‘Normalization May Resemble Headlong Plummet To Some’
A pair of reports on the Arizona housing bubble. “According to East Mesa real-estate agents E.T. and Lauri Saffon, Mesa is a hot housing market compared to the rest of the country. ‘Homes are selling for just below asking price,’ Mrs. Saffon said. ‘The days of higher list price offers are gone. Homes are priced at market value.’”
“However, in the May 5 article, Fortune magazine disagrees, calling the Phoenix/Mesa market one of the country’s worst real-estate ‘dead zones.’ Citing average home prices, the magazine said Mesa is overpriced.”
“‘Sellers are trying to maintain pricing from last summer when inventory was one-eighth of what it is now,’ Mrs. Saffon said. ‘Last year approximately 5,000 homes were on the market and now we have approximately 40,000. Since there is an over-supply of homes versus buyers, the demand has fallen as have prices.’”
“‘Now is a great time to buy. Inventory is up and options are available,’ said Russell Paperman, Mesa real-estate agent. ‘Buyers can get a deal now. Now is also a great time to purchase new construction. The builders are now offering fantastic incentives.’”
“Contrary to the surface appearance of its most recent sales figures, the Chandler resale home market is not, repeat, not, in the midst of a headlong plummet.”
“‘The market is simply normalizing,’ said Jay Butler, of the Arizona State University. Mr. Butler uses that same verb to describe the resale market across metropolitan Phoenix, which ‘normalized’ from 7,264 sales in March 2006, and from 8,735 sales in April 2005, to 5,980 sales in April 2006.”
“‘This was the weakest April since 2000,’ Mr. Butler said. ‘But we’re just following a very typical pattern. The activity in April represents a lull from the end of the holidays and preparation for the stronger summer months ahead.’”
“Mr. Butler’s observations are identical to those of at least two Chandler real estate professionals, down to slight variations of the word ‘normalizing.’ ‘People are still buying homes, man,’ said (mortgage broker) Desmond Cooley in Chandler. ‘There are tons of people buying homes.’”
“‘It’s just that we are back to a normal market, back to where we were about three years ago. This is just the same fallout that every major, West Coast city has gone through over the last 10 years. They get that huge spike, then they get that little lull, then they come back strong,’ Cooley said.”
“The primary reason the resale market’s ‘normalization’ may resemble a plummet to some, Mr. Butler said, is that ‘Everybody assumes last year was a good year, and it really wasn’t. In a sense, it was like we were running a high fever, and now we’re just returning to a more normal temperature for your body. That’s really the key thing.’”
“That, however, is not a promise the Valley’s real estate temperature will not drop to even lower levels. ‘The market may go down a bit further, because these things don’t just adjust on a dime,’ Mr. Butler said. Also headed south, at least in some areas of the Valley, are median home prices. ‘Not significantly over a year ago, but they are showing a downward trend,’ Mr. Butler said.”
“For Chandler residents with ‘For Sale’ signs gathering cobwebs in front of their homes, Mr. Butler said, the message of the Valley’s declining sales is simple: Do not panic.”
“Again, Mr. Cooley agrees. ‘I’ll tell you something,’ he said. ‘We have a huge growth in South Chandler, there are so many new businesses coming to the area construction can’t keep up with them. I’m going to buy as much real estate as I can get my hands on right now.’”
All this bubble hysteria is starting to remnd me of the Y2K crisis. Remembe that one? We all talked about it for years, like it was the end of the world or something. And then.. nothing happened. It sure was fun for a while, though. Do you think maybe… nothing will happen again?
I hate to admit it, but I’m beginning to think so…
Be patient. A major shift in supply and demand always adjusts prices eventually. We can expect MUCH lower prices in Phoenix.
THIS IS JUST LIKE NASDAQ… i remember every one buying that little pullback from 5000 to 4500 or 4000…. next they were saying to buy at 3000, just a pullback son…no need to worry…. next they were being told to load up at 2000 b/c the market will bounce from here, and finally people were selling and hitting and bids down at 1200-1400 on the Nasdaq… Trust me… this realty market will be the same. Stay the phuck out of it until atleast late 2007.
i take that 2007 back… maybe 2009… maybe never. rates are going higher b/c inflation is out of control… the econ stats are rigged.. and 10% of mexico’s population is squatting in the USA… prognosis for the stars and stripes is metasticizing cancer.
I agree with you. It is unravelling faster and harder than any RE market since the 30’s
faster and harder? certainly NOT if you look at prices.
my country had a -40% plunge in the average homeprice within 1.5 years (around 1980); I guess there are plenty more examples. This doesn’t even look like it from a distance.
OUCH! So what happened with all the people underwater on their notes? BK, bailout, or buried in the house?
I was just starting my studies at that time so don’t know any details. There certainly were no bailouts so I think people who were seriously underwater went bankrupt (not good at all then) or got a very unpleasant 10-20 year repayment plan from the bank.
But the numbers were relatively low. In this crash, the bottom simply fell out of the market, as they say. Buyers suddenly disappeared, and there is still no good, single explanation for it. As long as you were not leveraged (most people were not, some speculators were grilled of course) and didn’t need to move / sell, there was no problem.
On the other side, people who had cash to buy got unbelievable bargains; one of my older friends purchased a new luxury home at more than 50% discount. Buyers had to wait more than 10 years before the homes started to appreciate though; with rates at 8-10% that made the deal a bit less attractive. In hindsight it would have been better to buy 10 years after the crash …
The bubble popped last summer/fall. Real estate bursts differently than stocks. Stocks are liquid, which is why their crash is so spectacular. Real estate is illiquid. A real estate bubble bursts when sales dry up and inventory skyrockets. Prices don’t necessarily drop right away, there is a 6-12 month lag. Look for more pronounced price drops in many markets across the country in 2007. The most overheated/speculative markets will get hit the hardest (FL, Las Vegas, Phoenix, about any condo market). The illiquidity of real estate will drag this out for years, but somwhere in the future we will revert back to the mean and prices will coincide with fundamentals.
Here in West Palm Beach it is getting ugly. Inventory is sky high and sales are slow. I think we have about a 17 month supply and more spec condos on the way based off April data and the West Coast of FL is worse off than us. Our median price is 6.75% off the peak of last Novemeber and we should see a YOY decline in July with possible double didgit YOY declines this fall. I persoanlly know people who have sold properties that were 13% below the peak comp. Prices are falling here and faster than I expected. Hurricane season starts on June 1. Wish the sellers luck, they’ll need it.
A 17 month supply. You should email Mr. Cooley and let him know…he may want to get his hands on some of that…”man”!
Once the double digit declines occur and hit the media, other markets will begin to panic. It feeds on itself on the way up AND on the way down.
yes please
hopefully lots of media attention in Europe too; I’m ready for it, our (NL) trendline in home prices is about 85% down from the current level so it must be quite a sight.
I think by that time we have drive-by shootings of real estate moguls in Amsterdam on a daily basis, instead of just a few each month now.
NHZ,
hope you are out on the site still. Was in Amsterdam last weekend. Gotta luv the bike trail system, plus th efolks there are pretty nice from the ones we met.
Seems you have a lot more open space heading south than I had expected. I like the city and open country Idea of Europe..
Didn’t look at housing but I know it’s been stagnat in Germany for a while
yeah, love the bikes too. I don’t even drive a car, despite public transport getting worse every year in my area.
Contrary to what most people think, 89% of the Netherlands is still unbuild area (farmland, rivers, recreation, nature etc.) and they are still creating more land
Germany is the exception to the rule regarding EU home prices; prices were more or less stagnant the last 20 years, mostly because of the cost of the reunion. Homes were very expensive there, they are now very cheap (except for a few big cities) compared to Netherlands.
