March 10, 2006

Over 14,000 Phoenix For-Sale Homes Vacant

An Arizona blogger has discovered the rumors are true. “Recently, it was reported in the Phoenix market that the number of homes available had jumped from apx3400 homes January 05 to over 30,000 this January. As we watch some of the markets around the country, looking for signs of ‘the bubble,’ this number was astounding.”

“As a member of the ‘Arizona Regional Multiple Listing Service’ (ARMLS) I thought I would check for the accuracy of this claim. By the way ARMLS is known to the local realtors as ‘armless.’ In running some stats this morning, there are 33,270 active listings in the MLS. This covers greater Phoenix as well as a bit of outlying area. Another 1,225 are active/contingent. Under contract, but still being marketed for a buyer.”

“There has been a lot of talk of speculation in the Phoenix market, which made me wonder, how many of these homes are vacant. Of the 33,270 active listings, 14,601 are vacant. 14,601, almost half. Wow.”

“Why?? A lot of the ‘flippers’ that bought new homes did not want to put tenants in, so the homes could be marketed as new,never lived in. Move up buyers bought first for convenience/speculation, putting the old home on the market later. People buying 2nd/speculative homes. The high number of vacant homes appears to be the result of this speculative fever that has hit Phoenix, just like many markets.”

“This has led to the unsustainable increase in homevalues, as the investors no longer enter the market. And a 10 fold increase in inventory as the speculators decide its time to get out while the gettins’ still good. I have no year over year comparison for the vacant homes, or info on what is ‘normal,’ just a gut feeling that this doesn’t bode well for the market.”

An update: “Of the 33,000ish active the average price is $484,594. The total number of pending sales is 8,125. The average price of the total pendings is $378,573. Of the 16,000ish vacant homes, average asking price is $456,772. There are 3762 pending sale vacant homes(included in the 8,125), at an average price of $368,218. Looks like what is moving are the low end product.”




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128 Comments »

Comment by cereal
2006-03-10 12:17:59

hoooooleeeeeee smokes. this is holy grail stuff.

Comment by Ben Jones
2006-03-10 12:20:10

Cereal,
I agree. BTW, I had tried to ask this MLS if the rumors were true and they wouldn’t reply.

Comment by arizonadude
2006-03-10 14:00:05

It is a dust bowl here today. The wind is roaring and kicking up dust everywhere from the plowed fields around gilbert. It is an unbelivable scene here right now. Driving home from barnes and noble I was worried my truck would have the paint sand blasted off.
There are 50 homes for sale in mysubdivision and most are at least 50000 overpriced. More homes keep coming on the market everyday ;)

 
 
Comment by nnvmtgbrkr
2006-03-10 12:20:44

Duuuuuuuuuuude!!!!……

 
Comment by Lou Minatti
2006-03-10 19:45:58

I posted this to CL and was met with a “Who cares? It doesn’t matter.” by a Phoenix RE agent.

Comment by Bill
2006-03-13 20:01:16

What is CL?

 
 
 
Comment by BL
2006-03-10 12:27:08

Sure so what if there are 14,000 homes sitting vacent that speculators are putting on the market… You wait until all those baby boomers, young professionals and immigrants start buying those $300-400K homes. You’ll see, you’ll be sorry. You just wait until after the Super Bowl when the winter lull dies down…

Comment by John Law
2006-03-10 12:53:44

but you’ll also have to wait because of the olympics, then the conference basketball, spring training, world basball, march madness, spring rains, hockey and basketball playoffs…this market won’t fly till late June!

 
Comment by GetStucco
2006-03-10 13:07:29

Don’t forget the army of baby-boomer retirees who are going to cash out of the rust belt and buy those 14,000 empty PHX homes as long-term investments…

Comment by destinsm
2006-03-10 13:09:07

thought they were going to buy up all of Florida’s excess inventory…. seems we are running out of baby boomer band-aids…

Comment by rent2home
2006-03-10 13:23:40

Wait, we can buy nothing in california…….and Phoenix is so affordable……..soon we will all be coming there.

When they start building offices and factories there , I mean!

And wait, with such nice and dry weather, no snow..no rain…everyday we can have fun.

The weather there is very nice I read, once you know how to quiucly apply lotions all over your body as soon as you are out of shower…before the skin starts cracking.

37000 homes are for sale…they are all selling to upgrade to even bigger; nicer home in the neighbourhood, before they are priced out!

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Comment by Inspired
2006-03-10 15:43:17

Well the Baby Bomers from the Mid West & mid Atlantic ,won’t be coming…They just learned that their pensions are in question from the likes of Dana (largest auto parts manufacturer), GM & Ford, planned changes to 401k …. those Dominoes are just starting to gain Momentum.

 
Comment by Out at the Peak
2006-03-10 15:57:14

Don’t forget the soliders coming home from Iraq. Maybe they’ll miss the desert and will love it in Pheonix?!

 
 
 
Comment by auger-inn
2006-03-10 12:32:48

Can anyone offer an idea of how many months of inventory these numbers represent as well as carrying costs? I assume that these homes are in the 300-400K range? ooohhh, someone is going to get an asswhackin!

