‘Market Is Going To Be Dicey’ In Phoenix Area
The Arizona Republic has these updates on the Phoenix area. “West Valley home prices have held relatively steady since the end of 2005, but resale homes are lingering on the market longer as developers try to unload their inventory of new homes using deep discounts and other incentives.”
“In the fourth quarter of 2005, the average resale home in Surprise’s 85374 ZIP code sat on the market for only 11 days before being snapped up. But in the first quarter of 2006, homes in that same area remained on the market for 50 days on average. That’s more than a 350 percent increase, the steepest jump among all ZIP codes in the Valley.”
“With the downturn in the housing market, speculators and home buyers are canceling their reservations, pushing developers to give enormous incentives and Realtors a bigger slice of the pie.”
“David Nichols, a Surprise real estate broker, says the sharpest increases are occurring in communities where the greatest number of new homes is being built, places such as Surprise, Mesa and Gilbert. ‘This is just a minor hiccup that has received a lot of sensationalism,’ he said. ‘It’s too bad.’”
“Worried about declining home values in the Valley? If you live in central Phoenix, north Scottsdale and patches of the East or West Valley, you don’t need to fret. In other pockets around metropolitan Phoenix, the average price of an existing home dropped 6, 7, even 12 percent from the fourth quarter of 2005 to the first quarter of this year.”
“‘The Valley’s housing market is going to be dicey for a while, and it’s best to track it by neighborhood,’ said Terry Turk, president of Sun American Mortgage of Mesa. ‘I don’t think we are at the bottom of the market, but it shouldn’t be a dramatic drop from here.’”
“(Broker) John Foltz said home prices in established Valley neighborhoods should be stable, but newer areas on the perimeter, such as Queen Creek and the far West Valley, are likely to struggle as new homes continue to go up. Part of Glendale in the West Valley saw a 7 percent dip. The average price of a home on the southeastern edge of Mesa dropped 12 percent.”
“‘It’s possible that home prices will drop 5 to 10 percent overall,’ said Jay Butler, director of the Arizona Real Estate Center at Arizona State University Polytechnic.”
“Declines should be pretty painless to most homeowners, unless they bought last year during the peak, have tapped all the equity in their homes or are trying to sell. Home prices in most of those neighborhoods shot up more than 100 percent in the past five years.”
These reports are something of a sea-change in reporting from the AR. Here are a couple of related links:
South Tempe
Prescott
But.. but… my realtor just told me that prices have only gone UP for the last eighty years! And that while I couldn’t afford a home that I might want, it would be better to just buy something now before I’m priced out forever!
Unfortunately, this is a true story.
Sorry to hear that Disillusioned. Although some of the people who frequent this blog are smart, fiscally-savvy people who knew about the bubble long ago, others of us found Ben’s great blog only after we got burned by the market and realt-whores.
Basically, the stunning increase in inventory stands in stark contrast of the realtor rhetoric where we have heard, “everyone wants to live here”, “there isn’t any more land”, “Inventory will always remain tight”…
There’s simply no wiggle room left for the real estate complex when it comes to the inventoy conundrum - that flat-out contradicts all of the heavily used sound bite remarks. Time to ask about these BS gems and get serious about getting them to acknowledge asset bubbles and when it is in the cycle that they will actually say uncle…
And, remember that they are not making any more—
D is for dicey, desperate, desolate, dead, despairing, despondent, desultory, delusional…
D is for done, as in stick a fork in this RE bubble!
So Queen Creek makes the local rags, eh? Can’t you just hear the shrieks from all the FBs trying to sell or rent out there? That is just too funny.
I wonder how many over at SDCIA are seeking counseling right now…love it…
Actually somewhat on topic.. check out the proposed state quarter designs for Arizona. Looks like over half of them are just silly:
Arizona state quarter designs
There are actually several referencing the housing boom and its effects. Some of my favorite:
BYOW
Go Away
Cactus Construction
Great Views, Hurry!
And finally..
Great Weather!