Yeah, that whole peak oil thing was overplayed too, don’t you think? Oh yeah, and global warming. What a bunch of bunk that was, huh? We keep getting colder winters. And… uh, what about that stupid overpopulation problem they talked about in the 1970s and Soylent Green?
Yes, some manias are overdone. This one was most certianly done with the “They’re not making any more land”.
No, but we are building a $hitload of houses on the stuff we do have!
gee, just because it is colder in your area means there is no global warming?
Anyone buying ANY house in the Phoenix/Scottsdale/Mesa hell hole RE market will regret it as early as by year’s end. GUARANTEED!
Actually Y2K was a real threat, and I did have some computers with minor failures. The problem was that the added spending in High tech up to 2000 enabled a lot of the tech bust. After Y2K companies did not need to spend massive amounts of cash in technology, therefore a big tech crash!. Same thing is happening here, once people stop spending (investing) in RE then prices plummet.
I didn’t give the Y2k thing a second of thought! I did think the NAZ was overvalued. It DROPPED 82%!!!
LVlandlord you are a puppet for the RE industry. I think if we could check your IP address it would lead us to the NAR or NAHB.
This bubble hysteria reminds me much more of the dotcom fiasco of the late 90’s early 00’s than the Y2K crisis… and we all know how well the dotcom frenzy ended, but much to our luck the economy was brought back to life by free money and as a result starting the upswing of the current bubble RE market…
IMO
I agree and this bubble is bursting/burst. The real question is investing in the next bubble, since we no longer have a steady business cycle and have become a bubble cycle economy since the 1970’s with 6 major bubble cycles since 1972 - real estate is the 7th. I feel mildly sorry for LVlandlord - he is riding a losing position and trying to defend it. I know quite a few people that rode losing positions in the Dotcom burst, for the most part they listened to bullish advisors. The reason advisors are ALWAYS bullish is that they make money by getting an investor to spend. If Lvlandlord followed simple investment advice “WOULD YOU BUY AT THESE LEVELS? and If the answer is NO; then the investment should be sold” Cost basis and income taxes are of no concern when the investment may drop over 40%.
“Cost basis and income taxes are of no concern when the investment may drop over 40%.”
It is amazing how you can explain this to the majority of people and all you get is a blank look. They don’t even really try to process it.
I had this conversation with my step-mother over the weekend and reiterated again the rule: “by low. sell high.”
It is not a rule for nothing… if you see you missed the boat… don’t jump in the water and start dog paddling trying to catch up. Wait for the next boat.
-by
+buy
The difference is that Y2K was about something that might happen to disrupt the status quo. In this case, the status quo has already been highly disrupted, and we are discussing the seemingly inevitable fall out. Also, in general I think it is a bit spurious to compare asset bubbles to potential shortcomings in technological infrastructure.
However, I agree that it’s similar in that I doubt the bursting of the bubble will mean the end of the world as we know it, as some people may claim.
Y2K to Housing Bubble comparison? LOL!
No kidding. Y2K had as much to do with ASSET BUBBLES as Wichita has to do with a bowl of cream of celery soup.
There is a direct correlation between the Bubbles from 1994 to today. The Federal reserve was even well aware of the potential problem when they met in 1994 and eased monetary policy creating the bubbles. The frequency of these bubbles is why we have a bubble cycle as opposed to a business cycle. The Fed unfortunately screwed up big time in letting the bubble develop in Residential Real Estate. Housing in the US is a basic right that became an investment bubble, thus corn holing all of us. “U.S. households aren’t sitting on a few trillion dollars in savings like their counterparts were in Japan when their housing bubble popped, in fact they are sitting on piles of short term debt.” from 2002 Yes its a Housing Bubble http://tinyurl.com/r2xhs
the FED didn’t screw up; it worked exactly like they (Greenspan) planned - except maybe for the end of the story, for that we will have to wait and see.
I agree that it is a shame that they got away with it (but in most parts of the anglosaxon empire it is exactly the same story).
y2k was the main reason for the last hurrah of the telecom bubble that started in 1994 with the passage of the Telecom Act. It had a lot to do with the real bubble (the .com follow ons were mere coattail riders for the real tech boom/bubble).
“Do you think maybe… nothing will happen again?”
Umm, no.
Well put.
In reality the Y2K crisis was real and the effects were devastating to a significant number of people. The entire INet/ computer earnings were growing in 1998/1999 as a result of the fear of computer malfunctions, when earnings failed to grow after there was no longer a need for the computer services, the stock market bubble Exploded and dropped 90%. A 10% drop in the value of real estate will cause more damage to the economy than the 90% drop in the DotComs. The Wilshire 5000 today is worth 12,743.01 Billion (the total capitalization of all US stocks) The total value of residential real estate in the US is estimated at 48,000.00 Billion (wikipedia http://tinyurl.com/l5cas). Since the best estimates are that 70% of the population owns realestate as opposed to 50% owning stocks, the effect of this collapse *(IMHO)will be a recession that will last 10 to 15 years.
..nothing happen again? It’ happening right now. Like viewers in a movie theater we have seen the coming attractions, the opening credits have rolled and the opening scene has just done a blurry fade in…the movie’s just starting and I’ve got a full tub of popcorn.
Spot on! Just kick back and watch the show. I think some people have it in their heads this will look like the Nasdaq crash in 2000. I keep on hearing “I don’t see any crash yet”. The thing is, I do see it. I equate the sharp spikes in inventory we are seeing with the steep drop in prices the Nasdaq experienced in 2000. The inventory build is proving to be relentless. The number of foreclosures is the next number to watch, and again it will be relentless. The next thing to look for is the local economic conditions where inventories and forclosures are rising and again job losses form this dowturn will be relentless. It’s when all of these thngs are in place that you will see sales plummet. You can’t buy a house if you don’t have a job and you won’t buy a house if you feel insecure in your job.
This rise in inventory is analogous to a trade imbalance in the securities markets - TOO MANY SELLERS AND TOO FEW BUYERS. What happens then is a sharp decline. The housing markets are far too illiquid to see this transpire in real time as you can with stocks. That doesn’t mean it isn’t happening. It just transpires in super slow motion…
Yes, and making the problem acute this time is that people cannot afford to hold on and rent. They were way too aggressive borrowing and fundamentals were out of whach. They will need to sell, or be foreclosed upon.
There is overbuilding today in many markets the same way their was overbuilding in the late 80’s early 90’s. Then, however, it was free money going to developers and developers building speculatively everywhere. This time around, it was free money going to buyers of homes, driving development.
what is going to happen already happened with commercial real estate in the 1980’s. limited partnerships were buying up multi-tenant 1-level industrial buildings and banks were shoveling out the money. everyone and there uncle was getting into it. they started losing tenants and the whole thing unraveled. there was even some guy, i think his last name was christian, who went to harvard. he couldn’t handle the come down in his lifestyle and he started robbing banks here in massachusetts. he finally got caught and went to jail and did hard time. i met him and his associates once as a commercial broker.
all good guys who got greedy. the local news stations did stories on him. this is a scenerio for whats about to happen in the residential bubble. people never learn.
Not a good analogy. Only because the Y2K thing really had no historical precedent by which to estimate the threat. So everybody assumed the worst, which turned out to be an overestimation.
The real estate bubble is substantially different in that there’s a lot of history to look back on and make comparisons to the current market. Thus the predictions people make are likely to be more valid.