Comment by Nicholas Weaver
2006-03-10 14:42:45

Lets assume $400k/house, vacant inventory of 15k units. Thats $6B in vacant asset. At a carrying cost of 5%/year (interest+property taxes), that would be only $25M/month. And only about $1.6k/month/property.

Ehh, not too big a deal.

Comment by foobeca
2006-03-10 16:32:15

PITI is more than $1600/mo on a $400,000 property. Interest rates are around 6% and I’m guessing tha property taxes are about another 1%. So 7% yearly carrying costs equals $28,000/yr divided by 12 = $2333 for a I/O loan. HOA fees and insurance will push that to around $2600/mo. Not many people have $2600/mo of cashflow that they can dump into a bottomless pit.

 
 
 
Comment by gonetoaz
2006-03-10 12:37:41

I believe it. I live in Phx metro area and took a ride down to Gilbert/Chandler a few weekends ago. Houses everywhere in every stage of construction. I think many of those new construction homes were bought sight unseen by speculators last year. Now that the prices have tanked here in the valley the flippers are tying to unload. I have also noticed a huge number of for sale signs here in N. Scottsdale. When we moved here in June there were very few open house signs anywhere. Around August they started to show up. now it is downright hysterical to see the amount of competing open house signs on the corners of every major interstction. What a joke. Our landlord is a flipper. She bought this property last April for around 500k. She recently told us she was going to sell and wanted to know if we would like to pruchase it for 710k. I nearly fell off my chair…… uh, no I wouldn’t pay more than $525 for it. Needless to say we are probably going t have to move in a few months. Good thing there is no shortage of housing here. In the meantime, this property will probably sit vacant through the summer and into the fall, and I will laugh everytime the price is reduced. Hee-hee………am I bad!

Comment by nnvmtgbrkr
2006-03-10 13:02:13

If she bought it last April for 500K, the I’d hold out for under 400K. Revert to prices pre-2004, not last spring. You’re underestimating your bubble, my friend.

Comment by guyintucson
2006-03-10 15:25:58

“Revert to prices pre-2004″

No, revert to prices pre-2002, You’re underestimating your bubble, my friend.

Comment by GetStucco
2006-03-10 15:50:35

I up ya to pre-2000!

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Comment by gonetoaz
2006-03-10 16:03:13

Do I hear 1912! The year of AZ statehood. Yeah, we are pretty bummed because we will have to move all our stuff again. At least this time I know we can negotiate a rent. It is almost worth moving to watch this house sit vacant for several months while our greedy landlord looses money. It is my understanding she owns over 20 properties.

 
 
Comment by foobeca
2006-03-10 16:34:18

bubble prices always return to their pre-bubble levels. Markets always overshoot in both directions. Right now RE is overvalued. There will be a day it is undervalued and rediculously cheap.

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Comment by KirkH
2006-03-10 12:41:24

I think it’s safe to assume this will get ugly sooner rather than later because the average carrying cost must be huge with 50% vacancy rates.

I don’t think Dustbowl ‘06 is helping the situation either, some quotes from the article.

“We have cactus dying from lack of water,” Mr. Woodard said. “We have well-established mesquite trees that are in a lot of trouble.”

Small animals are too dried out to do what comes naturally.

“None of the animals, none of the birds are having offspring this spring. No baby quail, no baby bunnies,” Mr. Woodard said.

An alarming result of the drought is the condition of the air. On Thursday, Arizona’s Department of Environmental Quality posted its 25th pollution advisory of the winter, a remarkable number.

“It used to be, you’d come to Arizona if you had breathing problems because of the air quality. Now, I think you’d have physicians who would say, ‘Don’t come to Arizona.’ ”

“The drought seems to promise a harsh fire season. Last year, relatively heavy rains fell all winter, prompting fast growth in trees and shrubs that now sit dry and cracked. “I don’t think I could have planned a better fire season,” said Tom Pagano”

“You have to use lotion right when you’re out of the shower, when your skin is still moist,” said Mary Low, services manager at Arizona Biltmore Resort and Spa. “People wear sandals, so the skin on the heels of your feet get exposed to the dry air. The skin on the feet gets dry and cracked. You have to use a pumice stone and put lotion on your feet.”

“You get used to it, and pray every day that it rains,” said Justin Hoiby, 27

Being the complete fool that I am, I’m renting by the beach in San Diego, throwing money down the drain, when I could be paying twice as much for a mortgage on a small condo in the middle of the desert.

Comment by arroyogrande
2006-03-10 19:16:24

You fool you!

 
Comment by lmg
2006-03-10 20:00:02

Reminds me of the beginning of “Chinatown”, where the Los Angeles City Council is holding a meeting on the construction of a new dam. One of the politicians proclaims the paradox that, despite the fact that they are near the Pacific Ocean, LA is actually in the desert and that water is precious.

Of course, with Phoenix, there’s no paradox at all….that really is a desert. Plus, of course, the energy bills to properly air condition homes must be phenomenal these days.

 
Comment by chilidoggg
2006-03-11 04:53:34

“no baby bunnies?!!!!” the horror!