I’m sure Arizonans would be proud to be represented by any of these.
Ok, some of them are quite hysterical, I can’t believe someone submitted the cardboard sign “Will work 4 food”…
“Declines should be pretty painless to most homeowners, unless they bought last year during the peak, have tapped all the equity in their homes or are trying to sell. Home prices in most of those neighborhoods shot up more than 100 percent in the past five years.”
Hmm… This just doesn’t make sense… There must be a hidden message in here. ..
Price declines are “painful” if they lead to negative equity, which may be for those who bought in the past few years, or those who have tapped their HELOC. I don’t know what percentage of people this may be. I’ve read that about 29% of people who bought in 2005 have zero or negative equity. But what the number for ALL owners?
The girl I play golf with, still has her house in Cave Creek for sale. It has been on the market at least three months. Starting price was 419K. After 4 or 5 price reductions it is now 364K She has had NO offers at all - None. Even after pricing it much lower than other houses in the area. 55K off of a 419K house is more than 10% and this is in North Scottsdale.
tell her it’s cool unless shes trying to sell,eat,live,move
Yes- - it’s cooler than Furnace Creek (123F today).
I’ve seen your posts before (so it was nice getting an update). I would be a serious buyer in Scottsdale (I also like Estrella Mountain Ranch or Las Sendas) if prices retreated back to late 2003 / early 2004 levels. I don’t need to screw anyone, just to get back to before things went whacky.
“Worried about declining home values in the Valley? If you live in central Phoenix, north Scottsdale and patches of the East or West Valley, you don’t need to fret.”
This is a crock of crap. North Scottsdale will get stung just as bad as anywhere else. I personally know many FB’s who bought $800K, 100% financed home on $80K/year salary. The numbers will not lie when the rubber hits the road and these ARM’s reset.
Burn, Phoenix, burn.
Heh, a “friend” of mine is in exactly the same position. He and his wife do not make 80K between them, yet finangled into an “$800k” custom home in “Greyhawk Manor”.
There’s a bit of panic setting in for them now that they can’t seem to sell their previous home for what they need, and the renter they found to cover that mortgage just backed out. The bomb’s fuse is getting shorter every day.
OT–if a flipper has multiple houses and “walks away” from one of them, can the banks come after any equity in the remaining houses? Is there any way in which the flipper’s primary residence is in trouble?
There is no such thing as “Walking Away” without going through a complete BK proceeding which you couldn’t do if you had equity in other properties other than your home. It also depends on the state. Florida protects your primary home which explains why so many crooked executives build their McMansion there.
Don’t forget famous football stars - cough cough “OJ Simpson” cough cough
I believe Craig Berkman (former pension fund manager) changed his residence from Portland to FL the INSTANT the accusations started to fly! Way to Craig!
Crooked execs (especially those taking advantage of Florida’s bankruptcy laws) aren’t building McMansions, they generally get the real McCoy (gaudy yes) but just like all the others on the block they aren’t.
the foreclosure process will allow a lender to seize and dispose of a property at a loss. the loss can be judicially attached to the borrower by means of a “deficiency judgement”, as well as reported to the irs as income by a 1099. the only exemption to this is when the mortgage foreclosed was used for the purchase of the house, it was not refinanced, no equity was drawn and it is not an investor property. safe to say that there aren’t too many that will be exempt. deficiency judgement paper will be traded like bad credit card debt, if there’s meat on the bone someone will go after the flipper. imho.
I believe you are describing CA’s laws regarding recourse.
State laws vary and so will FBs mileage.
Actually, I think he’s more or less spot on. In Arizona, you can go after a deficiency judgment if the foreclosure sale doesn’t bring enough to cover what you owe the bank. The exception, like he mentioned, is when it’s a mortgage on a primary residence.
As for California, I don’t know the extent of their laws, but I do know they offer at least as much protection as Arizona in this regard, and probably more. While Arizona has the one exception to deficiency judgments, I think California has a number of them. Someone can correct me if I’m wrong.
