The Beginning Of A Housing Bubble Hangover: Arizona
A pair of reports on the Arizona housing bubble. “Here’s a sure sign that too many high-end condominiums are going up in metropolitan Phoenix: Units at two pricey new developments are being auctioned off, and the minimum bids are half of what the homes originally cost.”
“Four condos in the Optima Biltmore Tower on Phoenix’s posh corner of 24th Street and Camelback Road are going on the block this month. The high-rise homes cost $949,000 last year. The opening bid for one of the condos now is $475,000.”
“In Tempe, three condos at the Vale development will go to the highest bidder this month as well. The units originally cost $429,000 to $699,000. The ’suggested opening bid’ starts at $240,000.”
“A growing number of real estate market watchers say there are just too many pricey condos being built or were recently built and not enough buyers. Almost 8,000 condos and lofts are planned or under construction across the Valley now, more than what went up in the Valley in all of the past 10 years.”
“Condo developer Reid Butler estimates that less than 20 percent of all the planned high-rise residential projects will be built.”
And in Tucson. “Foreclosures are increasing in Pima County as the housing market slows, inflation accelerates and creative financing plans mature, experts say.”
“The number of foreclosure proceedings in Pima County that were initiated by lenders reached 1,199 in the first three months of 2006, a 27 percent increase over the 943 filings in the first quarter of 2005.”
“One reason for the increase is the relative difficulty in selling homes, experts said. During the housing market’s recent glory days, creative financing and out-of-town investors made selling a home easy. But a cooler market has changed all that.”
“‘One of the issues facing Arizona might be overabundance of available properties. It extends the time properties are on the market and has a dampening effect on marketing,’ said Rick Sharga.”
“The trends in the local home market don’t bode well for financially strapped homeowners in the future, said William Anastopoulos, co-founder of Tucson Mortgage. ‘It has clearly turned into a buyer’s market and what’s astounding to me is it’s happened very quickly. I just think this is the beginning of a hangover,’ Anastopoulos said.”
It has clearly turned into a buyer’s market and what’s astounding to me is it’s happened very quickly.
I’m a stupid carpenter and I’ve known this market was out of wack and ripe for an implosion for a few years now. There is no excuse for someone directly involved in housing to be surprised and yet I hear it all the time now.
So many people flying blind will end badly.
Could you tell us more about the conditions of employment in the construction sector? Are you Res or Com? Have things been slowing down? I have a friend doing granite counters and he says they are still busy but are mostly working on houses already paid for. I am not sure if that means people just put down a deposit or if they actually paid. How about quality during all this crazyness? Will the builders get beat down even further by warranty work? Tell us more insider Waaahoo!!!
I’m not waaahoo, but I am a masonry contractor in the inland empire area of so cal servicing most of the larger home builders in the area. I deal a lot with the land development people and the project managers and it is finally starting to crack. Plans coming in the office looking for bids is slowing down. Lots of masons and tenders coming in filling out applications (4-5 per day !). Centex was the first to start beating on us for price reductions about 8 months ago, now all of the builders are doing it. Lower positions at Ryland are scared for there job. San Diego offices of Centex, Ryland & KB have had lay offs. Rumor has it through the field personnel at Lennar that they are going to be consolidating and laying off people. The stories go on and on. According to the foward planners at places like Centex is that they have to much invested in there dirt in so cal to just stop building. Was at a sub-contractor meeting with Centex 2 friday’s ago and they told all of there subs that they told corporate that they were going to build around 2100 houses this FY and that was what they were going to do, period. The only thing they dont know is what they are going to have to sell them at ! There previous buyers are going to get steam rolled. This game plan is about the same from all of the big builders. I guess they plan on every sell being a new home. Centex did say that they have a disaster in the making as home prices are falling but material prices are still rising right now and how they need to correct this so that they will be able to make a profit in the future.
going to build around 2100 houses this FY and that was what they were going to do, period.
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I find that comment very interesting. We have heard the last few years the builders “learned a lot” from the last downturn. Many on here have suspected that to be untrue - as their business model is to build until they can’t sell and then KEEP ON BUILDING. I notice this same attitude in Bakersfield. Thanks for the excellent comments and observations.
