Phoenix New Home Sales ‘Obviously A Disappointment’
A pair of reports provide an update on the Arizona housing bubble. “National new-home sales took their worst drop in nearly a decade in February, and early indications are that it also wasn’t a good month for builders in metropolitan Phoenix. February numbers for metro Phoenix’s new-home market will be out early next week and are expected to show a similar, or greater, decline.”
“‘Looking at the preliminary numbers, obviously February was a disappointment compared to last year and year-to-date,’ said Valley housing analyst RL Brown.”
“Builders now are requesting fewer building permits because they are trying to clear inventories of speculative, or ’spec,’ homes on which buyers didn’t close, Brown said. Some buyers waited too long to list their existing homes, thinking those properties would sell quickly, as they did in last year’s selling frenzy. The deadline to close on the new home passed, and the builder took it back.”
“Brown said the resale market also is being pressured by investors unloading their houses. With more spec homes available on the new-home side and a growing inventory of existing homes for sale, consumers have more options and can be more picky in finding and buying homes. ‘The bottom line is it is a market in transition now,’ Brown said.”
And in the northern part of the state. “Theme park speculation seems to be the reason so many new real estate offices have appeared in Williams in recent months, though the fate of the theme park itself remains to be seen.”
“Three real estate offices opened in January alone. According to John Rushton of Bankers Real Estate, this brings the total number of agencies in Williams to 13. Rushton said there were only three or four real estate offices in Williams three years ago.”
“Debbie Campbell said the theme park has contributed much to land speculation in the Williams area as well. ‘Just because it’s gotten so high up there (in Flagstaff), I think,’ said (realtor) Debbie Campbell. She said a lot of buyers are also looking to relocate to cooler climates. ‘Our second-home market is booming really,’ said Zecchin. ‘It seems like most of our buyers are from Phoenix, Lake Havasu, and California of course.’”
The rumor is that the new home sales in Phoenix are off close to 30%, but I can’t confirm that right now. As for second homes in Williams, they must be kidding. It is ‘cooler’ there, but why on earth would anyone from California spend their spare weekends in Williams! These are speculators, pure and simple.
These are the cousins of the idiots who are buying houses in Frisco, McKinney, Keller and (still laughing about this one - Texoma) and trying to rent them out for $1600+ per month. They’d be a lot richer if they’d just bottle the good liquor they are obviously consuming when making their financial decisions
I dont know if any one remembers the last down RE market around 1990. I was living on the east coast then but I remember reading that things were so bad in Phoenix that alot of people were upside down and were walking away from thier homes.
Also, does any body think this could become like another S&L type bust. If so and banks get hurt badly it will be a lot more difficult to get a mortgage which will only exacerbate the situation even more.
There were entire neighborhoods in N. Texas that were ghost towns. Richardson, Plano, parts of Ft. Worth, the mid-Cities . . . entirely abandoned. You still can’t make money in those areas, almost 20 years later, not that the new age speculators aren’t trying . .
Several times in the early 1990s, I was tempted to try to buy something but the mortgage process was so unbelieveably intrusive (and I am a mega-private person about finances, etc.) that I could bring myself to go through the process. We didn’t want to spend all cash on the place because we wanted to be in the stock market. So, 13 years later, we’re still renting.
My bank breaks out a medical device known as “the probe”
whenever I ask them for a loan. That is why I keep my money there. The loosey goosey lenders will get killed in a down market. Reaping what they sow one default at a time.
Worse than the S&L bust, IMO, and possibly much worse. The bubble of the late 80s didn’t have anything like the “risk layering” that this one does (with I/O, neg-am, 100%+ LTV, no-documentation, and much more subprime lending). This bubble is also more widespread, affecting the majority of the U.S. On top of that, artificially inflated RE “values” have spawned an unprecedented level of home equity extraction. In the late 80’s, the bubble was brought down by the economy; this time, the economy will be brought down by the bubble.
The S&L problem was the enourmous cleanup from tax payers that had to bail out the depositors. It was billions of dollars. This time, there is no bailout required (home prices aren’t guaranteed). BUT, I could still imagine tax relief for homeowners from “concerned” congressmen. This will probably take the misguided form of relief for ALL mortgage owners, regardless of whether they have negative equity or not. It will be yet another massive transfer from renters to current houseowners. Disgusting. I can’t wait.
We are just about to cross 40,000 MLS listings according to ziprealty.com for metro Phoenix area. (39,788 as of this afternoon).
Before this bubble, what was considered to be the “historically” normal average for MLS in Phoenix?
About 21,000 listings
When the bubble was in full swing it would hover around 9,000
The inventory in Phoenix is going up on average 2.5% PER WEEK!!!! How do you spell bubble? P H O E N I X!!!!
Can someone explain to me the “theme park ” idea . What kind of a theme park and why would this attrack buyers to move there ?
I dont know what average is, but 1.5-2 years ago the RE bulls were crowing about how low inventory was and they said equilibrium was 6 months worth(it must be way over that now). How are they justifying the high prices now being that it is over equilibrium in alot of places. Shouldn’t that mean a reduction in prices? well? I CAN”T HEAR YOU!!