Flipper: “Tell me about the bunnies, again, Banker.”

Banker: “Of course, Flipper. Lets go down to the river, and I’ll tell you all about the bunnies.”

Comment by iron56
2006-03-11 11:16:53

Well, gosh, at least no one is going to have to promise to feed the bunnies to close the sale…

 
 
Comment by Sammy Schadenfruede
2006-03-11 11:18:14

The Colorado Springs area is entering its 7th year of drought. The last drought of this magnitude (in the 14th Century) lasted 50 years and caused the depopulation of the region as a few thousand Pueblo Indians moved out. The rampant over-development of this area in recent years has severely overtaxed the underground water resources and snowmelt that provide the water supply. This could get ugly. Oh wait, our local NAR touts have assured us There Is No Bubble Here.

 
 
Comment by John Law
2006-03-10 12:45:50

14,000=the hidden rental inventory we’ve been talking about.

 
Comment by accroyer
2006-03-10 12:49:24

With summer around the corner and surging heat on the way, Phoenix will be the first to die in this overpriced market…try to justify prices then…..no water…no life.

Comment by GetStucco
2006-03-10 13:10:38

There will be a race between death by heat exhaustion in PHX and death by drowning in a South FL storm surge…

 
 
Comment by AZgolfer
2006-03-10 12:51:16

Just for fun I looked up the number of houses for sale in Queen Creek. 2,200. If you look on Craigslist there are dozens of them and most say “new home, never lived in”. The Craigslist ads are starting to sound desperate.

Comment by ocrenter
2006-03-10 13:37:48

I questioned the wisdom of my flipper friend who kept his Arizona new construction empty, currently into the 3rd month of awaiting for a buyer. But apparently his friend is a realtor and a flipper and the expert advice in July 2005 was this: there is more value in brand new properties, and hold until Spring 2006.

Looks like that advice was given to 13,999 other friends. :)

 
Comment by azdan
2006-03-10 14:53:02

I’m just like to go on the record for nominating Queen Creek, AZ as the absolute, one and only, flipping unmatched epicenter of this bubble. It has it all, no personality, clone-like houses, a crushing commute, and speculation to beat the band! Hail to the Queen!

If I can just get my priorities in place, I’ll see about taking the time to narrow it down to an actual street or home.

Anyone with another candidate, please speak-up!

Comment by Linda in LA
2006-03-10 15:04:33

Just trying to turn off the bold . . . .

Comment by Linda in LA
2006-03-10 15:06:09

/

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Comment by Inspired
2006-03-10 16:43:21

Aliante in Las Vegas.
Housing is sanwiched on top of each other as the developer as early as last June offered hjomes at a signifcant discount…Because the speculators owned row after row of homes and new buyers were skidish because the neighborhood felt like the Twilight Zone where nothing moved but the Wind. I have’nt been there for quite a while now, but when I took a tour several of the “empties” offered Porche’s inside.

Comment by azdan
2006-03-10 17:32:35

This Aliante is no slouch. I’m impressed. As you mention,Inspired, the houses are sandwiched together. This photo seems to indicate that you can’t fit much more than a slice of cheese between ‘em:
http://www.milliefine.com/aliantephotos.htm

If you’d like some real humor, check out this realtor’s description of Aliante:
http://www.milliefine.com/aliante_las_vegas.htm

As she indicates,”There are at the time of this writing, some excellent incentives offered at Club Aliante..” PLUS, she mentions, if you like to live in the middle of nowhere it’s probably worth considering. Unreal!

Thanks Inspired!

Nominations still being accepted…

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Comment by Robert Cote
2006-03-11 03:45:41

Aliante, is that Spanish for “Oxnard without that pesky ocean?” 7000 homes on 1900 acres and elementray scools and parks and roads and such? We are talking 4000 sq ft lots 18 miles from the nearest employer. Mssrs Barnum and Bailey would be proud.

 
Comment by iron56
2006-03-11 11:22:22

As I recall Aliante’s actually in North Las Vegas–”North Town,” to Vegas old-timers.

North Town didn’t used to be a prestige address…:)
(Lived there around 1980–only got burgled a couple of times.)

 
 
 
Comment by leopard
2006-03-11 15:35:31

I second your nomination of Queen Creek as the epicenter of stupidity of overpriced housing.

I’m beginning to think the lower priced homes are going to weather this fairly ok. In Fridays Az Republic, sales volume is down to about half of what it was a year ago but it’s mostly homes less than about 250K or so. There is a lot more that will happen before this thing is over though.

 
 
Comment by grush
2006-03-10 18:34:01

This is another attempt to turn off the bold.

 
 
Comment by landgrab
2006-03-10 12:59:42

This is pretty unreal.

You’d think some people are going to get hurt, BUT let’s hope people made enough money to offset these losses so they at least break even. You never want to see people suffer.

Comment by GetStucco
2006-03-10 13:05:26

Some suffering is warranted by the great cycle of Karma…

Comment by Housing Wizard
2006-03-10 16:45:51

Alot of the original settlers to America were debtors , Are you saying were all getting karma from our ancestors , like a bad seed being passed down in which someone has to pay for the original sins ?