I think it depends on the laws of the state in which the loan was made and the terms of the actual loan.
Is the loan recourse to the borrower, or not? (I’m guessing yes)
Is the state a single action state, or not? My understanding is that in a single action state, the bank can go after EITHER the property, or the borrower (including all the borrowers other assets), but not both.
I think the primary residence being at risk is also state dependent.
“Still, with tens of thousands of people moving to the Valley each year, Nichols says he believes the housing market will pick up during the second half of the year.”
Can anyone confirm this claim ? or was it pulled from the Realtors heinie like most Realtor “Facts”
2nd half starts in 2 days ,so there’s plenty of time
plus its over 100 every fckin day then, that helps
“he believes the housing market will pick up during the second half of the year”
Keep dreamin’ buddy. Historically, the second half of the year is the slow season for RE and this year won’t be an exception. The best days of RE are behind us and it just gets much, much worse from here. The sooner sellers (and Realtwhores) realize this, the better off they will be, because they still MAY be able to complete some transactions if the prices are well below recent comps. However, as we’ve discussed a thousand times on the blog, nobody wants to buy a depreciating asset. Fence sitters will continue to fence-sit as long as there is blood in the water.
OT: if Bernanke STOPS raising as he’s making noises about, that will just kick the third leg of the stool out from the housing market as any final impetus for buyers to buy before rates rise again will be removed.
AzGolfer, she needs to drop it another 10% and get another agent, soon. Phoenix is going to get ugly by October-November. I was a broker/owner of an investment and property management company in Phoenix for over 15 years (80’s-90’s). This is going to make the 82 recession look like the good ‘ol days.
Anecdotal evidence: I was meeting my banker the other day and there was a loud discussion at the other bankers desk (looked like a doctor). I remarked “weird huh?” and the guy tells me they’ve had a lot of that lately. I said “oh? what is going on?” He told me that he’s had about 30 new credit lines opened in the last 2-3 weeks that were to people that needed extra money to pay mortgage payments that were delinquent or due. He said he’d done 4 that day, and that “he sensed a real increase in the tension of their customers”. I am a bit skeptical that people would admit they needed the loans to make their mortgage payments, but that is what he said.
“If you live in central Phoenix, north Scottsdale and patches of the East or West Valley, you don’t need to fret.”
BS. My bank is north central and I live in north central and have been watching 3 vacant homes (no for sale signs) for months. There are at least 4 more with rolloffs in the front, fixerupper-flippers that are bagholders and don’t realize it yet. John McCain’s house is nearby, and is still for sale after 6 months.
Actually I kind of like that John McCain’s house has not sold yet. Too many corporations, lobbyists, etc. would be willing to pick it up if they thought it would put a politician into their debt. Duke Cunningham comes to mind but maybe I’m too close to the situation.
On the other hand McCain is one of the few I actually like and who I think cares about the average person so I hope it sells soon. And long term the buyer does not regret it.
You’ve got a short memory. McCain is as crooked as the rest.Remember that he was involved and was one of the Keating Five along with Cranston and three other Senators.McCain is also infavor of Amnesty for the illegals now. More reason to sh-t can him.He won’t protect his own citizens in AZ from illegals.
I’m completely agree with you
Right on about McCain! Kinda like “good cop-bad cop”, but in the political arena it’s more like “bad cop-worse cop” and painting McCain as some maverick “hero” to Joe and Mary Sixpack is like putting lipstick on a pig.
As Pismo stated above, McCain doesn’t give a rat’s @$$ about you and I — he’s selling the heart of America out to big corporate interests and loves to cry about how we can’t deport 12-20 million illegals and then dismisses all sensible solutions (like cutting off govt bennies or busting employers) as “not in my playbook” or some such BS.