Some buyers waited too long to list their existing homes, thinking those properties would sell quickly, as they did in last year’s selling frenzy. The deadline to close on the new home passed, and the builder took it back
This one has got to take the spin-of-the-week award. So the picture we have here is that the poor buyer lost out when the builder “took it back” (did the builder also send the buyer a note saying Too bad, Chump!)
The reality is that the builder didn’t take it back, he got stuck with it. Sure, he probably got to keep the $5000 deposit, but he’ll wind up paying interest on an unsold property for the next 4-6 months at least and he’ll probably wind up selling it for tens of thousands of dollars less.
Read about Real Estate Cycles.
Interesting.
“The historical evidence is consistent with the theory that speculative booms in real-estate prices and construction act as an impetus for the downturn itself.”
With this bubble, I think that will definitely be the case. IMHO.
Read about U.S. market expected to rebound
.
“David Lereah, of the realtors’ group, offered a more measured forecast than a few other economists who have suggested the recent housing slump is a precursor to a housing price drop-off. Among them is Yale University economics professor Robert Shiller, who has warned sharp prices increases in recent years created the same kind of investment bubble that led to the stock market’s three-year meltdown a few years ago.”
Read about New home sales slumping.
“The rapidly decelerating housing market is causing concern on Wall Street and at the Federal Reserve. A collapse in the market is one of the biggest risks facing the U.S. economy because it would drag down consumer spending that has been closely linked to climbing house prices and kill thousands of high-paid jobs in the real estate industry.
“Bubbles burst, they really do,” said Joel Naroff of Naroff Economic Advisers. “The Federal Reserve has to be concerned that just may happen, which could make them more cautious going forward.”
The Fed is scheduled to meet on Tuesday to decide on raising interest rates once again. While most Fed-watchers say another rate increase is in store next week, the faltering housing market may influence the Fed to consider pausing later this spring.”
Given that the Fed meets every 6 weeks to set their Funds Rate, ‘later this spring’ has to mean the May meeting. By then they will have the March home sales numbers, but unless these are appalling I can’t see them not raising to 5%. Too much potential impact on the $US exchange rate.
Read about Robert Shiller, the Prophet of House Prices.
“If a prophet is only as good as his last prophecy, then you’d be wise to listen to Robert Shiller. On “Nightline,” Shiller offered his considerable analysis of the current real estate market … and he doesn’t bring good news”
Melody -
thanks for the quotes and links. Good stuff!
Don’t think ARM resets have a lot to do with homes going on the market in Phoenix? Check out this little informal observation.
A Toll Brothers neighborhoods of McMansions that I jog thru almost daily was built out over a 3 years period starting on the west and progressing to the east. On the west side of the subdivision there are now 18 for sale signs… on the east side there are 4.
3 of the homes for sale on the east side have never been occupied so they are obvious flips. Of the 18 for sale on the west side, 5 have never been occupied so they are obvious flips.
Thus, after we remove the obvious flips from the supply, we have 13 times the supply of McMansions for sale on the west side of the development versus the east side.
A statistical anamoly? Perhaps. But once you think about it you can probably deduce what’s going on. The older loans on the west side are resetting and the McMansion owners can’t afford them so they got to sell.
Great observation!
Also, as is the case in a McMansion development here in Northern VA, only the homeowners who purchased 2-3 years ago can afford to sell at 2006 prices. There are 4 houses for sale in this NV development between 589 and 725K, and they are all the older section. In the last section, those folks would all have paid 650K or more for the same houses that were purchased in the 400Ks in 2003. I noticed the 725K was listed first, then a 639, then a 599, then a 589 . . .
Wouldn’t it be interesting to interview one of the owners of one of these “flips” and get their “story”?
The Phoenix flippers, if we heard their story, woulld be spinning some kind of sob story, while trying to at least break even from some greater fool. It would be nice to see a documented loss. But they probably wouldn’t. At least, I wouldn’t.
Who is thinking there is going to be a theme park in Williams? Who would go to it? Not that many people. Dry and desolate (I have driven through 8 times in the last 4 months. Often, cold and windy. Only a truly greater fool from CA would go there for the weekend.
The flipper would tell you a tale of woe, and try to break even on the McMansion. If not, they wouldn’t say.
Williams amusement park? WHY would anyone want to build a park in a windy, cold (or hot), dry, desolate place like that. Why would anyone expect to flip there? Who’s going to buy the McMansion? The burger flippers at McDs?
Spin?
Listings provide clue to leveling of market
http://www.azcentral.com/arizonarepublic/business/articles/0326catherine0326.html
For the above article - were the ‘white collar criminals’ previous builders, mortgage broker, realtors, and flippers who got caught? Oh, no - let’s build this backlog so we can top 100,000 properties for sale. It would be a record.
One of the girls I play golf with is buying a Toll Brothers Condo. She was braging that speculators can not buy from Toll Brothers because they can not sell with in 18 of the purchase or they have to sell back to Toll Brothers for a set price. May be the 18 months is now up on some of these McMansions?
Just drover around Chandler/Scottsdale area and I have NEVER seen this many ‘for sale’ and ‘open house’ signs in at least 8 years.