Comment by chilidoggg
2006-03-11 04:57:15

thinnerrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr

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Comment by nnvmtgbrkr
2006-03-10 13:05:42

Uhh, that’s a nice thought, but a bit too late I’m afraid.

 
Comment by rent2home
2006-03-10 13:47:28

The Sad part is people who made money and who will get hurt will different most of the times.

The ones who made money and going to keep them… already left the picture. The money is now in CD, stock market, Gold.. IMHO

 
Comment by AZ_BubblePopper
2006-03-10 14:31:55

Ya know, I don’t give a crap if the flippers take a bath. I do feel a little sorry for the poor dopes that purchased from the flippers for a place to live. A lot are way upside down and facing some serious pain as the rates jump and their payments skyrocket.

Truthfully, I would have a tough time buying from a flipper… The creepy feeling of getting shafted and them making $$$$$$$ from me. Now taking a property off their back at a loss I wouldn’t feel too awefully bad about except I’ll bet most of them end up in the lenders’ inventories so that won’t be much of a concern…

Comment by Moopheus
2006-03-10 15:16:28

It’s a good thing that flippers are fairly easy to identify and avoid.

 
 
Comment by circling_vulture
2006-03-10 19:06:37

i feel about as much sympathy for a flipper getting burned by his/her own greed/stupidity as I do for a cockroach when i step on it. houses are for living in and these scum are a large part of the reason housing is in the mess it’s in. nope, no sympathy whatsoever.

 
 
Comment by GetStucco
2006-03-10 13:03:54

“A lot of the ‘flippers’ that bought new homes did not want to put tenants in, so the homes could be marketed as new,never lived in.”

It so sucks to be one of these floppers whose empty home brings in no rental income and whose value is destined to crash…

 
Comment by GetStucco
2006-03-10 13:08:55

I guess the same phenomenon (keeping the investment property in new condition) explains all the dark windows in those downtown SD condo towers…

 
Comment by asuwest
2006-03-10 13:09:16

And for more scary Phx info…this site (www.homesalenews.com) has a freebie newsletter by zip that shows closings for the prior couple weeks. For & (two high growth areas)– the # resales divided into the ziprealty listing for resales===
Peoria (85383) Previous 11 days, 11 sold– zip—444= 444 DAYS supply
Goodyear (85338) Prev 11 days, 21 sold–zip 887= 464 days supply.

OUCH.
Would love to run the same for new housing, but don’t know of a way to get that inventory.

Plain for some to see….There’s gonna be some major hurtin goin on here.

 
Comment by SD_suntaxed
2006-03-10 13:10:30

Unbefreakinglieveable. 8O

 
Comment by ca renter
2006-03-10 13:18:01

O/T: Just saw a something on TV (Fox news). They’re going to talk about the worry of a depression… 1:20 pm PST.

 
Comment by auger-inn
2006-03-10 13:23:26

Anyone want to hazard a guess on how many days supply will be on the market by July 01? I think we’ll see over 2 years due to more inventory and slower sales.

Comment by ocrenter
2006-03-10 13:57:19

Las Vegas months of supply is now 7.5 months. This is up from 5 months of supply at the end of 12/05.

Phoenix had 4 months supply of housing as of 12/05. That increased to 6 months at the end of 1/06. Provided the sales volume remain at the same level in January, given the current inventory of 37,680, the months supply would now be 7.5 months.

Things will be interesting when Feb ‘06 sales figures come out in a few days.

Comment by chilidoggg
2006-03-11 05:01:14

And remember, another absolutely fabulous February for weather in SoCal. Only rained last 2 days (monday and tuesday)
Wasnt last Feb05 when that hillside crashed up in Oxnard?

 
 
 
Comment by climber
2006-03-10 13:23:39

Colorado is suffering from fire danger levels not usually seen until June. We’ve had 3 wild fires in my county in the last 2 months. The rust belt may start looking a lot more attractive if this drought keeps up. I would think that the Midwest has way more long term potential than the Southwest. Life without water sucks.

Comment by accroyer
2006-03-10 13:42:01

the northwest has plenty of water , not a bad place to live either…

Comment by SeattleSis
2006-03-10 15:31:51

Don’t tell people this! They’ll all want to move here (Puget Sound region), and then we’ll be the ones running out of water….

 
 
 
Comment by Robert Cote
2006-03-10 13:36:25

14,601 homes is 1% of the Maricopa County inventory.
http://quickfacts.census.gov/qfd/states/04/04013.html
14,601 homes would take 5 months for new home formation in the area to adsorb. Things are getting bad and things will get much worse but keep perspective.

 
Comment by Housing Wizard
2006-03-10 13:43:48

New houses setting vacant for months while Arizona is toasting from the drought . Just think …those displaced Katrina victims could of moved into those houses instead of the flipper/investors
leaving them vacant , waiting for the big kill. If these figures are true , I feel sorry for Arizona

Comment by chris 415
2006-03-10 14:37:21

“displaced Katrina victims could of moved into those houses instead of the flipper/investors leaving them vacant”

Don’t go there! If the San Francisco board of supervisors hears about 15,000 empty homes in Phoenix, they might start buying/requisitioning them for our homeless people and disenfranchised “artists”.