Crispy;….They likely got cheap land and finacing that has been secured for some time…They also are beating up there Sub’s (As Masonman said) to lower their bids…All in All they likely believe they will be able to suck up most of the potential buyers that remain by offering New product with attractive pricing with other incentives like “Discounted Interest rates”…Its just things that the ordinary home seller can compete with…Thats what Masonman ment when he said this;…”There previous buyers are going to get steam rolled. This game plan is about the same from all of the big builders.”….
I agree somewhat, however, the land purchased in the IE and Valley of Ca - by the national builders- has been purchased in the last 2 years at VERY high prices. I know several farmers who sold land for $100k+ per acre. Compared to land owned by Castle&Cooke (Murdoch’s Company) that they purchased 15 years ago for $3,000 per acre.
Crispy;…Yhe 100K per acre may seem high to you but in relationship to the sales price of the house it is probably justified…Lets say 5 units per acre;…$20,000 per lot for the rough dirt…Even with likely large impact fee’s and infrastucture cost my bet is that this is relatively cheap land…
In 1997 our median income to median prices was 2.25. Today that number is 7.5.
SCDave-
We have debated this issue before. When a top 20 builder goes under - You owe me a Mondo Beer. I prefer Sierra Nevada or Bass. Thanks
Masonman;….This is about as good as it gets IMO….Info from the “Boots on the Ground” building the houses…Inside info which allows us to project where we will be in the days ahead….I would love to see a update opinion from the UCLA school on the job sector in California….September last year they predicted a recession for California if the housing market goes South…I would love to know what they think now….Great info Masonman….
“2100 houses this FY” doesn’t mean a thing in itself, the comp. is what’s important.
Anyone know how many houses Centex built last FY?
Thanks for the “insider” information and insights, Masonman. It’s good to get a straightforward assessment of what’s going on in the homebuilding sector, which we won’t get from NAR shills and HB touts.
Waaahoo and Mason man,
I hope that you will do well even in a downturn. On the other hand, I am even as a specialist physician, priced out of building in the Phoenix market. Having the lot secured, I am waiting until the construction cost per sqft comes down in the local market (currently up from $250/sft). All builders I dealt with complained about the labor and material cost but at the same time wanted 30%margin for themselves (or 15% if they would act as general contractors only with now warantee on the house). I hope my time will come in winter.
113 degrees today in Phoenix. PHOENIX - This is what HELL is like. Anyone who is buying this overpriced RE in this HELL hole needs to have their heads examined. My advice: don’t touch Maricopa/Pinal counties RE for at least the next 3 years. Possibly even more.
Total agreement. And just wait until the real fire season starts…all over the State…the perception (to those supposed flocks of folks moving to our state) will be that there is no where in the state SAFE to buy…regardless of market conditions.
Arizona will have their own Katrina.
Ah! …… The 24/7 Pizza Oven has arrived…..
Phoenix late spring, summer, and early Fall temperatures have been known to get above 110 degrees well over 100 years. Long time Phoenicians laugh when they read between your lines. “This just in: today it reached 113 degrees in Phoenix. Therefore, you are nuts to buy a house in Phoenix.” I have relatives who cannot take the heat (emotionalism). I lived in hot desert areas for most of the last 21 years and understand there is an item known as an air conditioner that works wonders where it’s hot. No problem. Otherwise, for the rest of your post, I think the area is overpriced not because of the heat, but because the house prices went way up relative to incomes in the area. I agree with your conclusion not to touch those counties for 3 or more years. The big issue is not the heat but comes in the form of h20. Arizona has been in a severe drought for much of the last 12 years and more people moving in. The chickens will come home to roost.
Speaking of water issues, did anyone see the special on the news a few days ago about the desert water company that serves the Happy valley & 7st region, in which they have went DRY?!?
Don’t put yourself down, Jesus was a carpenter, and I am an economics/finances guy, and could not build a doghouse from blue-prints. I have seen some prints and talked to framers in NorthScottsdale… some of the brains that goes into framing those tuscan rotunda ceilings is crazy. I only wish there were more “Norm Abrams’ in the biz and less illegals bringing down the skilled wage.
