‘Market Slowing More Than Builders Expected’ In Arizona
The Arizona Republic has these updates on the states’ housing bubble. “Skeptics might question the depth of the Valley’s luxury condominium market but developers in downtown Scottsdale remain confident their projects will succeed. Townhouses, lofts and condos are stacking up on the downtown skyline like chips in a no-limit poker game.”
“The first 300 of about 1,500 downtown condos under construction will open as early as next month, and at least 500 more are planned in downtown Scottsdale. About 8,000 condos and lofts are planned or under construction Valley-wide. Housing analyst RL Brown has predicted that only about 20 percent of those units will be built.”
“Scottsdale’s condos are ’selling reasonably well, but not as quickly as promoters would have you believe,’ he said. ‘We’re getting about one sale per week,’ said Bob Flaherty, a vice president of luxury homebuilder Toll Brothers.”
“Thousands of people used the non-traditional mortgages last year to afford a house in the Valley, where home prices increased nearly 50 percent from 2004. They’re paying for that decision today.”
“Economists say nearly 40 percent of all home loans in metropolitan Phoenix are adjustable. Making the situation potentially worse for Arizona’s housing market, the number of subprime ARMs jumped by 50 percent in the state last year, the Mortgage Bankers Association of Arizona reports.”
“The number of people making late payments on ARMs in Arizona climbed during the second half of 2005. At the end of the year, almost 10,000 homeowners across the state were behind on their payments for adjustable mortgages. That is almost double the rate from last summer.”
“Making matters worse for those homeowners who can’t make higher ARM payments or refinance fast enough is a slowing real estate market. Now, it’s more difficult to sell a home quickly or make enough off a sale to pay off a home than it was during last year’s housing-appreciation frenzy.”
“Foreclosures in metropolitan Phoenix are already beginning to climb. ‘If interest rates continue to go up and housing prices don’t, more people will be squeezed,’ said Elliott Pollack, an Arizona economist and real estate investor. ‘When the next recession rolls around, many people are going to be set up for a very bad situation.’”
“Home builders are still dangling the incentives to attract buyers. Tne Valley builder is offering as much as $75,000 off its spec homes. DR Horton is offering free weekly maid service for a year. Free swimming pools are pretty standard these days.”
“All are signs the housing market is slowing more than builders expected. But home builders still aren’t hurting. Most can offer the deals and still make money because they jacked up prices so much last year.”
OT: I just sent an email (from his website, I don’t have some personal relationship) to Michael Moore suggesting the housing bubble–and asset bubbles in general–as a topic for a future documentary. I doubt he’ll even get back to me…but truly it would be hilarious to see Moore running around asking real estate agents about how housing never goes down; following “investors” as they realise that they are the “greatest fool”; and painting a picture of the financial and emotional devastation engendered by such socially-destructive economic behavior.
Michael Moore would be more interested in the fact that the bubble never really benefitted those at the lower end of the economic scale while it made people like Robert Toll rich beyond belief. If you read his last book (I think) he had a spot-on chapter titled, “Horatio Alger Must Die.” I have to say I agreed with it.
Phoenix inventory continues to skyrocket. Now at 45,000 and climbing average of about 2% per week. Should hit 50,000 sometime in August IMO.
burn baby burn
You know, there is probably no market I would cheer down more than Phoenix. It is THE crappiest spawlville in the US outside of Dallas, and you know what, I count LA. Talk about a city built with NO regard to efficient use of space, water, resources, etc. The KING of “Planned Development” 25 miles from nowhere that residents then expect the city to somehow connect to a four lane road system. Also, from my experience the most smug buyers-I have a cousin down there who has no fewer than THREE interest only loans in on full houses, they brag to my family that they have already “made” half million on it. The attitude of people there seems to be a distillation of everything you might hate about an LA stereotype, except that in LA at least you actually are living in one of the world’s major cities for culture (not the best but undoubtedly one of the most influential) food, banking and finance, tech etc. Phoenix is the most overbuilt mass suburb in the US. There is simply not enough industry in phoenix to support any of this-it really seems to be based cheaply on golf, tourism (ehh) and retirees rolling here with a bankwad.
tbone; you are 1,000 percent right! I was born here…YUCK!…and this “city” has ALWAYS been a one horse town. There is, and never has been, a solid based, diverse economic infrastructure to support the building of these tar paper “homes”. I am content to rent for a long time, and watch Phoenix’s bubble burst…to all the flippers out there, ever consider oil leases? stock market?….You know, investment returns ALWAYS appreciate!!