Just think, a utopian socialist commune in the desert. We have plenty of “activists” that we can send over too.

Comment by Housing Wizard
2006-03-10 16:31:08

I was just kidding about Katrina victims . I was addressing the waste of houses setting vacant while people are homeless. It makes the FLIPPER look even more greedy , while they think this is a good marketing ploy to say “its never been lived in “

 
Comment by asuwest2
2006-03-10 22:16:58

er.. for the commune, it’s Arcosanti. Was pretty cool when the artist babes used to walk around topless. Made for great field trips in HS.

I know, I know, JAMP– (Just Another Male Pig).

 
 
 
Comment by AZ_BubblePopper
2006-03-10 13:50:55

YIKES for the builders selling into this mess. Their building costs keep going up and the public builders have to keep producing units to prevent their stock price from tanking on shrinkage. If the builders stop producing for a few years there’s a chance that demand could catch up. Not going to be pretty as summer is slow in PHX for home sales. They’ll be claiming, “Wait for the fall and things will improve”…

 
Comment by Housing Wizard
2006-03-10 14:00:45

We dont want ghost towns in Arizona . This was a good place for alot of baby boomers to retire to . I was going to move there myself last year until I saw the situation brewing .

 
Comment by john fontain
2006-03-10 14:06:47

Serious question here: With this wacky overbuilding in Pheonix, is it possible that at some point in the future one of these nice 2,500 square foot homes will be available for less than cost to build - say $100,000? I’m not trying to crack on the situation (which is easy to do), but I’m genuinely curious as to whether this is a possibility. Imagine snapping up a vacation home when the dust settles for literally “pennies on the dollar”.

Comment by AZ_BubblePopper
2006-03-10 14:22:36

Sure is. I bought a custom home in PHX back in ‘92 while the RTC was busily dumping properties. The place I picked up was not RTC, occupied, and in great shape (many RTC homes were trashed). But with the glut I was able to pick the place up for $65K less than it was built for.

Just a matter of timing how much you pay for anything!

Comment by AZgolfer
2006-03-10 14:26:35

What does RTC stand for?

Comment by AZ_BubblePopper
2006-03-10 14:36:34

Resolution Trust Corp. Federal entity set up to clean up failed banks and dispose of their assets in AZ CA TX…

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Comment by chilidoggg
2006-03-11 05:05:37

look for the sequal, coming to a 1040 near you!

 
 
Comment by Tom DC/VA
2006-03-10 14:50:21

Resolution Trust Corporation. Government-owned corporation used to clean up the S&L bust.

http://en.wikipedia.org/wiki/Resolution_Trust_Corporation

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Comment by txchick57
2006-03-10 16:06:03

Yes, way back in the olden days of the horse and buggy, they were one of our clients.

 
 
 
 
 
Comment by catsipt1
2006-03-10 14:07:52

More than 32,000 Japanese took their own lives in 2004, the bulk of them older Japanese suffering financial woes.

Comment by arizonadude
2006-03-10 14:24:17

That is a scary statistic.

Comment by Tom DC/VA
2006-03-10 14:52:58

It’s a very sad statistic. Good financial management is important and people who mismanage their money should feel some remorse, but money isn’t worth killing yourself over.

 
 
Comment by Housing Wizard
2006-03-10 16:42:04

Are you saying the condo flippers might jump from the tall condo buildings they bought like 1929?

 
Comment by dennis
2006-03-10 22:40:01

Good way to reduce flippers and clear the market!!!

 
 
Comment by need 2 leave ca
2006-03-10 14:09:55

Whoa, what a lot of floppers. Just what I want, a brand new home that has been cooking in 120F heat, with not a drop of water in sight. At least no living bugs, they will have all fried and died all over the yard. What a mess to clean. Never been to Phoenix (not counting a plane change at their airport), and now, not much desire to go to that heat (I mean hell)hole.

 
Comment by need 2 leave ca
2006-03-10 14:11:28

Wait what about the boomers. Oh yeah, most of them are FLAT BROKE. They can place the extra FEMA trailers in the forever expanding desert. Oh, didn’t someone say Phoenix ran out of land?

Comment by arizonadude
2006-03-10 14:19:56

Last I heard all those fema trailers are stuck in the mud over in Hope Arkansas. Your tax dollars at work ;) I hear there are a lot of scorpions down here but I’ve never seen one. The summers are toasty in phoenix but That is when you hit the pool. I don’t think it is that bad here myself. I think it could be a lot worse. Any rain over in abq?

 
 
Comment by cereal
2006-03-10 14:12:16

here’s a little reality bite i posted on another thread just this morning:

hedge - that’s a simple but great point that bears repeating.

$400,000 house on a one year flip.

closing costs to purchase: $8,000
debt service: $24,000
prop tax $ 5,000
insurance $ 1,000
closing sell $24,000
prepayment penalty $5,000

total cost of transaction for 1 year $67,000

sell that puppy for $500k ? you have stcg of $33,000 which will send about 10k to the fed and state tax boards

that’s about $23,000 after tax profit or a 5.75% return on initial purchase price. hold it for 2 years and you zero out exactly on a $500,000 sale.