Cbass.
Masonman below is probably a more telling witness then I am.
I’m a word of mouth mostly residential / sometimes commercial manager small beach resort kinda guy.
That said, I see what everyone else is seeing. Sales have stopped and we are in that eye of the storm where people already into projects are still building (hence your friends business) while the sellers are clinging to their fantasy 2005 appraisals. And just today I saw a clueless older couple acting like real estate tycoons as a realtor lead them through a few impossibly overpriced duplexes.
I’ve been through a few cycles and survived only because I didn’t expand - both lifestyle and employee wise - needlessly during the good times. This time is going to be interesting because of the huge numbers of foriegn workers that are present here now. Already I see more and more lined up waiting for day work and if they stay here it will put some drastic pressure on wages which will hurt a lot of builders who inflated right alongside the housing bubble.
Quality? I wouldn’t buy anything built in the last 5 years.
“and creative financing plans mature, experts say.”
Real meaning:
“and grossly irresponsible lending scams peddled by greedy fraudulent mortgagee brokers and realtwhores to equally irresponsible and greedy speculators come home to roost, crooks within the industry trying to cover their ass say .”
That is sooooooo true.
“Units at two pricey new developments are being auctioned off, and the minimum bids are half of what the homes originally cost.”
(I’d like the reporter to interview one of the lucky buyers who stood in line overnite for one of the units)
50% reduction, I smell lawsuit!
Caveat emptor!
Who are they going to sue — their own parents, for spawning such imbeciles? Life, for not providing enough hard lessons that offer the ONLY effective instruction to fools?
It could be that these cretins’ sole purpose in life was to serve as a warning to others.
Just wondering what you believe the legal basis is for the builders’ potential liability. Short of promising the buyers that prices would always go up, I’m at a loss for what legal theory would support a cause of action for these buyers.
Good article in OC register.
“Lenders on Borrowed time”
http://tinyurl.com/zbdem
Excellent article. Expect to see more of these as time goes on.
Nearly half of their loans last year were undocumented…hmm. No red flags there.
“”Regarding exceptions to its lending standards, the company said senior employees are empowered to “consider each individual borrower’s circumstances.”"
By a “senior employee”…..I take it to mean someone who is just looking for a commission?
”Regarding exceptions to its lending standards, the company said senior employees are empowered to “consider each individual borrower’s circumstances.””
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Gee, I wonder if year-end exec bonuses are tied to loan volume?
That was a good article.
Hope the ECC scumbags are ready for the lawsuit storm that is brewing on the horizon.
These scum lenders gave loans to the worst ,creating greater demand for housing ,driving up the prices . People who cannot repay the loan should not be buying . The market price has always been what a “willing and able buyer ” can pay .I bet these lending practices pushed up prices 20/30%. What a false market .
I’m stuck on the fact that someone paid almost a million dollars for a condo…in Phoenix!
I’m a little sad for the locals in my adopted hometown of Tucson. Without these get rich quick roaches and their offal from California, this probably would not have happened.
Not directed at anyone in specific but can we have a little perspective on Californians? When one comes in and “overpays” by $100k one local walks away with an extra $100k and 20 neighbors are suddenly $100k richer. This isn’t a one sided transaction. Just as anyone is free to bid lowball 1999 prices eveyone is free to offer to sell at 1999 prices? Any offers? Alright then, any problems in your “local” markets involving Californians is at the very most only half their fault.
Let’s talk about the “road trips” and busloads of idiots being trucked into Tucson and other places to buy up unbuilt condos and housing developments, shall we? I don’t think anyone got rich on those except a few scuzzy realtors (probably from out of state), the developers, the mortgage brokers and perhaps the local Sonic Sub franchise. Nobody’s neighbors were 100K richer from this activity and yet they will endure the economic and social consequences of it.
So the property tax revenues written on out of state checks get returned uncashed? Perhaps these condos were built without municipal permits? Oh, I know, the entire city council and board of supervisors weren’t elected locally. I repeat this is not a one sided transaction. Don’t blame -just- Californians.
The neighbors aren’t 100K richer unless they sell, don’t buy a new house and pocket the money. Their kids that don’t own a house will now have to pay 100K more to get one.