Exactly right. History will repeat itself. Unlike Y2K, the precedent for the housing bubble has been firmly established over and over again by what has happened in the past. It will not be different this time. History has already repeated itself in this case due to the fact that in every bubble there are always proponents in every bubble saying “there is no bubble.” Everything is playing out exactly the way it’s supposed to. As the wise man Soloman once wrote: “There is nothing new under the sun.”
well, there is one difference that DOES matter and that is that the quantity of dollars (the yardstick we use to measure home prices) has increased faster than ever before. This could severely distort the apparent result of this boom/bust cycle.
OT right off the bat again…
Hey Ben, Have you noticed the CA and AZ papers running lengthy stories of individual buys and sales? Me thinks even the mainstream media knows there is trouble brewing and are trying to spin the facts by saying: “See, these people sold a house and bought another in the same area. Everything is as it should be, no need to be alarmed by rising inventories”. I should have posted links for this but I bet you have seen these types of stories run as well. This thing is going to get brutal and ugly in a hurry. Inventories rising is just the top of the hurricane in the distance. When the new cat. 6 finally hits only the strong will be left standing.
I live in Gilbert, AZ and I see more and more For Sale signs every day. I live in a neighborhood that was built in 1996 and from my front yard I can see five houses for sale and I am in a cul de sac. I think before we see the housing go we must first see the crash of the condo. Right now there are a lot of apartments going condo and most are struggling a great deal. I know this because I deal with many of them on a regular basis. In fact condos in Scottsdale aren’t selling either. The conversions in central Phoenix aren’t moving at all. I believe that we are in a very fast moving slide downward and honestly I don’t think that it will stop anytime soon here in Phoenix. I fully expect the inventory to hit 50,000 relatively soon. I predict a huge glut of investor homes that have been trashed by bad renters. Believe me I see my share in areas like Queen Creek, Avondale, and Goodyear. The sad part is that its hard to find good renters in these areas. To me its a shame to see a three year old house completely trashed after the renters have moved out.
Scorpion,
I’m in Ahwatukee. My sister’s boyfriend lives in an apartment also in Ahwatukee that was turning condo as he was moving in, but he already signed a lease for rent. They (apartments) were about to break their agreement and he was ready to sue. They backed off. I think the condo conversion craze in Phoenix was very short lived. It was a trend that was going crazy for the entire period of less than 12 months! It died very very fast! I lived in south Scottsdale in some apartments up to 2 years ago and they supposedly converted to condo. The put in some mildy fancy finishes (probably $1,000 worth in each unit) and RV sized washer and dryer in each unit and called themselves condos. I like to think they converted back. Why would someone buy a conversion with no attached garage? I’m sorry but that’s no condo! That’s an apartment combined with slavery to a mortgage payment. Face it, Phoenix is not like Los Angeles where there are natural limits of mountains. LA has all sorts of top schools and high tech companies, plus a cooler climate. And prices there are not budging now. If they are not budging, at least Phoenix prices have to drop!
Nothing happened in Y2K because of years of preparation… Bad analogy.
One more comment to OP: It’s easy to shrug off Y2K into a non-issue, which I would argue was actually a huge success. Why? Because nothing happened. Testing prior to Y2K revealed a huge potential for chaos and discord in many major systems (e.g. elevators acting crazy, financial systems not tying, supply chains that were completely disrupted, etc.) - I know because I was then working as an auditor to discover and test many of these potential issues years before Y2K. The fact that they were addressed and nothing ended up happening speaks to the success of the efforts to make it a non-issue. As many previous posters have noted, we are so far from the status quo with the housing bubble, the Y2K analogy is really a very weak one.
Well, your post started off well. Preparation did prevent Y2K problems from materializing.
But rumors of elevators not working and planes falling from the sky were the work of either ignorant people, or sales people trying to make a fast buck.
Repeat after me. There is no date sensitivity in the operation of an elevator. When you push a button, you want it to go to that floor NOW.
Supply chain problems were very real because of calculations involving lead times. Similarly, other date sensitive applications like Accounts Payable and Accounts Receivable were very real.
Elevator problems are nothing but a bad joke.
And you know this how? If you read my other posts, you will find that anything I post is based on facts and I explicitly say so if otherwise.
In Spring-Summer of 97, I was in Vegas on a project with my then-BIG6 employer to do some Y2K testing at some of the major casinos. Elevators (at least the ones in casinos in Vegas and I’m guessing at other major buildings) are all part of a centrally-controlled security system (apparently, this is news to you). When we did preliminary testing, the elevators konked out and all went to the first floor and were inoperable until we shutdown and restarted those services.
For the record, I never worked on testing of planes so can’t respond to your planes comment.
Repeat after me. I will look in the mirror first before calling someone else ignorant.
Nothing happened after Y2K? Hello LVLandlord - the overinvestment in IT infrastructure resulted in the collapse of Cisco, JDS Uniphase, Lucent, and a host of others, including the bankrupcy of Global Crossing - I believe this represented the elimination of $5 Trillion in assets. Nothing happened?!! Wow are you out of it.
Y2K had nothing to do with market forces. Why stretch for such a dubious comparison when one can simply look at what happened the last time prices got bubbly in the late 1980s? Answer: prices came crashing back down to earth.
Do you think maybe… nothing will happen again?
Said the 16 year old as he shot up heroine for the third time.
You mean the flipper who shot up OPM for the third time??
Please tell me you are not this stupid LVLANDLORD. Y2K is totally different from real estate (in case you didnt know).
AND 1929 never happened! Those who don’t study history are doomed to repeat it. I think maybe it’s time for you to turn off your computer, get out your library card, and read how the investor class denied facts until they wound up on the breadlines, with a government that said “everything is fine”
After seeing what was happening in India and Japan, I was bracing for a U.S. sell-off. When I logged on today (Tuesday) the Dow was up 50 pts! After the Fannie Mae report too.
I talked to friends this am who are adding a major addition onto their home, former target town (as per Sunday paper) is still selling at a brisk pace, and people I know are out buying like there is no tomorrow. I’m starting to feel like Chicken Little.
Y2K and the housing bubble are two completely different animals.
Y2K was a unique experience never before faced by human kind. There was no similar situation to compare it to. It was an entirely new problem with a result that was difficult to predict. It wasn’t like we could look to the history books for solutions to the Y1K problem.
By comparison, we have several hundred years worth of experience dealing with economic bubbles. While they all may have a new flavor prompting choruses of “it’s different this time”, they all tend to actually be quite similar. Timing aside, the results are the same in the end. This bubble is no different.
There is a major crash happening on the world stock markets, but don’t worry, LV Landlord, because your LV real estate investments will hold up just fine, along with the rest of the locally frothy US real estate markets…
I thought about that too. At that time there was a flurry of activity about what COULD happen, this is about what is happening before our eyes. Y2K was about a magic disaster moment, most of which was fixed before time ran out. This does not seem to be as easy as re-coding the date fields on a mainframe’s old crufty record stucture. There are fundamental economic forces that look to be headed for a train wreck. The driving factors are distributed and in motion at this very moment.
Nothing happened — except for the tech stock bust, which deflated about 80% of the value of the NASDAQ. I am sure “nothing” is going to happen to US housing prices either, especially in hot markets like LV…
Again, Mr. Cooley agrees. ‘I’ll tell you something,’ he said. ‘We have a huge growth in South Chandler, there are so many new businesses coming to the area construction can’t keep up with them. I’m going to buy as much real estate as I can get my hands on right now.
Sounds like Mr Cooley did his research with his fiance SUZANNE.
What a jerkoff.
Here’s the difference between Y2K and the housing bubble:
Y2K fears were based on science fiction like fantasies.