(oops…. i overlooked hoa fees. maybe 2 - 3,000 a year more.)

now my friend, let’s pretend our flipper buddy sells at $375,000 after 12 months of ownership which is very realistic.

his transaction cost will be a few thou smaller on the closing commish than my $500k sale.

original price $400,000
1 yr transaction costs 60,000
total investment $460,000
revenue $375,000

12 month loss

a 360k sale throws this into 6 figures. hold it for an extra year and add $30,000 more damage.

i don’t think “fb” is a strong enough term.

Comment by cereal
2006-03-10 14:13:52

12 mo loss 85,000 (sorry)

 
 
Comment by jeffolie
2006-03-10 14:42:37

Centuries from now, There will be an archeological dig in Phoenix, and the researchers will come to the conclusion that the community collapsed because it was located in a desert. Then they’ll scratch their heads and say, “why would they have lived in a desert?”

Comment by Housing Wizard
2006-03-10 16:57:06

They will think that tall condos projects were battlegrounds for wars that were fought in the desert which resulted in the demise of the desert people after the babyboomer warriors invaded .They will find destroyed records that cursed flippers and wonder if the desert battles were between the flippers and the babyboomers or the flippers and the builders .

 
Comment by lmg
2006-03-10 20:11:26

With the Anasazi in the 4-corners region, the story goes that their demise was triggered by deforestation of the land.

Maybe in a future archeological dig, they’ll conclude that the Phoenix communities collapsed due to a scarcity of drywall.

Comment by Housing Wizard
2006-03-10 22:19:10

Thats the problem ……. to much drywall in Arizona right now , vacant drywall .

 
 
 
Comment by tj & the bear
2006-03-10 14:53:16

now my friend, let’s pretend our flipper buddy sells at $375,000 after 12 months of ownership which is very realistic.

Very realistic? Try very optimistic. The sheer numbers alone are enough to intimidate would-be buyers into waiting until they’re practically giving them away. Phoenix SFH’s for everyone!!!

 
Comment by Brad
2006-03-10 14:58:22

ziprealty for Phoenix area inventory today 37,680:

http://www.ziprealty.com/registration/register.jsp?cKey=0nmb9h4r&metro=phoenix

 
Comment by Mike
2006-03-10 15:01:18

2 year live in, 5 year ownership to get away with gains, I think a lot of people feel there is no gains if you live in the property for 2 years and sell, think again. Do u know anyone that bought in the last 3 years, leveraged or refinanced w/cash out to the balls on living and are selling now, look out for the IRS and be ready to take that shirt off

Comment by MovedToAugsta
2006-03-10 15:22:54

ah….Are you sure about that?

Brief bio. Canadian citizen. Bought in the Bay area around 2001. Realized this may be a once in alifetime opportunity to make a boatload of $$$, sold last October. Moved to GA, bought house with no mortgage, money left over blah, blah,blah…

My accountant (CPA) said I had no capital gains to pay. Wassup???

Comment by Mike
2006-03-10 16:40:25

U will see, read how gains works below

 
 
Comment by creamofthecrap
2006-03-10 15:49:56

Not true according to the IRS website. Ownership and use test are both 2 years, for the 5 years preceding the date of the sale… See http://www.irs.gov/faqs/faq10.html

“You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you must have:
* Owned the home for at least 2 years (the ownership test), and
* Lived in the home as your main home for at least 2 years (the use test).

Comment by MovedToAugsta
2006-03-10 15:54:40

I think you are mis-interpreting this.

It means within the last 5 years you need to have lived in your house for 5 years. It does NOT mean you have to own your house for 5 years.

Or maybe I was not understanding your original point….

Comment by MovedToAugsta
2006-03-10 15:55:56

I meant to say:

It means within the last 5 years you need to have lived in your house for 2 years. It does NOT mean you have to own your house for 5 years.

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Comment by auger-inn
2006-03-10 16:23:44

That is my understanding as well. You just have to have lived in it for 2 years out of the last 5. e.g. if you owned it for 3 but lived in it for 2 of those then you get the full exclusion. (if it was rented at any time and you took depreciation then there are other issues as well)

 
Comment by Mike
2006-03-10 16:52:31

If you owned it for 3 and lived in it for 2 years out of the 3 years, you will not be excluded. I’m not understanding about ownership or lease to own could be consider the same since its handle as a refinance loan and not a new purchase, but what I’m mean is for most of this boom 2003 and up, the ownership is less than 3 years for most and if you’ve refinanced for pulling cash and not placing it in another home, you will get cap gains taxed if i’m correct on it.

 
 
 
Comment by Mike
2006-03-10 16:58:26

I see that, but what is the 5 year period meaning? Why is it 5 years

Comment by ajh
2006-03-10 20:34:51

It sounds to me like a compromise that allows people to move away (for a new job?) from the family home and rent for a time, and then decide to make the move permanent and sell up without penalty.

