Yet Joe Sixpack buys a house in the boondocks on the outskirts of Phoenix where there is abundant land and pays locks into a $500,000 loan. Go figure.”
I figure that in three years Joe Sixpack will be licking his wounds, complaining in interviews for special interest news stories about what a stupid thing it was to buy large homes out in the middle of the southwest desert as investments.
How about that lady that mentions that you better buy now! She sounds like a tape recordering of most realtors this past year!
yeah, better buy now or I’m gonna miss the payment on my BMW!!
Classic lines -
Let’s start off with “just wait until after Christmas. It will pick back up…”
or
“it will pick back up after the Superbowl….”
or
“just wait for the Spring buying season…”
Or
“well, it should be good once the summer buying season gets going before school starts…”
now, the new one…. “Wait until the snow birds come back to town in November, that’s when the market will pick back up…”
That’s what a realtor told me last week here in metro Phoenix. Egag! Some of these people are going to be in denial all the way down to the bottom.
dang - no edit button
Yeah. I’m sure most of us would have much better grammar if we could just use a computer program (like MS Word) to check our thoughts over.
70 years of little IOs.
he last time interest-only mortgages were common was in the 1920s. Rather than paying down their debt, homeowners invested in the stock market. It crashed in 1929.
Subsequently, real estate prices collapsed during the Great Depression and lenders stopped making interest-only loans for nearly seven decades. Could it happen again?
Major Condo Company Sees Market Collapse
Good articles John …Thanks .
Classic lines -
Let’s start off with “just wait until after Christmas (of 2005). It will pick back up…”
or
“it will pick back up after the Superbowl (of 2006)….”
or
“just wait for the Spring buying season…”
Or
“well, it should be good once the summer buying season gets going before school starts…”
now, the new one…. “wait until the snow birds come back to town in November, that’s when the market will pick back up…”
The last line above is what a Realtor in Phoenix told me last week….
Egag! Some of these people will be in denial all the way to the bottom.
Here’s a new one for the realtors: You thought 2006 was a slow year? Wait until 2007.
Same 7 houses for sale in my Chandler AZ subdivision, going on 7 months now. Little 5% price reductions. Haven’t seen a single idiot with a ‘barrel of money and and a box of stupid’ come by in months.
I can name 7 buyers with a barrel of credit and a box of stupid right now.
It won’t be a buyers market until the buyers with a barrel of (borrowed) money and a box of stupid have been screened out of the demand pool by a return to traditional underwriting standards.
Here’s an article I found in my local paper (SLO Tribune). RE people still in denial. I’m getting really tired of this shit. Is there anything we can do to shut these people up?
http://www.sanluisobispo.com/mld/sanluisobispo/15264248.htm
“For million-dollar homes, realty sales remain solid”
Here’s another one.
http://www.sanluisobispo.com/mld/sanluisobispo/15264246.htm
“$1 million no longer buys ‘one of those special properties’”
The second article chimes in at the end:
“When you compare our area to the Bay Area or Southern California, this is still more affordable.”
This conjures up memories of this newscaster on Fox News that once said something along the lines of, “$80,000 a year?! You can barely survive on that!” I guess her audience wasn’t me or the people I associate with.
Reading through this blog and its entries is truely interesting and informative. Living in a large midwestern metropolis you don’t here much about the housing bubble. Median house prices around town are are in the mid 100’s and about 75% of the population racking in the median income can afford housing. My gf’s cousin just moved from northern New Jersey back to town and had little trouble upgrading his home from the sale of his previous one.
My friends and I buy into starter homes at around $115k - I cannot imagine trying to secure a $400k home. And to think that so many folks get into these deferred interest pay option arm mortgages in markets ready to settle down if not out right collapse is amazing. They’ll be able to breathe until recast happens but they are rolling the dice if they think they will be able to refi that balance into a $600k value at 80% five years down the road. It is tough to predict what the real estate climate will be like in 2010 & 2011 when these newly originated exotic mortgages begin to become unaffordable but the risk that one could be way upside-down on their real estate plus unable to afford the monthly payment is to great to gamble.
Phoenix and Tucson both have expanding populations.
Does anybody know of any quantitative research / data comparing numbers of houses being built, compared with the number required for (1) replacement of old houses and (2) new houses required for new residents in the area?
I just came back from a road trip in AZ. In the middle of nowhere, and I really mean NOWHERE, between Phon and Tucson, I saw ground being broken on at least 2 BIG projects. Unbeleavable!
There was a post several months back that claimed there is/was over 14,000 unoccupied, never lived in homes in Pheonix. Any PHX renters that intend to purchase after this debacle runs it’s course need to step up to the plate and get their well deserved upgrade into one of these homes. Go around and pick 15-20 homes that would make a decent upgrade to your personal living situation and LOWBALL THE SH*T out of the flippers with RENTAL offers. Pick out a nice juicy rental that you wouldn’t mind living in for a couple of years and make some serious rental agreement stipulations so that you can relax and enjoy yourself without fear of having to move for at least the first year (foreclosure notwithstanding). It is a RENTER’s market and it is time to get out there and snatch your favorite bubble sitting spot for the next few years while watching these flippers go into foreclosure and apoplectic fits!!!! Have some fun with it! Get yourself a hot tub and hold big parties! Yipper, time to break out the lampshades and champagne while sitting on the front porch watching Realtors practicing their pole-dances across the street at unattended open houses! Good luck and be sure to post any great stories you can share!
Just noticed the pictures of a new development in Clarkdale, AZ. I couldn’t help but wonder if this community won’t end the same as nearby Tuzigoot… A 3 story condo (pueblo) complex on a hill with spectacular views, a club house (Kiva) and costco rooms (Granaries)
I’m sure everyone (sinagua) wanted to live there till one day they didn’t.
Ghost towns baking in the Az. sun . What a waste . Instead of a nice family who got priced out owning one of these vacant properties ,they sit while a flipper expects some greater fool to come along and pay for them sitting for months cooking in the sun . What a waste.