I lived in Scottsdale 5 years ago. The downtown there, while pleasant enough, is much like a small town center. It’s not friggin Soho. So who in the hell is going to spend upwards of mil on a penthouse next to the mall?
If I have that kind of wealth, wouldn’t I rather just buy a real nice custom home, maybe on a golf course with a sweet mountain view, and my OWN pool and drive to Scottsdale for all the supposed “downtown” amenities. Wtf are these people smoking out there and give me some.
You are so right. For a cool mil, there are so many wonderful places to live. Those people are friggin NUTS.
These folks are nuts w/o the weed.
Right on pman!
Plus nobody walks more than a block or so in Scottsdale anyway.
Walking is for poor folk and a few dog owners with their plastic bags..
I agree, I live here. Phoenix lacks major elements in sustaining a ‘wanna be’ economy of LA or Chicago.
Investors, builders, and sellers–lets finally be honest about Phoenix’s construction based economy, and that the party is over. It will not do anyone good trying to scratch & claw to hold on to 100% of nothing. The lack of coverage in the media here in Phoenix regarding declining construction/finance industry compared to other major bubble cities, finally spills out. It is like that crazy drunk uncle that no one wants to admit having. In the coming months, as foreclosures rise and the slew of builders become panic & desparate, resale sellers will watch their severley inflated paper profits swirl down the toilet instead of the load in their pants. People with increasing ARM’s and the new shock of doubled property taxes will be in for a rude awakening only when the trustee has contacted them. Keep up the denial Phoenix!
This keeps getting better by the day.
P.S…Who put the terd in the punchbowl?
Phoenix
this says it all
Wow. Try this exercise:
Look at the increase in # of homes on the market for Denver (by clicking on above link
and substituting Denver for Phoenix in the browser-it is up by 10.8% over 6 months.
Now look at Phoenix-it is up 85.0%. So, if 10 percent gets a front page writeup as
a “LogJam” in other thread, what in the world do you call Phoenix?
OT Did anyone notice the HB stocks today? My watchlist of 14 builders is up more than 4.5% and still appears to be rising! What is going on and who are the idiots that are buying?
The slow job growth report points toward the Fed possibly pausing their rate rises. That is perceived as good for homebuilders. Remember, stock investors only look at the housing market in very broad strokes (not as carefully as anyone reading Ben’s blog).
Short squeeze.
… and wishful thinking about interest rates. I think the FED is stuck raising rates until commodities — oil in particular — come back closer to earth.
short the rally of the homebuilders.
I would not recomend that.
Neither would I. When 3/4ths of the stock is held by institutions the opportunity to manipulate is too great. Shorting involves two bets; direction AND timing. It is the timing that can kill you as the 15% of the float outstanding found out today. Really bad news in a generally down trend and no one seeing a fundamental shift for years. What happens? Up. Shorts are screwed, short coverage drives prices further up, institutionals sell at a profit. Suckers market.
Oil will break the fed, before the fed breaks the price of oil. You will never see oil under $60 again.
Those stocks have been beaten down..You have to look at their P.E. Ratios…It’s not like these companies are not going to make money.J ust not nearly as much in the past.
Good point, Cal. Nice to see someone speaking to the low valuations on these names.
I’m no housing bull, but at these levels (~6.5x earnings) the HBs can only go so much lower.
They bought alot of land at the peak. When they put houses on those and sell them at future prices 30-40% lower than here…they’ll lose alot of money.
They may be viable going forward, but some may go bankrupt. If the only asset you have (land) goes down 50-75% in value, what does that do to your viabilitiy as a company? Those companies have alot of debt too.
They don’t have to develop the land if it is clear that they will sell homes at a loss. Plus, they control a lot of land through options, limiting their downside if the market slows.
The doomsday scenario you lay out (land down 50-75%) has a better than 0% chance of occurring, but it’s a very low probability.
As much as the housing bubble is real and palpable; the stock market has over reacted to this. The homebuilders are dirt cheap right now, and so are many mortgage REITS. Mortgage reits without any exposure to the Residential market are getting trashed as badly as those that do. Lots of good buying opertunities.
It’s called, “buy the news” (i.e., cover shorts on the bond rally/econ numbers) Someone asked me this a.m. if they could still short TOL, I said no, buy it for a trade. That worked.