The bubble burst has facts behind it. A lot of facts. And more facts come out daily. So it’s just a matter of time.
Nothing happened EXCEPT A MASSIVE SELL OFF and the END of the DOT CON era.
Well,
It may or may not be a huge meltdown, but the mushrooming inventory numbers just about EVERYWHERE are suggesting that a change is in the works.
That is all I can see from here…and I am getting the feeling I am not the lead sled dog….
Umm…Somethings are happening: Interest rates are rising. Do you agree? And reports of foreclosures are rising. I think you are saying price reductions are not happening. Well they are in some markets, such as Boston. New homes (Centex) in places on the east coast and Sacramento are falling in price. So things are happening. And in Phoenix the bubble hysteria hit late compared to LA. I figure in 2007 the prices will budge. The major price drops in LA should occur late summer and through the remainder of 2006. But that’s just my opinion. I’m into Series I savings bonds, precious metals, value stocks, muni bonds, but not real estate - not for a few years.
“Again, Mr. Cooley agrees. ‘I’ll tell you something,’ he said. ‘We have a huge growth in South Chandler, there are so many new businesses coming to the area construction can’t keep up with them. I’m going to buy as much real estate as I can get my hands on right now.’”
The Greatest Fool of them all? BTW, Where is Chandler, AZ located?
These are just real estate spinners in the news . I have no trust in a investor making a statment about getting his hands on all the real estate he can . He must have a bunch of unsold listings .
You mean OWN a bunch of listings. In my town most of the speculative homes bought that have been sitting empty are owned by realtors. The rats are jumping off the burning ship here. All the realtors are dumping their properties. Just down the street from me I verified three properties listed (one rented, two empty) that are being dumped by the same realtor. Further research showed this realtor had two more properties listed in the area. Sound a little like panic to you. But I’m sure if you were to ask, this realtor would tell you “it’s a helluva time to buy…..soooo many opportunities.” Yeah, whatever! This is getting pretty damn lame!
I live near Chandler. I think I’ll look up Mr Cooley in the next week and ask him if he’d like to buy my house (a nice one in good location). If he hesitates, I’ll mention his quote.
I bet he is all talk and no balls.
“I’m going to buy as much real estate as I can get my hands on right now.”
Go for it Desmond….there’s plenty you should be able to “get your hands on” right now.
With over 40k in options, he definitely shouldn’t be talking like he can’t find anything to buy.
Suck it up “man”
It is funny hearing someone say “man” again in conversation. Reminds me of the old Cheech and Chong day. Ahhh, good times.
‘People are still buying homes, man,’ said (mortgage broker) Desmond Cooley in Chandler. ‘There are tons of people buying homes.’”
Body language: Soaked in perspiration, trembling upper lip, widely dilated pupils, facial tic, herky-jerky body movements, expression of barely concealed panic….
Another dopesick real estate ADDICT.
Chandler is a suburb of Phoenix, sprawling out to the south and southeast. These guys are WAY too enthusiastic about growth potential. These markets will languish for years.
When I was in New Jersey in the late 80s/early 90s, prices slowly softened for years. This idea that things are just ‘normalizing’ here in AZ and the market will be healthy and robust before you know it is just nonsense.
His photo here:
http://ocotillomortgage.com/officers-detail.aspx?LONum=1
Does he look trustworthy?
I could swear I saw him over at Tempe Toyota hocking Camrys a year ago.
No, that’s NEXT year.
He’s just a pimp….Guys that talk this smack “got no dough”….
LOL. Looks like the picture was taken at the County lock-up.
Gosh, if he is willing to go aways out of Chandler, he can find about 44,000 opportunities. Let’s see…If he can make 50,000 on each of them ….
Ooops. The latest number is 46965. Now let’s see again….Mr. Coolidge can make 50,000 on each of those, it comes out to……….
Oops again. Cooley, not Coolidge…
Chandler…sigh. Land of the boring stucco house, poorly built, they all look the same, right next to one another (I swear, I think you could put your arm out a window and touch the neightbor), escalating crime, illegal immigrants sucking the juice out of social services, you can’t get into a emergency room there, traffic issues, infrastructure issues, public school issues, etc.
Mr. Cooley must have aspirations to become a slumlord.
Chandler=Southwest Phoenix suburb…just part of the massive urban sprawl.
Seems Mr. Cooley has 5 houses and some vacant land, that I can tell. He also has at least one boat. Over a million in debt???
Panic time.
UK results make me wonder- slight spring bounce after 5-10% fall over last 18 months
it’s all about easy money …
apparently Oz market had a small bounce similar to what happened in the UK. NZ market still at the highest price ever. Dutch home prices still rising a bit as well while inventory has been growing for years and the population has started declining (to name a few negative fundamentals).
prices in foreign investment RE markets (’vacation properties’) in outer regions of Europe are still rising at double-digit rate.
Don’t use Oz to predict. Like I have said before, the resource boom (Bubble?) saved their asses from recession. No doubt in my mind, and I own RE there. In addition, the government is fiscally prudent and had the luxury of repeated tax cuts to fall back on. Neither a resource boom or large scale tax cuts will save the US housing market.
yes I know, all these countries with booming home markets ARE different. Some are not making more land, others have resources (Oz and NZ), a surging population, neverending tax heavens, the most beautiful scenery, the best financial wizzards on the planet etc.
somehow my impression is that it is all about the same, easy money (including most of the commodity boom).
I think nhz is right…easy money explains tons, no?
I just saw an ad on during fox news or cnn or something that I can buy real gold coins (you know that royal-looking older monex lady with the brit accent coming on and running her red-painted fingernails through the pile of ‘pure gold vienna philharmonic’ coins) with as little as 20% down! She tells me it’s of real and inherent value, good for my children and my financial future, and I can buy it on credit just like RE! They look positively silky, too, and I bet your hands smell wealthy the whole rest of the day after you take them out and play with them a while! Can we use HELOC money to buy some, you know, as a hedge?
(I mean no offense to the gold bugs by the way! just sayin’, about the easy money and booms/bubbles…)
cheers all!
yes, obviously the current gold bullmarket has a lot to do with easy money as well; but I think most gold bugs know this (contrary to public opinion that still thinks the high gold price is an anomaly caused by Iran etc.).
As long as the FED and ECB keep printing, the goldbugs shouldn’t worry about their part of the boom.
We can cut taxes again!
For us that is, not for our children.
The lastest trend in Australia is down…….about 2 years away from the bottom yet
The inventory has to go somewhere, that should bring down prices. Record number of new, empty houses. Plus less speculator demand and still more new houses being built than needed.
There was so much wealth “created” by the bubble, that it could support higher consumption spending for years. And it could ripple out making more bubbles, as it kind of already has.
Only if thos speculators did not roll their gains into other properties. If they did, they are dead, and all their gains are locked up tight in an illiquid, and hard to sell asset…
pinch-a-penny…your comments are so true. I had 2 neighbors cash out in ‘04 and ‘05 both had bought prior to ‘99 so both had a mega-cash out. One invested in a $350K? house in Bend Ore. and one bought a $1M house in San Marcos. I’m betting both will still see their “real” equity dollars vanish due to their hasty 2nd purchases.
Oh, the one who bought in San Marcos also was in the process of being sued by the buyers of her home because it had lots of “hidden” water damage. Buyers were looking for $200K in damages. Suit has been dragging on for over 2 years and the house still sits unoccupied loosing money every month.
This is why the Vegas casinos comp the big winners: the longer they stay, the longer they play, the the more chances they have to lose.
If you’re a loser they want you back.
If you’re a winner they REALLY want you back.