If the period was too long the smart money could game it (more than they already do :)). Buy up a pile of properties during a bust, live in them for 2 years and 1 day each, then sell tax free during a boom.

Australia has a different compromise with the same intent.

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Comment by ca renter
2006-03-11 02:43:57

Mike,
From what I understand, the owner must have owned for 2 or more years. The owner must have lived in the home for at least 2 of the past 5 years. The 5 year limit means they could not get cap gains exclusion if they lived in it for 2 years, 8 years ago. It must be within the past five years that the prop was considered a primary residence for a minimum of 2 years. The years of primary residency do not have to be consecutive. That’s the reason for the “5 year” rule.

For example, you could live in the house for one year, rent it out for three years, move back in for one year and sell it with cap gains exclusion (you lived in it for 2 of the past 5 years — they do not have to be consecutive years…I guess that’s the point).

I hope that makes sense.

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Comment by chilidoggg
2006-03-11 05:11:21

the way i understand it, you can own the home 2 years, live in it those 2 years, and then exclude the gain. BUT, you cant exclude another gain for another 5 years.

 
 
 
 
 
Comment by Mike
2006-03-10 15:18:55

Wow!!As i was reading this bubblishes stuff, I just got new rates, if you are in an ARM, you better get out of it, they just went up

Comment by cereal
2006-03-10 16:23:44

the 30 year fixed suddenly bumped up. i noticed too.

Comment by lmg
2006-03-10 20:15:16

Maybe related to interest rates going up in Japan, and also possibly Europe.

 
 
 
Comment by Mike
2006-03-10 16:38:51

Tax Changes and Effects
The new capital gains law allows homeowners to avoid paying taxes on the first $500,000 of profit if they are married or on the first $250,000 if they are single.
“You must have lived in the home as your primary residence for two of the last five years!!!”.
You are allowed to use the provision as often as you like, as long as it fits in that
two year period. Any gains above the limit will be taxed at the new 20% capital gains rate - down from the current 28 %.
The old law provided a $125,000 “one time” tax free exclusion on profits for home sellers
55 or older. This no longer is used, but those who have used it will be allowed to use the new provisions without penalty.
Under the old law you could roll over gains if you bought a more expensive house.
If you sold a more expensive one and purchased a less expensive one you were liable
for gains tax. Under the new law this provision is no longer in effect.

NOW WHAT!!! I dont think a lot of us understand how the capital gains works

Comment by auger-inn
2006-03-10 17:09:51

Mike, You are wrong. The purpose of the wording is to exclude long term rental properties from becoming qualified for an exclusion in a sale. A person does not have to live in the house for 5 years or own the house for 5 years. I just went through this last year. My turbotax also confirms my contention that to become eligible for the full exclusion you only have to live in and own the house for 2 years. Partial exclusions are allowed for less than two year periods (I’ve done this one as well). Go back and read your post again. You have to live in the house for two out of the last five. Not own the house for 5 years. If you owned and lived in a house for the last two years you would comply with that statement.

Comment by Mike
2006-03-10 17:12:38

Your right, we are trying to figure it out here, how confusing, i think its ownership/live in for 2 years, but after 5 years, this rule will no longer apply and you will have to live in it for another 2 years if this is correct

Comment by auger-inn
2006-03-10 17:26:06

They actually go by the month and they do NOT have to be contiguous. In other words you don’t have to live in it 2 years straight but you can only go back 5 years to come up with the 24 months. I mentioned before that it is not an “all or nothing” proposition. You will get partial exclusion for less than the 24months. It also gets into whether you are married and BOTH occupying for the 24 months, so on and so forth. It is a bit complicated if you are doing this long hand. Turbotax handles this very well with simple questions and only takes about 5 minutes to come up with your exclusion. hope this helps

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Comment by moqui
2006-03-10 17:41:39

live in in for two years and get your max gain exclusion. live in it less than two years, move because of health or job transfer and still get a prorated exclusion. (reduced capital gain exclusion)

moved out 5 years ago but still own it. no exclusion

Comment by chilidoggg
2006-03-11 05:17:11

moved out 4 years ago and still own it, no exclusion.

moved out 37 months ago and still own it, no exclusion.

 
 
 
Comment by Mike
Comment by Housing Wizard
2006-03-10 17:10:45

In addition flipper/investors that sell/close before owning the property for over one year must pay short term capital gains instead of long term capital gains . Maybe this is why the floppers are holding the properties this long vacant in Arizona ?

 
Comment by auger-inn
2006-03-10 17:21:41

Also, refinancing has nothing to do with this law nor do helocs or taking out 2nd mortgages since ownership does not change. No taxes are paid on funds taken out in the form of 2nd mortgages or HELOCs until a sale takes place and ownership passes. If these speculators have owned AND OCCUPIED the house for two years then they are qualified to take the exclusion and will owe no cap gains in accordance with the law that you referenced above. And, they can do this every two years. I know builders that have done this with their personal residences for years. That is how I have operated with my sales and this is confirmed with other sources.