As I mentioned previously on this blog, the long term downtrend line from the 1980-81 top to the present in the 10 year US Bond is in the 5.0-5.20% area. Market vane shows extremely high pessimism regarding the direction of interest rates (the crowd thinks higher). Too many bears and the resistance line should cause prices too rise and rates too decline perhaps for a month or two. Expect a renewal of the uptrend later this summer after a break of the resistance line. A break of the line should result in the 10 Year US Bond interest rate going to 6.8 to 7.% Realestate stocks should correlate with the direction of interest rates for a while.
volume on the naz is very light
my guess is that it’s retail investors and not the pro’s
Good theory except that none of the major homebuilders trade on the Nasdaq….volumes on TOL and KBH were average.
We just got done with the Toll earnings call- and had to do a post on what they said:
BubbleTrack.blogspot.com
OT, from the NYT’s real estate blog:
Armed and Ready to Blow
“The prospect of adjustable rate mortgages, or ARMs, resetting at much higher rates is real. The fear that homeowners might not be able to make the higher payments may be a bit exaggerated.
“At the very least, says a report by Christopher Cagan, director for research and analytics at First American Real Estate Solutions, it probably won’t have much impact on the economy. Titled ‘Mortgage Payment Reset: The Rumor and the Reality,’ the report concludes:
‘Our nation is a $10 trillion-per-year economy currently possessing $19 trillion in household asset value and $11 trillion in homeowner’s equity. Losses of $110 billion – spread over several years – would come to only about one percent of the
total national homeowners’ equity. Currently the economy is growing at about 3 percent per year, adding about $300 billion per year to our national income. Losses of $30 billion in a year would consume only one-tenth of this increase, the equivalent of slowing the growth rate from 3% to 2.7%. According to the Mortgage Bankers Association of America, mortgage lending totals from $2 trillion to $3 trillion per year. The yearly reset losses anticipated by this paper would constitute only about one percent of the total annual lending amount.’
“Mr. Cagan writes that he can’t rule out the risk, but it certainly won’t be a catastrophe. It won’t start happening in any major way until 2007 and 2008, he says. The people most affected will be those who bought teaser-rate mortgages, with intitial rates below 3 percent.”
the reports i read show around $3 TRILLION in ARM loans reseting over the next few years. Big danger is jokers in NYC and other non-bubble areas where there was little investor interest investing in Miami and other bubble areas. They foreclose and have to sell their primary home to pay off the loses which raises inventory everywhere.
MEGO numbers;…As in “My eyes glaze over”…..
If you have the chance to read this article, it is a classic WMD piece. Let’s shape the “facts” to support our already decided upon conclusion.
Boy, this country has its share of MO-RONS.
What a crock! The “report” completely hinges on the presumption that the percentage of borrowing against equity has stayed at about 57% over the last five years — a ridiculous or just plain stupid assumption — 57% of what? Homes overvalued by 20-50%? As the ARMs reset and rates rise, values/prices must come down (as they already are), and that 57% will turn into 100+% of equity turned into pure debt! If anything, using his own numbers, his report proves the opposite of what he asserts.
http://www.armls.com/pdfs/SoldStatsMarch06.pdf
I’m just waiting for April & May numbers; they’ll say it all.
“‘We’re getting about one sale per week,’ said Bob Flaherty, a vice president of luxury homebuilder Toll Brothers.”
Looks like they’re about to have a 3000 week supply of those babies.
ASU is expecting growth at its downtown polytechnic campus and is pushing more students and programs there. Any thoughts about how that will affect condo development? Right now there is not much quality of life offered downtown imo.
“ASU is expecting growth at its downtown polytechnic campus”
ASU’s downtown campus is in downtown Phoenix. ASU’s Polytechnic Campus is at the former Williams AFB, way out east.
Interested in your comments. How in the world will David Lereah spin all this latest news.
The answer, you can not polish a horse turd.
Another thing about Phoenix-in most cities this is the time when a lot of properties come on line, and it continues through summer bcuz that is when people want to walk around and look at houses, etc. In Phoenix it is the summer you want to avoid-no one wants to walk around in 110 weather. If you haven’t sold it by June, good luck getting anyone to look until October-so if you see houses continue to go on the market, it may get spun by realtwhores as, like in any city, natural because this is when people want to move. NO ONE wants to move in px in summer.
Or drive around at $3.00/gallon.
How many pigs with lipstick are strolling around in that arrid, god-forsaken heat at this time? What color of lipstick are they wearing? What type of wings do they have? Any jack-asses also in the streets? Or they didn’t survive the heat and lack of water?