Fred
I agree with you about the price drop, but this girl is still in denial and I don’t like her very much. If it was someone that I liked I would have a heart to heart talk about what’s happening in Phoenix. She bought a Toll Brothers condo at the height of the market. 400K for a 1,200 sq ft place. It took six months more to get it built than she was told. It is going to be interesting to see what she does when the builder starts dropping the prices on the units around her. She is also a really bad golfer Ha Ha!
Soooo funny! At times, I love playing golf with people I don’t like. It gets my competitive juices flowing and I’m quite good when it matters or money is on the line.. I remember you mentioned her before and that she wasn’t one of your favorite people. Your soooo bad.
“I agree with you about the price drop, but this girl is still in denial and I don’t like her very much.”
Then why do you play golf with her? I hate playing golf with people I don’t like.
“She is also a really bad golfer Ha Ha!”
Oh. Never mind. Now I understand.
One of our co-workers had to borrow $500 today here in San Diego (bought last year), we asked him for what, he said his new mortgage payment.
He won’t be able to afford the new payments much longer. I see this trend in San Diego accelerating over the next year.
Fred,
I get accused of “being out of touch” with today’s business practices at least once a day so help me out here. Mr. Flopper (at this point it doesn’t really matter what the guy does for a living) can’t keep current on his “investment” properties and obviously he’s tried/tapped out the HELOC approach so now he basically wants an un-secured loan (with int.) to make house payments (all int.) that are losing value by the day? How did this guy make it through medical school? Not that it matters.
By and large, doctors are uniquely clueless about money. Mainly because they have big salaries and zero time for reading / research. Also they tend to hang out with (and/or be married to) other doctors. I kinda feel a little sad for them.
Anyone who actually has to deal with them doesn’t however.
Well move to Canada!
Your health costs are out of control!
Too many malpractice lawsuits don’t help.
Texas put caps on malpractice awards, and it did nothing to lower medical costs or doctor’s insurance rates. Funny how these terrible “malpractice lawsuits” were all we heard about for years, and now, not a peep. On to the next scapegoat…illegal immigrants.
‘The Millionaire Next Door’ really shows doctors as poor investors and big spenders. Very interesting read it you haven’t read it yet.
Be careful who you stereotype. The CEO of United Health is a pulmonologist who is worth over $1.5 Billion.
Why would you expect physicians to be good with money? You wouldn’t have your accountant take out your appendix.
“The CEO of United Health is a pulmonologist who is worth over $1.5 Billion.”
Net worth of $1.5 billion thanks in part to back-dated option grants. That number only shows that he is overpaid, not how poorly or well he manages his finances. We’ll see how long Dr. McGuire lasts as CEO.
You don’t have to be an accountant to be good with money. It takes only a little discipline and common sense, not years of training.
Don’t blame Dr. McGuire for compensation package - it was given to him by United’s BOD - which is made of professional financial experts.
As for his job performance, United’s ROE has been one of the best in the Healthcare industry - and the main reason that the BOD was willing to pay a king’s ransom to keep him onboard.
“Don’t blame Dr. McGuire for compensation package - it was given to him by United’s BOD - which is made of professional financial experts.”
McGuire has served as Chairman of the Board for fifteen years.
Exactly - sounds like a pretty smart physician to be.
Any attorney out there who either took a class in securities law or has ever done research involving the reading of cases knows that it’s the doctors and dentists who get snookered. The reason for this is the unique combination of money, know-it-all attitude, and zero business sense.
They have the money to throw into “investments,” they also think their intelligence that has allowed them to become doctors translates over investment opportunities, and their lack of business sense dooms them in the end.
You’re not going to see nearly as many CPAs, attorneys, and MBAs ever get taken for a ride.
Doc speaking here:
your attitudes are true to a point, but I think the major reasons we get snookered and are so bad at this are:
1) we have more money to “invest” (due to relatively high incomes). So when we invest it we can lose more than the average Joe. (so people take notice, which can cause a “recall bias”)
2) we are highly sought after by “investment advisors”, moreso than like a social worker, less so than like a basketball pro. We’re an easy mark.