Comment by Mike
2006-03-10 17:29:58

I’ve done refinances and I know of others who own homes and done loans as owner occupied on several properties because of the rate differing on owner/investment/nonowner. So if they own 3 properties and did the loan as owner occupied and sold both properties in less than 3 years, you only get to exclude one, right? or is it your choice of which one to exclude on capital gains and how do they verify if you’ve lived in it for 2 years? In other words, if you did the loan as owner occ. on both properties and owned both for more than 2 years, you cant live in both

Comment by auger-inn
2006-03-10 17:42:37

I’ve actually done this but it gets complicated. I’ll give it a shot. First, there is no proof required unless you get audited. Then the burden will be on the filer to prove where he lived.
If he took out two or three loans on 3 different properties at the same time and all of them as an owner/occupier then I would assume he has trouble should the IRS raise the bullshit flag.
If you have multiple properties that you are selling and two of them were lived in for 24 months out of the last 60 then it goes something like this.
The first property you claim is the first one to close. The lookback is 24 months. Basically have you sold a primary residence in the last 24 months (no is the answer for the first one). You get the full exclusion for that one. The next house sale that qualifies will also have a 24 month lookback. If you sold this house only 6 months after the first one closed then a calculation will have to occur as you will not get a full exclusion for this house. It sounds unfair to me but that is what in fact occured to me. I owned and sold two homes, both had full 24 month occupancy/ownership. I got only a partial exclusion based on the time between the first sale and second sale. Turbotax is the way to go with this calculation as well.
In addition, remember that you have to calculate a “basis” for the homes when you are trying to figure the cap gains. turbotax steps you through this process but you have to research what expenses adjust your basis. If these were rented at all then you have recapture taxes, etc. It gets to be a real mess.

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Comment by Mike
2006-03-10 17:34:07

Yeah, but a refinance loan and pulling cash, not HELOCs, can make your property tax go up, right?

Comment by auger-inn
2006-03-10 17:48:17

The only thing that I’m aware of that raises property taxes is your assessment. When you refinance it does record to the higher appraised value but ultimately it is the county assessor that determines assessed value. I’m not totally clear on this one but that is my understanding. HELOC’s are irrelevant to property taxes as far as I know.

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Comment by auger-inn
2006-03-10 17:52:26

With regard to the first question you posed (that I reread). If both properties were sold in the first 3 years of ownership then I would only claim the one with the highest cap gain. The point I am struggling to remember is whether you needed the full 24 months in the 2nd sale to get some sort of exclusion. In my case I had the full 24 months in both properties but the sale was only 5 months apart. My question to myself was whether I needed to meet the 24 month threshold for the second primary or not since I only got a partial exclusion. You know my answer-go to turbotax and play with your entrys

 
 
 
 
 
Comment by Housing Wizard
2006-03-10 18:28:45

There is a two year owner-occupied requirement for the exclusion.You cant take it on two properties it has to be on the primary . You could of moved into the second property after you sold the first property , stayed there for two years , and again taken the exclusion . Someone correct me if Im wrong on my take on the tax code .

Comment by Carlsbad Jim
2006-03-10 20:00:52

You are right, you can occupy for two years, sell, and do it again and be able to sell two properties you’ve owner-occupied in a four-year time frame and comply with the capital gains exclusion both times.

However, in 2004 the Congress changed the rule for 1031 acquisitions. If you bought the property through a 1031 exchange, you have to own it for five years before you can sell it and qualify for the capital-gains exclusion. They weren’t clear on when the two-year occupancy figures in - is it part of the five years, or is it five plus two? I haven’t heard the outcome from the IRS on that.

see article on my website click here

 
Comment by auger-inn
2006-03-11 10:10:39

I think you are incorrect Jim, I lived in my home as a primary for over two years. I used it as a second home/rental for 3 years. I sold it and took full exclusion on it (although I had recapture taxes on the depreciation taken while rented). I also sold another home that I lived in for two years. I sold this one 5 months AFTER the 1st property above. I got another exclusion on this one that was reduced because of the time between sales. The point to remember is that you have to have lived in it for a total of 24 months out of the 60 months prior to sale for the full exclusion. You don’t have to be living in it at the time of sale.

 
 
Comment by rms
2006-03-10 19:16:23

Enough bold already!

 
Comment by Housing Wizard
2006-03-10 22:36:23

I checked Realtor.com on the area I moved from in LA in mid 2005 and the same listings have been sitting there for 4 months . This was a highly desired area in LA. county . The realtors are saying everything is great . I dont get it .

 
Comment by Housing Wizard
2006-03-10 22:58:57

Now that I think about it , I did have a property once in Arizona ,(a place called Prescott Arizona ).It was a really nice place , alot of national forest in the high high desert . So Arizona isnt all desert .That was a second home at the time ,( I wasn’t a flipper). I just didnt have time enough to go to it , and I found out my neighbors were breaking into it , running up my electrical bills etc.I finally sold it and told myself ” one day you can go back and retire there because the prices wont go up that much . They went up 300 % in the last three years I think . So I guess everybody has a Arizona story .

 
Comment by chilidoggg
2006-03-11 05:20:49

i thought someone posted a couple of weeks ago that as bad as PHX inventory looks, in terms of months inventory Central Cal is far worse?

 
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