Here is a actual Q & A from 1989
>>$155k. I still owe about $157k on my loan.
>>Question1: What are the legal ramifications in CA real estate
>>CA laws, mortgage lenders must accept the house as repayment of a
>>I understand you cannot write off real estate losses against income.
>I read about this a few times in newspaper. You cannot recover your
>losses. In fact, if your house is worth less than the amount you owe,
>you will be taxed on the difference of the two.
Only if you refinanced and took cash out. The bank could give you a 1099 on
the deficiency, and the IRS and State of California would interpret the
deficiency as income to you and you would be taxed.
If you want out, clean, no destroyed credit, you may want to do a short
sale. It can be accomplished if you are in a hardship position. The
following is an FAQ I developed for people in your situation. I’ll post it
at the end of this post and repost it as an original post.
======================== Short Sale FAQ ==============================
1) What is a short pay off?
Imagine your home is worth $200,000, but you owe $220,000 on it. If you were
to sell it in the open market at $200,000, you might net$184,000 0 or $36,000
less than what you need to pay off the loan. A short pay off is where your
lender will forgive a portion or all of the short amount.
2) What lender would just write off that type of money?
Just about all of them will, with justification. Justification might mean a
substantial loss of income that would prevent you from paying on the
mortgage, therefore being forced in a position to sell the home. Attempting
to sell short so you can upgrade to a larger property is not justification.
In addition, lack of cash reserves will also serve as justification. Don’t
expect to place your home on the market at 75% of market value and expect
your lender to jump on any offers.
3) How will this affect my credit?
Depending on how you negotiate the transaction, it could go on your credit
report as, “settled,” or, “paid,” or “short payoff.” It depends on the
lender and how well you can negotiate.
4) Are some lenders harder to deal with than others?
Yes. If you have a Freddie Mac loan, Freddie Mac will probably want you to
contribute to the short sale, get your agent to reduce brokerage fees, and
get the buyer to take the property with the termites. Some lenders will just
ignore you. Citicorp Mortgage is also a bear.
5) What will my lender require from me in order to consider participating in
a short sale?
Packaging is very important. When you place the property on the market (go
with an agent), your agent should send the lender the following:
1. Your past 2 years tax returns
2. Letter of hardship
3. Complete loan application
4. Preliminary title report
5. Listing contract
6. Copy of MLS
7. A marketing plan for your home
8. A broker price opinion (like an appraisal).
When you have an offer, all of the above should be enclosed with the offer
(except for the marketing plan) plus the purchase agreement, and a good faith
estimate as to what the lender will net after the close of escrow.
6) Why should I list with an agent? It seems if I can save the brokerage fee
that the lender would net more and be more inclined to accept any offers that
come in.
You are correct. If you’re loan is current, you may be able to get a
qualified buyer yourself. If your loan is delinquent, or in default, you
don’t have time to play around getting your home sold. You need as much
exposure as possible.
7) What happens if my lender say’s “No,” and I’m in foreclosure?
This is one situation where “No,” means, “Maybe, you just haven’t convinced
me that participating in a short sale is to my benefit.” Keep hammering your
lender, and do not take you home off the market until your lender agrees to a
sales price and the prospective buyer has formal loan approval.
participating?
Most assets are traceable, except for personal collections (guns, coins,
etc.). If you own another property, it will show up on your credit report.
Your lender may back track to your original loan application to see if there
are any other assets. No, don’t hide assets. If your lender discovers
you’re not dealing honestly, they’ll never co-operate. One of my associates
tried to sell a home short for a couple who had a lot of cash, stocks and
bonds. They had the reserves to contribute to the short sale. They tried
to hide the assets. The lender caught on and forced them into foreclosure
just to prevent them from purchasing another home in the near future.
9) Can any real estate agent or attorney handle a short sale?
A lot will say they can. There’s no real way to tell if they can. If your
home goes into foreclosure, you’ll get flooded with a ton of mail. There’s a
good bet that most of the mail is from people who have helped out previously
in these situations. One way to tell is if the person you’re dealing with
will ask you for the information outlined in paragraph 5 above. They’ll know
these are the requirments.
If you have any further questions that can be added to this FAQ, please send
them.
This reminds me of Monty Python:
Mr. Praline: Never mind that, my lad. I wish to complain about this parrot what I purchased not half an hour ago from this very boutique.
Owner: Oh yes, the, uh, the Norwegian Blue…What’s,uh…What’s wrong with it?
Mr. Praline: I’ll tell you what’s wrong with it, my lad. ‘E’s dead, that’s what’s wrong with it!
Owner: No, no, ‘e’s uh,…he’s resting.
Yeah, resting. The housing market’s resting. Just takin’ a little breather.
“He’s Pining for the Fiords”
Strong market, lovely plumage -lol
test
“People are still buying homes, man,” said Desmond Cooley, owner of Ocotillo Mortgage, 1347 N. Alma School Road, Suite 130, in Chandler. “There are tons of people buying homes…”
Is it just me, or does this guy sound stoned?
Was his contact information absolutely necessary to quote him? Sounds more like a mortgage advertisement than journalism..
grim
I agree……I would have edited the “man” out. Maybe they wanted him to sound like the idiot he is.
No. There trully are people buying homes, In my zip code, I just checked and a lot of homes sold in march and april, specially the ones that had been sitting. Unfortunately for them they are buying in at the dead cat bounce, as inventory is through the roof… Just uninformed dolts buying into the better buy now before interest rates go up!
People have to buy on the way down to reset the market at that new price… as long as inventory is growing and sales slowing it is nice to know that someone is willing to take the hit for my better interests down the road
Same thought I posted the other day. You need these “lesser, yet still fools” to buy on the way down. This will constantly lower comps in the area until the bottom is eventually reached.
Holy Mackerel. I just up two houses in my area that were closed recently. And they both have 900K+ mortgages!!! Gosh! How do these people sleep at night?
just looked up
Imagine your home is worth $200,000, but you owe $220,000 on it. If you were
to sell it in the open market at $200,000, you might net$184,000 0 or $36,000
less than what you need to pay off the loan. A short pay off is where your
lender will forgive a portion or all of the short amount.
As I’ve noted before, it’s a whole different ballgame than the ‘90/’91 bust.
Mortgage notes are not $200k, but $650/$750k, with no discernable increase in wage levels.
That hypothetical $36k short-sale deficiency is now $100k+.
People could recover from the 1099 $36k reporting.
With most people having less than $10k in liquid savings, they can’t possibly cope with $100k + deficiencies.
Only way out will be a FED debt moratorium-don’ t have a clue how that will pan out.
hold on kids…. here it comes for Phoenix/ MESA/ metro
a new record for today by the way.
7/20/2005 10748
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+15% in one month ! wow
Do you think there is a trend here?
Yes, but that treand clearly points toward a soft landing followed by several flat quarters before it again takes off like a rocket ship. After all, everyone wants to live there and they’re not making any more land…
You’re just jealous because you can’t buy as much real estate as our mortgage broker friend in Arizona can get his hands on. That’s the ticket to unimaginable wealth and ultimate power. All hail the asset class that NEVER GOES DOWN!
i don’t know guys, is phoenix a place you could live if you can pick up a nice 2,500 sf home for $175,000?
i’m holding out for a duplex in culver city, right around 350-400k
phuck - best post ever. keep ‘m coming
It’s “different here”! I can’t discuss the South Florida bubble with my office mate here. They insist all the rich Venezuelans moving here make this area special. This area is different than everyplace else because…..I think it’s special because of hurricane season that starts in 1 week!
Thanks for the data.