Ohhhh, so the neighbors are preserving the old community values by refusing to sell at the overinflated prices and are instead selling at the old prices so that their own kids can afford to live there. I didn’t know that. Are you beginning to catch on? No or else you wouldn’t be busting on all those people who are pricing their own children out of the area with no Californians involved at all.
This is what I’m fighting here. It is all to easy to go looking for somebody else to blame, damn Californicator equity locust scurrying roaches offal dropping vultures. Anyone willing to sell their home for the 1999 price yet? If not you are part of the problem and have no standing to look any further for the real perpetrators.
I don’t recall “busting on all those people”. I just recall pointing out that your statement “When one comes in and “overpays” by $100k one local walks away with an extra $100k and 20 neighbors are suddenly $100k richer.” isn’t true unless the neighbor sells and pockets the money. If they sell and buy a new house at the higher level, they’re not 100K richer. If they do sell to pockter their money, they’ll have to go somewhere even cheaper in some new area to be able to walk away with 100K, or they’ll have to rent. I also pointed out that for people who don’t have equity, it makes it much harder for them to buy.
I think your defensiveness on this topic caused you to see ghosts.
I know you didn’t realize you were complaining about locals forcing their children to live elsewhere and it appears you still don’t see it. No one is forcing them to sell to equity locusts and no one is forcing them to sell at market prices but they are. Blaming just “outsiders” is just xenophobia.
txchick…I lived in Tucson during college and it was a swell town then…lots of charm, slow pace, great neighborhoods, etc.
The roaches have scurried about and ruined so many previously great places in AZ. I’m sick about it, and while I still love AZ deep in my soul, I’m gonna have to find a roach-free environment within the next 2 years.
I found it, I thought, in Sedona in 1993. And like the arrogant dumbass I was then, I thought it was overpriced and didn’t buy. Now, I still want to buy there but it’s completely gone out of sight.
I follow the Hawaii threads closely too. That’s the ultimate fantasy but again, just not feasible for the prudent.
I do a lot with condo conversions here in Phoenix and the work going into these is not good. They are in such a hurry to turn these things that the work is below standard. I even knew of one conversion is Scottsdale that had a mold problem but they went through with it anyway. I am wondering what is going to happen with all these conversions which were bought up by investors. I’d also like to know what happens to those who purchased but they are only one of a few. That central Phoenix/Biltmore area has a lot of conversions going on and every single one is struggling greatly. It should be soon when a lot of these go back to apartments.
Also on top of that I have talked to several contractors who have done work on these conversions and they have said that as soon as the party is over they are closing their company due to the lawsuits that will follow this. The contracts they uses basically get you no matter what. If all you did was the new sign in front of the condos, and a lawsuit came up in regards to the roofing and other things then your company is in it.
“Four condos in the Optima Biltmore Tower on Phoenix’s posh corner of 24th Street and Camelback Road are going on the block this month. The high-rise homes cost $949,000 last year. The opening bid for one of the condos now is $475,000.”
I grew up in Phoenix. To think that anyone would have spent almost a million dollars on a condo in the Phoenix area, even if it is
Camelback, just blows my mind. It’s Phoenix, for God’s sake! This has to be, for me, the biggest laugh of the entire housing bubble era we’ve been in.
How can you call it urban living when you can’t walk out the front of your building and hail a cab? Phoenix is the epicenter of the housing bubble, 40% haircut coming soon.
is that the development adjacent to the Ritz?
I believe it is. And the Phoenix Ritz, isn’t that ‘ritzy’. When I think ‘urban’ living I think San Francisco, New York, Chicago NOT Phoenix.
It seems that just about everyone I meet has at least one close friend or relative that has attempted to become a real estate tycoon. Talking to a neighbor yesterday, he told me that some close had made some money four or five years back on the sale of a home in FL to move to PA, and then also managed to make a profit on the PA home when they sold that to move to NoVA. So what did they do? You guessed it — they leveraged themselves up to the eyeballs and bought a $600K house in PA, a $900K house in FL, and a $300K condo in FL. This in addition to their expensive residence in NoVA. Now they have the two FL properties sitting on the market on the market (for months) and they’re renting the PA house for $1200/mo - a $1600/mo negative cash flow! It’s gotten bad enough that they may have to sell the residence to downsize, but — wouldn’t you know it — the value of that has dropped since they bought it as well. AFB…
This is exactly what has happened to a good friend of mine in Florida. I guess the easy money in the beginning gets you addicted-like the old drug dealers, first you get a taste for free then you are hooked!