3) we work longer than the average person. (how many on this board have ever worked over 100hrs/week? I did for 8 years). The lack of time can leave us with precious little to research other options such as financial stuff.
Some of us (few) do learn finance. I’ve taught myself a lot about economics/finance in the last 2 years. Prior to that I didn’t know ANYTHING, and got screwed over bigtime myself. Not because I thought I was so smart, but because I trusted financial “advisors” that marketed themselves towards my crowed. (silly I know, but when everybody uses the same financial advisors you don’t realize they might all be marks). In fact, our MEDICAL SCHOOL (very prestigious) brought in some “excellent advisors” to “teach us what to do with our money once we start making it, so that we don’t squander it and so that we have a good longterm plan”.
clouseau
“In fact, our MEDICAL SCHOOL (very prestigious) brought in some “excellent advisors” to “teach us what to do with our money once we start making it, so that we don’t squander it and so that we have a good longterm plan”.
That’s too funny.
How about instead of lumping MDs into one category, separate the lifestyle doctors: dermatology, diagnostic rad, psychiatry from the workaholics: cardiac surgeon, trauma docs, ENT, etc?
This way, the lack of free time will be factored in.
I have a friend who moved to PHX recently. (actually a few friends)
Spoke with him about 3 weeks ago. He said “Phoenix is awesome. everybody’s moving here!” His proof: there were 7 houses for sale just on his block that he bought in. (sorry, not sure which area, forgot to ask… probably Scottsdale though because that’s the “hip” area and he only does hip)
His main gripes:
1) he gets severe sunburn almost every day so he must stay inside.
2) he now feels like Phx is “kinda suburban, more than I thought”
3) he isn’t big on how far it is to the airport.
4) he isn’t big on the lack of direct flights in/out of Phx. (he’s a travelling consultant with 100% travel, and now needs to make more connecting flights since PHX isn’t the hub for any major carriers, just AmericaWest)
clouseau
Weather in Phoenix today: high 108, low 87.
“Awesome” is exactly right, but not in the teen-ager sense of that word.
“7 houses for sale just on his block that he bought in”. *@%$#*&%$ That should tell him something! He’s in for a rude awakening. Sounds like he bought out in the boonies. I can be at the airport in 12 minutes.
“Everybody’s moving here”. Yes, food servers, bar tenders, mexicans, intinerant construction workers (soon to be leaving) and greater fools from California and the east coast that think prices here are a bargain.
“greater fools from California and the east coast that think prices here are a bargain.”
An old 2 bedroom 2 bath condo in San Jose 1200sqft 1 car garage goes for over $500K right now. For half that price you can buy a house in PHX , you can’t blame people for thinking thats a bargain in comparison.
If a young person makes this move, I wonder whether their net worth will suffer in the end? While spending $250K on a home instead of $500K is a positive, if incomes are lower then over the course of a lifetime, won’t the person likely end up with a smaller net worth?
If the 500k net worth (after tax) is only worth 250k because of inflation running at 7-8% (forget the phoney CPI figures) he’s better off. The dollar will buy more and his increase in wage is ‘worth’ more. Fiat currency is worth nothing (almost).
Last week a friend drove me from one neighborhood to another in Seattle to show me all the new construction and “prove” to me that Seattle is !!!HOT!!!
It was a terrific tour of the overbuilding now going on in the city and I thanked my friend over and over.
Last Fall my parents in FLA. basically told me I was nuts to think RE would go down. The proof? There were so many new buildings! They actually sent me articles from the local paper with the typical headlines “Baby boomers on their way to FLA!!!” We’re running out of land!!” etc.
It’s going to take a while for people to realize that all those new buildings are a bad sign for RE values in their area. At some point they get it. My parents get it now. ‘Course, they are at one of the ground zeroes.
Here’s an interesting thought from an editorial I was reading. Can a pause in rates be the final blow to the housing market?…….