It’s lots easier to see the trend on a graph though. Also for some of the people out there, the slope of the trend is even more interesting. The first and second derivatives of that thrend line can be very telling. But when all we see is a huge column of numbers, the individual numbers loose their signifigance.
So if you have a little icon on your desktop for Matlab or Igor please investigate it. If not then theres always Microslop Excel.
I agree…Much rather see a trend line graph…
Plop the numbers into excel yourself…the ‘trend’ is easy to see…except for a head-fake in November-December, the trend is almost a straight line, with an upward slope of about 130 to 140 houses added per day. My revised prediction (easy, ’cause we are almost there) is 50K inventory by mid June. How hot is Phoenix in June? Will the Summer Buying Season ™ save them?
How hot is Phoenix in June?
I think AZ said it was a 24/7 “Pizza Oven”…
i have a friend from SoCal who was assigned to work in PHX for about a year. He flies home to SoCal every weekend. He said “don’t ever turn off your AC the entire summer, if you want to stay sane”. I guess because he is used so used to SoCal weather.
Imagine being in such a precarious financial situation that you could be “assigned” to work somewhere you didn’t want to live. One is reminded of the old USSR, in which undesirables were assigned to work in Siberia.
Well I lived in desert areas mostly since 1985 with about 10 months in New Jersey and 3 years in LA in between. I figure it’s cheaper to live where few people want to live and pay $300 per month air conditioning than beachside in LA where you need a/c for maybe 5 days a year. I work in air conditioned offices/labs and drive an air conditioned car. I have an air conditioned apartment. And you know what? I think I spent less than 4 minutes outside today, and that’s typical for a weekday. It is not reason, but emotion, that makes people say they think it’s worth it to spend $800,000 on a house 400 yards from the beach than $225,000 on a condo in Phoenix. But then…they usually have only $50k or less net worth but pay equity on an overvalued house.
dont you know? the buyers are all going to rush in and scoop up these properties any time now. They are only delaying the buy as they have plans for Memorial Day. Once they get back that is when the buying season starts with each buyer looking for 2 houses one for himself and another for his little brat.
Yeah…Memorial day, that’s it! Wait, hold everything. Did Suzanne research this? I need her to tell me when it is a good time to buy. Oh, my wife just reminded me, Suzanne says it’s always a good time to buy!
If the trend is linear then a panic isn’t there. Information flow and panic events exhibit exponential patterns, IMHO. Stock sell-offs follow this exponential pattern, but a real estate collapse is closely tied with available lending, so it can be managed (glossed over?) for a brief time. The real issue is trying to amortize $600k with a $50k/yr income; it simply doesn’t work!
I agree we’ll see 50k mid-June and 60k early September if the trend holds. What is the source of this data?
try bubbletracking.blogspot.com, the source is ziprealty.
If PHX really does go 50k on June 9th I’m going to be insufferable. “man look at those gas prices, they’ve gone Phoenix on us.” “And if all your friends were selling in Phoenix would you sell too?” “You should have seen the exits at the end of the game it was like Phoenix.” “We’ll just do a little Phoenix on the numbers and the stockholders will never find out.” “So then with my main chute ripped away and my reserve tangled and the ground coming up fast… I swear I saw Phoenix.” “we gotta get some lottery tickets the jackpot is like up around Phoenix.”
If PHX really does go 50k on June 9th I’m going to be insufferable. “man look at those gas prices, they’ve gone Phoenix on us.” “And if all your friends were selling in Phoenix would you sell too?” “You should have seen the exits at the end of the game it was like Phoenix.” “We’ll just do a little Phoenix on the numbers and the stockholders will never find out.” “So then with my main chute ripped away and my reserve tangled and the ground coming up fast… I swear I saw Phoenix.” “we gotta get some lottery tickets the jackpot is like up around Phoenix.”
Wow, these numbers are extremely linear. Slope shows that inventory is increasing by 116 per day on average. Puts 50K right at June 18th or 19th. Thanks for tracking these, Phuck.
awesome data. Couple of quick checks, this has got to be one of the smoothest, consistent patterns around (a little stats crunching said so). At about 130/day, we’re looking at mid june for the magic 50k.
Doesn’t include new builds either.
And , apparently, new build cancellations. Are they over 30% like in Florida?
and Mr Cooley… .you are a blazing phucking idiot!!!!!
mortgage biz = morte
double dwon w some RE “that he can get his hands on
Did I just read correctly that the agent is going to buy up as much real estate as possible?!? Good lord, I hope such fools are taught a harsh lesson.
I’m of the opinion we’re in the classic “standoff market” that ends all real estate bubbles. Sellers have faith in their market and buyers know the “fair market” price is below asking price (hence the complaints about “low ball offers.”) We must wait and be patient. This will take ARMs resetting to clear the air.
The best analogy is that this is a train wreck. The conductor sees the families picnicing on the tracks. He’s hit the breaks and is trying to stop.. and soon the idiots on the tracks will discover that it takes miles (and minutes) for a train to stop when they and their fried chicken end up 200 yeards under the train.
Every big runup in real estate has been followed by the market giving up the last 12 to 18 months of gains in… 12 to 18 months. This time I expect everything to happen on “internet time” as flippers get caught. Too much overbuilding… too much debt.
I have coworkers who “own” five to six homes. Two are smart long term investors (gee… they’ve been selling for 18 months…). The others probably own 200 to 300 speculative properties amoung them and will soon discover that 5*10% of nothing isn’t ownership, is a trip to BK. What’s scary is that I’m only talking about the 300 people I see day to day… So as soon as the market is known to be a dud… these people will try to sell and like this one really sweet lady who works 100 feet from me… they’ll find they can’t sell anything but a steep loss.
I’m using the used car/real estate billboard at work as an indicator of the market. Heck, I’ve decided to be generous and take out of my overhead enough cash to hang another cork board.
Who wants to bet I’ll be allocating for another one by… I’ll say September?
Neil
Ahh…those three little words: “is going to.” Follow the tax records out there and see if he really does it. B.S., in my opinion.
I think this real-estate agent is trying a Jedi mind trick on me. I feel
like I need to do something now …
“‘Now is a great time to buy. Inventory is up and options are available,’ said Russell Paperman, Mesa real-estate agent. ‘Buyers can get a deal now. Now is also a great time to purchase new construction. The builders are now offering fantastic incentives.’”
what he’s really saying is NOW i have dozens of unpaid bills on my desk, the mortgages on my spec homes are due NOW, my savings is empty NOW and if i don’t get some sales NOW i need to go out to get a job right NOW
I believe that the housing bubble will pop, however I am open to the fact my thesis might be wrong. Right now the rising inventory is supporting the thesis and I expect that ARM resets in 2007 will be the catalyst for lower prices. If inventory suddely goes down or we get through 2007 without major price drops then I will conclude the thesis was wrong. Maybe we will have a soft landing like London or Australia. However, its still way to early to come to that conclusion IMHO.
there won’t be any landing as long as the easy money keeps flowing without limit and keeps these markets afloat.
UK and Oz didn’t have a soft landing, they just had a short blurb on the way up. Their landing skills still need to be tested.
The inflation scenario has been discussed on the blogs before and I believe that is a possibility. However, I think the U.S. is the big enchilada and the fed will ultimately drive global liquidity. I imagine Europe is watching what the Fed does because it may determine what their ultimate landings look like.
I don’t think Europe watches the US for what the landing looks like (it will probably be too late to learn anyway by the time we find out). The EU real estate market is in a different state (much longer bull run, interest rates still close to historic lows, most of the speculation is probably in foreign countries etc.).