Killed a bunch of wannabe “daytraders” in the 1999-2000 time frame too, remember?
The whole “soft landing” versus “crash” discussion boils down to perspective. To paraphrase the old parable, a “soft landing” is when some flippers and sub-prime lenders get burned. A “corrrection” is when your next door neighbor gets a 90 day notice after his ARM bumps up. And a “crash” is when the trustee bangs the gavel down on your own home.
Nah, someone else pointed out that apt metaphor is a stall.
We are experiencing a stall, the landing is in 2010.
Man, this housing bubble is really starting to come home to roost ! Stories of dropping prices seem to happen daily now. This has been a great learning experience. I think Ben’s blog saved me a couple hundred thou ! This is going to get very, very interesting as the summer rolls on.
Well a great deal of people over the age of 44 who started mortgage payments on ARMs or interest only loans in 2004 should have known better. After all, those people were in their late 20s when the last bubble in Real Estate was occurring. I was taken in by the last bubble - an amount of $20,000. Actually more than that: I was paying $475 per month rent in a 2 bedroom apartment and then in the Fall of 1990 my PITI was $960 per month. So I had an additional cost of about $485 per month over 6 years when I sold for my loss in 1996. Learned from that lesson. So I assume the buyers in 2004 and 2005 never heard of the previous real estate bubble.
“Here’s a sure sign that too many high-end condominiums are going up in metropolitan Phoenix: Units at two pricey new developments are being auctioned off, and the minimum bids are half of what the homes originally cost.”
There is no God-given thresshold which divides the “soft-landing” scenario from the “hard crash” scenario. But most would agree that a 50% drop in prices within a year would fall into the latter category — as these condos do!
Even at 50% off, these places are nothing more than overpriced apartments with lofty monthly HOA dues. Besides, the 50% off marketing ploy, assisted by the newspaper with it’s “news story” is just a way for these crooks to attempt to drum up some greater fools, hopefully to try and out bid each other on the way up to a much higher sales price. I love the way our local newspaper, television news departments, etc. in the Dallas area show equally ridiculous “news stories” in an attempt to keep this market alive.
http://chicagobubble.blogspot.com/
Can this be right? Over 115k properties for sale in Chicago? (Over 50k SFH) Oh ya, everything is fine. Nothing to see here, move along, move along. We are all coming in for one big, happy, “soft”, cushy, comfy landing. Please put your trays in the upright position, put your head between your legs, and kiss your A$$, er, this “new economy”, goodbye.
Does anybody else get the feeling that they are under-reporting the number of properties for sale nationwide??
Yes ,yes ,yes ,yes .What about all the people that bought in 2005 that were just waiting for a year to sell the property so they could get the long term capital gains rate .
Mort…for *most* newsworthy topics, we *never* get the full story. You can bet your last paycheck on that fact. They are definitely under-reporting. No, I can’t prove it, but often when you speak to someone in the industry or trade that’s affected, you get a whole new perspective…at the very least, information you didn’t have before. (thanks Masonman, et al)
BayQT~
I agree with Cote, I’m sure nobody in ARZ has for spec houses to sell(most likely to what they thing are stupid) californians or HELOCed a new 3K outdoor grill, jetskis, new Durango and a nice trip to mexico.
I’m sure there are many who can’t wait to sucker, err, sell their 4 spec homes to the very people who ruined ARZ.
What a delight to hear about the half off sale on the condos. This is just the kind of news that one part of me has been waiting for /expecting while the other part has been saying “But hold on now, doesn’t that sound a bit optimistic?”
Logically, it had to happen. But as we’ve noted many times here, when it came to buying a home, Americans threw logic out the window several years back. Is a return to sanity on the horizon? Looks like it might be!