“Another major problem is that the housing bubble has finally burst. Thus far it has only produced a slow leak, but by next year the air will be rushing out with gale force winds. Because the loss of paper wealth and the purchasing power associated with it could potentially produce a recession, some argue that the Fed should pause. Ironically, one of the only remaining props in the housing market is the belief that the Fed will keep raising rates, which pushes remaining home buyers to buy before mortgage rates move up. However, once the general perception is that the Fed is done, this last remaining prop will be gone.”
Interesting. I know in our area realtors advertise to “buy now while rates are low”.
For the rest of the editorial: http://financialsense.com/fsu/editorials/schiff/2006/0629.html
Wow, I had never thought of that. That would be the most ironic finale ever.
Wow is correct… that hadn’t occured to me… If prices are level and so are rates, there goes the “I must buy before I’m locked out” pressure… Hmmm… I’m going to steal this idea for a dinner I’m attending tomorrow night!
Neil
That is what I have been saying all along . The only reason for any kind of a buying season was the old “get in now before interest rates go up ,” rally by the salespeople .
Also the “buyers market” illusion to explain inventory was promoted in the press by realtors .
The NAR and realtors are already saying that 2007 will be a rebounding year for the real estate that has slowed down currently . You know ,” real estate is just taking a little breather “. This is what the real estate cheerleaders are selling people .
With prices stabilizing or dropping, with Fed rates perhaps stalled, the last argument the Realtors will have regards inventory, which certainly does not favor them now. In time, though, inventory will start dropping as folks who don’t need to sell, take their homes off the market, and FB’s who can’t make payments lose their homes to foreclosures (the latter “disappearing” from the market until the bank holds it as a REO). Then we’ll get the spin. Better buy now while the homes are still there!
The thought that higher interest rates will lead to higher mortgages has been dismissed by recent data. The “record” low interest rates of the last few years have been accompanied by “record” high house prices. Guess which effect dominates? That’s right, the housing price. This bubble will deflate the opposite of how it inflated: housing prices will tumble, interest rates will rise somewhat, and the end result will be lower mortgages for those who are patient.
“average price of an existing home dropped 6, 7, even 12 percent from the fourth quarter of 2005 to the first quarter of this year.”
I love how a price growth that took 5+ years to start and mature leads some to assume that the other side of the cycle is 1 quarter long. We’ll see more logical leaps as the YOY decline numbers come in. It will be painful/fun… I’ll enjoy it 110%. :-/
Declines should be pretty painless to most homeowners, unless they bought last year during the peak, have tapped all the equity in their homes or are trying to sell.
I know of almost 51k who are trying to sell…Anyone care to guess how many more fit this quote?
What sort of ass names a town “Surprise”? Imagine living in a place with a stupid name like that. You would think that alone would hold down property values by 20% to 30%.
“What sort of ass names a town “Surprise”? ”
Go to Hell. Michigan, that is.
That town name is ironic now that Michigan is turning Muslim. What’s the Islamic counterpart to hell? “72 Cranky Menopausal Women, MI”?
It was named by founder Homer Ludden after his hometown of Surprise, Nebraska. Mmmm…..Surprise.
http://www.surpriseaz.com/index.asp?NID=41
You should see some of the crazy town names up in Maryland: “Detour”. “Accident”. I’m serious. Then there’s “Funkstown”
where a friend of mine lives. Probably knocks a few $ks off the house prices to have an address in Funkstown.
Homer Ludden, Surprise, Nebraska/Arizona?
He wouldn’t have passed through Maryland, too, would, he? Another friend of mine showed me a place (subdivision?) on a Frederick County map, place name was: Homer’s Delight. Oh gawd. Thankfully, it was unincorporated, else imagine THAT on your address. And then there are street names, and what they can do to the property… but don’t get me started!
Don’t forget Honktown on the Delmarva peninsula.
kind of goes both ways–hard to beat Freedom, California (just East of Santa Cruz)
Swinger Hill, Canberra, Australia.
This is a townhouse development, so it’s mostly rentals. I heard once that initially some owners got a rental premium from youngsters coming to Canberra from interstate for work, who wanted to freak their parents out.