I agree that the FED is the primary liquidity driver. The ECB watches what the FED does with their rates. When the FED stops raising, you can be sure the ECB stops very soon too.
I think there are limits to the easy money. Look at Japan for a good example. Mortgage rates are at less than 2% and prices continue to deflate.
The way I look at it is that the only way for prices to go up is for wages to go up. That is what ultimately supports house prices. Besides, there has been so much over-building for the last 5-6 years that the supply is completely out-stripping demand. If there were a supply problem then rents would be rising. The evidence is over whelming. I think that NOVA fence sitter has the right idea though. Watch this thing unfold for another year. I think that by next spring most buyers will be too afraid to buy into a declining market. This will probably depress prices even more. Once a deflationary psychology sets in it is tough to reverse.
agree, but in the current situation wages are almost irrelevant. As long as we have an easy money system, I don’t expect real changes and wouldn’t be surprised to see a ’soft landing’ or even another surge up in a few months.
Probably a departure from the easy money times can be forced by a collective mood change (a buyer stop, a sudden panic). I’m sure the financial authorities will only make the change if the market forces them to save their a.. (e.g. in case of massive defaults that can not be passed on to the taxpayer).
NOVA — you probably are one of the candidates for following one of the better “bull” real estate blogs, though I don’t read them and have no clue where to find the best of the lot. Not being sarcastic. If you find one that is credible to you, then you have a basis for your decision-making. Me, I choose to remain a bear and hibernate with my cash for a few years, quite comfy with the direction the vast majority of Ben’s posters choose.
Chip - That may be a good idea. I am a bear but there will come a point that I will have to question my judgement. I’m just trying to define for myself when that point should be. I’m sure the market will crash as soon as I jump in:)
Bubble ALWAYS last longer than expected and expand farther than expected. I was short techs in ‘99 and squirmed for several months until finally Intel cracked and saved my bacon. The markets seem to have a perverse mind of their own devising ways to hurt the most people the largest amount.
is there a decent ‘bullish’ real estate blog out there? I’d love to see what one looks like, so I can understand the position better.
Still too soon. Head and Shoulders patterns always lure in unsuspecting investors. That’s why they look like a head and shoulders. the UK’s “Soft Landing might not look so soft in 2 years. It’s got nowhere to go but down. Same in many bubble areas of US.
No bursting bubble here….
http://tinyurl.com/hqr6a
Pocket change for most that own there…They could care less what the valuations are….
“Chandler resale home market is not, repeat, not, in the midst of a headlong plummet.”
In my little microcosm of Chandler, there are 20 houses for sale (about half are vacant). Nothing has sold for months. Sellers aren’t reducing the asking prices. So, no, there isn’t a headlong plumment going on. Once we get a motivated seller or a repo, then the plummenting will begin. Just a crazy guess, but I’m thinking one of the vacant houses will be the most likely candidate to start the process.
As people have said before, Wyle E. Coyote has just finished feeling around with his toe to discover he’s in mid air, and is looking right into the camera. (inventory skyrockets with no sales) Next his feet start falling while his head stays in the same place. (overstreatched buyers and REOs are sold at market, others hold on as long as they can) Then his head follows his feet down. (market freefall) So he’s right, we haven’t gotten to headlong plumet yet.
‘People are still buying homes, man,’ said (mortgage broker) Desmond Cooley in Chandler. ‘There are tons of people buying homes.’”
Dude.
You are so out of it, man.
Pass the bong !!
Like, people are not still buying houses, bro.
ROCK ON !!!
Duuuuuuuuuuuuude…where’s my house?
ROTFL
I’m laughing too hard!
Oh, I too am willing to accept that my “thesis” that there will be a crash is wrong too. Alas, that is why my girlfriend and I will rent for another 12 to 18 months and then head out of state; it will be a shame to have to sell my surf boards… but my company has offices is many states.
And that bong was shared by too many… I have coworkers getting ready to panic sell. You can feel it. Those of us with cash will vulture in. In fact, there are so many that I’m sure its going to set the floor.
But there is no way that San Diego, Miami, Las Vegas, or Pheonix won’t crash. I accept my area possibly won’t. But maybe enough of those people with beach front homes have option ARMS and low down payments… It seems like half of the beach homes traded hands in the last 3 years (my calibrated eye)… Although, I admit the map from the LA assesor’s office doesn’t show much blue on the strand (traded in the last two years).
http://assessormap.co.la.ca.us/mapping/viewer.asp
Neil
Fannie busted, 400 million dollar fine
http://tinyurl.com/zfp7l
annie Mae’s board of directors is partly to blame for the accounting scandal that has rocked the big mortgage company, and the firm must pay a $400 million fine, Fannie’s regulator said on Tuesday.
A harsh and stinging 348-page report by the Office of Federal Housing Enterprise Oversight said senior management manipulated accounting at the giant company, that Fannie “stonewalled” government investigators and that Fannie should further investigate employees associated with the accounting scandal.
big deal; just add that $ 400 million to their unlimited account with the government …
I know…when I heard that, it seemed like so small potatoes. A temporary withdrawal of allowance money from an indulgent parent. No new shoes for you young lady for at least a couple months…
I just read the yahoo front-page-linked summary of the fanniemae report, and the emphasis on the ‘accounting scandal’ aspect of it, evident there and in many of the further-reading commentary links they provide, serves to make this just another corporate CEO outrage scandal. What with Enron jury deliberating, and options-backdating scandals, and ridiculous bonuses and pay for non-performing company CEOs etc, it will tend to fall under that category of story for at least a bit, it seems to me. Until the analysts get hot under the collar about the ‘risk’ aspect of it and make details of that clear, it doesn’t seem so dangerous to overall economy issues, no? They cooked books, so what. They threw underwriting standards out the window, and they are supposed to be the paragon of responsible lending, much bigger deal but who is gonna play that up? ( I honestly don’t know the extent to which the report claimed this, just in summary it is implied that they did some naughty thing vis a vis risk management)
It’s interesting how people behave when there’s a sudden change in their life.
Denial - “‘It’s just that we are back to a normal market, back to where we were about three years ago. This is just the same fallout that every major, West Coast city has gone through over the last 10 years. They get that huge spike, then they get that little lull, then they come back strong,’ Cooley said.”
translation = “we’ll have a strong bull market, and then hardly any time to take a breath, and then another strong bull market even though there’s little buying demand and we have an extra 30,000 more homes than what we had when this whole rally thing got started.”
I guess he’s right, phoenix probably will come back strong but he’ll have to wait 10 + years. A “little lull???” A typical cycle of any market typically includes a bull market, bear market and a trough.
By the way, since when was three years ago a “normal market”. As I recall, that was a pretty damn good market then too.
“‘It’s just that we are back to a normal market, back to where we were about three years ago. This is just the same fallout that every major, West Coast city has gone through over the last 10 years. They get that huge spike, then they get that little lull, then they come back strong,’ Cooley said.”
These people are counting on our ignorance to keep prices high. “Normal” is defines as the price of the house in relation to rent or income. By that definition, prices have to fall about 45% in some markets. Until they do, sales will remain anemic.
“Normal” is NOT returning to a modest appreciation of price. There is no “normal” when it comes to price appreciation. Sometimes price skyrocket. Sometimes they drag or fall. It happens. And after the greatest period of appreciation in decades, any rational person can only expect a huge drop in prices. That is normal.