I certainly hope so, but I know about as many people who are waiting this thing out as people who have jumped in at the top.
Some of the ones who jumped in at the top read a couple of books and think they are armed (no pun intended) for anything….at least a year of research is necessary to properly educate yourself about this market. But some people are really ant-sy. They want to buy now and you couldn’t convince them otherwise. (sadly)
BayQT~
Not to worry. Rising interest rates and tightening lending standards will force those who waited to “sit on their hands” until sellers drop their prices. At the top of the mania, everyone who wanted to buy was given free money to do so by lenders, everyone was factoring in 10%+ appreciation forever, and interest rates were a lot lower than they are now. After all these extraordinary factors have continued reversing themselves (following the reversal currently underway to its destination), then the aggregate purchase budget constraint in-and-of-itself would be sufficient to preclude purschases at last year’s peak price levels. Throw in some extra precaution because of worries about a possible economic slowdown, and other worries about falling home prices, and you have a serious drop in market values.
… and I forgot to mention the inventory pile effect. Early last year, sellers had far more market power than now, after inventories have gone up by 50% or more in many places (including SD) and sales have nearly dropped off a cliff. You simply cannot turn the clock back on the downward momentum in the housing slowdown.
I own a nice lot outright in Sedona and wanted to build on it some day. Two years ago I was quoted by local builders at $135 to $140 per sq ft to build and now they want $250 to $300 per sq.Ft. What fleece mongers. Plus it pushes taxes way beyond what I am prepaired to pay. I am presently trying to sell it and do a 1031 to Prescott where it is more reasonable.
Email me.
gymnastgal32@yahoo.com
All i want to know is what kind of market research did these builders do??? I mean who the phuck moves to AZ to live in a NYC priced condo???… built of steel and glass in the sun. ?? What complete morons. I was just in Old Town Scottsdale, and the hi-rise condos…a la Waterfront and Optima Camel “No” View are just hideous… nasty…. why would city hall allow them to build $uch hi rise crap… AND if you ride down to 202 and Rural road, you can see that crap Tempe Lake (sess pool) condo project with 737-800 blazing overhead by 700 feet above you every 2minutes. PUKE!!!!
Phoenix is the 5th largest U.S. city. Many residents think highly of Phoenix. I’m a native Californian and love Los Angeles and San Francisco as much as I love Phoenix. NYC priced condo? I doubt it. They are going for $5,000,000 in Manhattan. As far as comparing to S.F. Phoenix has a number of Advantages: no earthquakes. Compare to Florida: no hurricanes and no tornados. Also Phoenix has lower taxes than San Francisco. The views of the mountains outside those Camelback lofts are great. I work on the third floor of a building in Phoenix and enjoy our conference room and xerox room. Both have great views of Camelback Mountain. The area is Arcadia and there is actually a lot of green outside those windows. But I would guess you never have been to Phoenix and you think you have a lot of knowledge of it to make your statements. BTW: I rent. I am concerned about the future of water in Phoenix. If I were to own property, it’s where there is plenty of water.
I reread your post and did catch that you were in old Town Scottsdale. Well I guess the heat got to you. Plenty of people with money enjoy it in Phoenix all year round. Plenty of people do not want to do yardwork and love the nightlife (pro sports, bars, and so on). Old Town has night life. If you want the sparkle of Manhattan without the sunshine, you can just fill a purchase order for something on fifth avenue. That’s if you got many millions of dollars. I don’t like the summertime stickiness of Manhattan. I sweat easily. I like low humidity areas. My area in Phoenix had 4% humidity yesterday.
OT: For AZ residents - pick up rolls of quarters. Especially in Tucson. Supposedly, people have been finding 2004 Wisconsin quarters there, with the extra leaf. It’s worth a nice amount. I’ve seen them for sale on Ebay. PCGS.com is a good place for values of them.
http://www.weknowurban.com/HighRise-Loft-Listings/Optima-Biltmore-Towers-Listings.htm
I don’t know if the above shows up as a link. But you can cut and paste it in your browser. Or just click on the square by my name. The link is another site about the price reductions at Biltmore. Don’t know the date of the web page. The price reductions are not as dramatic, but they are significant, nonetheless.