For those of you looking for graphs here you go. This guy was saying last month that if inventory kept going up he would be very concerned al the while saying he love to find you a house. Quite amusing really. Be sure to click the link “Whats this graph mean?” to listen to his commentary.
http://www.homesalenews.com/prices/1_Phoenix_Market_At_Glance.htm
Clayton;….That was outstanding….Everyone should take a peek including at least the 1st 1/3 of the audio…Thanks…Great post….
he said that normaly for the first half of the year inventories go down and on the second half inventories go up. This year inventories have been increasing since Jan., so we are going to see significant increase for the rest of the year.
Inventory goes from 5,000 to 40,000 in one year and there still are some who wonder if prices will fall?
Long ago, when I was newly married and we were poor, my wife and I would get our Friday-night entertainment at a local auction house. One evening, a milk can came up and my wife bid on it. We got it for something like $13. She was thrilled. Then the auctioneer asked, “Does anyone else want a milk can at $13?” and he asked Billy Bob to throw back curtain #3. There must have been 20 more cans back there. My wife’s $13 good-deal-feeling went “poof.” Had 20 been available at the start, I’m certain she’d have bid no more than $7-8. That’s how it goes when all of a sudden there are a lot of something that was in short supply before. I think of that when I read these Phoenix listings numbers.
Good story Chip .
“‘It’s just that we are back to a normal market, back to where we were about three years ago. This is just the same fallout that every major, West Coast city has gone through over the last 10 years. They get that huge spike, then they get that little lull, then they come back strong,’ Cooley said.”
who the snot does this guy think he is calling phoenix a west coast city? don’t even put phoenix and west coast in the same sentence.
“They get that huge spike, then they get that little lull, then they come back strong”
It sounds like this guy is describing a heroin-cocaine “speedball”
One thing that I am finding interesting is this: Specuvestors in Phoenix who bought at the top of last years bubble somehow feel they can add $100K to $200K to the house price and resell it this year. Phoenix is loaded with $350K new houses purchased last year that sellers want $550K for this year. I think these homes are going to be sitting on the market a long, long time.
you are right, these homes will be sitting for long time. The longer the homes sit, the more stress (financial) the owners will get.
“Specuvestors in Phoenix who bought at the top of last years bubble somehow feel they can add $100K to $200K to the house price and resell it this year.”
It is no different here in Orange County CA. They all are following the same plan.
“…but somwhere in the future we will revert back to the mean and prices will coincide with fundamentals.”
I think it’s a risky generalization to state that prices will revert back to the mean. I believe John Maynard Keynes said it best: “In the long run, we’re all dead”. In other words, over very long stretches of time, “the mean” and “alignment with fundamentals” means something, but in the short term, things never really “settle down”. The logical argument for residential real estate prices is that an investor should be able to make a reasonable rate of return on a long position, which implies that typical rents must cover a typical debt/expense structure for a property. This is “the mean”. But in reality, markets move in booms and busts due to human psychology and outside factors that no individual can control. And in fact, for long-term pricing to converge on a sensible mean, it implies that this boom, with pricing way above what rents can support, must eventually be averaged out with a period of prices being below what rents will support. How deep the pricing trough will go is not easy to predict, but nevertheless, you would expect a trough to occur. For investors, that will be the time to buy investment real estate for long-term rental purposes. The “soft landing” crowd assumes that we can simply “revert to the mean” without having the lower prices to average out the high prices. If that’s the case, then it isn’t the mean any more!
Sellers wanting $550K for $350K new homes? Sounds like the future slum area. Section 8 - lots of those former ‘homedebtors’ will be living in them.
As for Cooley, he will be hocking funnel cakes or churros at the State Fair/County Fair later this summer/fall. I wouldn’t trust him to clean my toilet, yet alone handle $100K+ of money for me.
I live in Manhattan and doesn’t seem like anyone thinks that prices will fall here. RE agents tell me there is a bit more to choose from, but “sales are brisk”. If you think P/E ratios are out of whack, just look at Manhattan. A colleague of mine and her husband (both doctors) bought a townhome in 1995 for 650,000, today its valued over 2.5 million. She herself says that she couldn’t afford this 3 bedroom townhouse in Manhattan today. Today doctors (like me) can barely afford studios. I didn’t buy a studio when I moved here 2 years ago because I thought it was a bubble. I can barely buy that same studio now. I don’t know what people here do for a living, but they all can’t work for Wall street. Its telling when physicians are priced out of the market. However, everyone says “Manhattan” is different. “People place a premium for living here”. Who are they and how much money do they make? I don’t get it. I can’t buy the one bedroom apartment I rent for $2100. It would cost twice the price to own it given the maintenance, taxes etc,. I would have no money left over to live. Any thoughts on Manhattan?
You hit on one of the points I thought of years ago (when I cashed out). Lots of people owning houses that they could never afford to buy from themselves if they were currently in the market. At some price point (now) there is literaly no one left who can afford to buy at current prices, especially “entry level” homes and prices have to drop. This will crumble the pyramid above it. A lot of the run-up in prices has been the flow of easy money which allowed entry level buyers to proliferate and the people selling (thinking they made a lot of cash) just going further into debt using the easy money to move up into more expensive homes. I think the market is now exhausted. There are literally no buyers left to pay 500K for a 15oo ft2 crappy tract house in SoCal. Any one with any brains wil keep renting or simply move out of state until prices come back down.
the problem is that there are so many of them with no brains but has the money.
First of all, don’t listen to RE agents. 99.8% of them are in worse denial then most people, and about 50% of those just flat out lie.
Seriously, unless you have a very very good friend who’s an agent, do not believe them… they are either lying or very very behind the curve..do you own homework based on several and varied sources….not on what agents tell you.
I’m an ex-agent, and I absolutely believe this. I got out of the biz cause of the lying to clients, the misrepresentation, the ineptitude of most of them. I’d wager that there is less than 10% of practicing agents who are smart and honest. FWIW.
ans secondly, almost all of them wants to sell you a property.
Catherine ……I feel the same way you do. I also got out of the business years ago because I couldn’t stand it anymore either . I agree with you that only about 10% are good honest agents who really care about people . I had a feeling you were someone who had inside knowledge of how the biz really is .
Photo of Cooley:
http://tinyurl.com/nobcg
Duuuuudde…….
Isn’t that an institutional uniform he’s wearing?
It looks like he is holding in a bonghit until the photo is done.
Butler said “‘This was the weakest April since 2000,’ Mr. Butler said. ‘But we’re just following a very typical pattern. The activity in April represents a lull from the end of the holidays and preparation for the stronger summer months ahead.’”
However the MLS #s show a different story. 2001 - 2004 there was no lull from March to April for AZ. see #s and charts here: http://www.armls.com/pdfs/SoldStatsApril.pdf
When I moved here 13 years ago the Valley pop was 2.1 million. Today it’s 3.7.
Yes there will be a correction - but folks dreaming of 40% fire sales will be disappointed. The inflow of JOBS and people is so great that overhang in supply will be absorbed in an orderly fashion.
Yes the market got way ahead of itself, but end of the world pricing? - Only if the country’s economy goes south. (Which it very well may - but that’s another discussion:)
I expect a 15-20% drop in Median prices - max. Something to be concernend with, but no firesale.
Yeah maybe……….but it’s early days yet……..the bottom wont come for years yet………we’ll just have to wait and see. I’ve had 20 years in the business and have seen booms and busts before. But this one is the biggest boom the “world” has ever seen……..guess it’s back to the old saying……..”the bigger the boom……the bigger the bust”
That’s why nearly all the local real estate analysts say the long-term outlook is good for the Phoenix metro area–steady population and job growth for the last 30 years! I’m a short-term bear, but agree that the long term outlook is good. The long-term outlook was also good in the early 90’s when prices were falling and home sales were stagnant, and I think we’re looking at a repeat.