How about “Sugar Tit” South Carolina
Big Beaver Lick, Kentucky
Don’t forget Big Bone Lick State Park, KY…didn’t know there was also a Big Beaver Lick, that’s no coincidence!
http://parks.ky.gov/stateparks/bb/index.htm
Intercourse, PA
This is an incredible coincidence! I’m pretty sure I’m going to visit sugar tit tonight, for sure big beaver lick and I’m hoping to be able to make it to intercourse as well, before the night is over. What are the odds?
LMFAO!!!
You sure you won’t be visiting Blue Ball, PA?
I thought the same thing when I first heard the ads for Irvine, CA in 1982. The name was dumb (everyone wanted to call it Irving)TV ads were incredibly cheesey. “Come to Irvine, a dynamic and innovated community!” It sounded like this bazaar experimental planned community. Nobody with any sense of style wanted any part of.
I read the editorial this morning and “only remaing props” also caught my eye. There are no props left.
Increasing rates have simply compounded the number of people that can’t afford median housing. The only thing that can give is price. The three most important words in real estate are affordability, affordability and affordability!!!
I’m responding to nnvmtgbrkr’s post above.
Fred - Regarding affordability, do you expect prices to ever get to the level where property values will be equal to the investment value or rental value? Since speculative excess and appreciation are being wrung out, why should the price of a house not be fairly close to the return that the property can generate? Or am I missing something? Thanks.
As a result of the Tax Reform Act of 1986, unless you are actively “in the business” of real estate, you can’t offset real estate losses (including depreciation) against ordinary income. I haven’t kept up with the tax law so the above may not be totally accurate. So, tax implications would be a big factor. For most people I can’t imagine that long term SFH or condo’s will ever pencil-out, even with a decent downpayment. When you include vacancy, repairs, replacements, professional management fees in your calculations, I suppose you’d have to buy at 50% or less on 2005-2006 market values to come close to breakeven, even with 25% down. Just an off-the-top-of-my-head guess.
I live in Hawaii and am visiting Chico, CA, at lunch today my wife and I were having a bit to eat and read the local real estate rag. The median house is 340K and the average household income is 29K. We looked at each other and said “Uhhhh how does this add up”. We can only wonder how these people make things ends meet.
Even people that won a free house from HGTV can’t afford this market.
http://tinyurl.com/g63zu
McMansions for everyone!
Mike in Pacific Beach,
Sad. Just sad. While an extreme case to be sure this is occuring on a smaller scale from coast to coast as we speak. You can peck away at their extravagant lifestyle but how different is it really from the UPS Driver/Nurse couples (honorable professions mind you) that elected to “live large”?
Yea it is sad, if only buyers would have followed the advice at the end of the article:
“Can You Afford Your House?
If you’re worried that the honest answer is no, consider these steps
Over the past few years, many home buyers have snapped up McMansions and other pricey houses, financing the purchases with low-rate adjustable mortgages and small down payments. But as those loans adjust upward, many may find that they need to rethink.
HEED WARNING SIGNS
If you’re paying more than a third of your gross income on housing (including mortgage, homeowners insurance and property taxes), you may be in over your head. When assessing your financial ability to stay in your home, also take into account repair and maintenance costs. In a typical year, you should count on spending between 1% and 3% of your home’s value on these expenses.
SEEK MORTGAGE RELIEF
If you have a 15-year mortgage or less than 20 years left on a 30-year loan, and you’re likely to stay in your house for at least five years, you can lower your payments by refinancing into a 30-year fixed-rate mortgage. The downside: It will take you longer to build up equity in the house, and you’ll pay more in interest in the long run. To see how much you might save, go to mortgage-calc.com.
DOWNSIZE NOW
If you run the numbers and find that you’d be struggling to make your monthly payments even after refinancing, consider selling now and moving into a less costly home. While the housing market is cooling, prices are still going up, albeit slowly, in most areas of the country. So you should still be able to get out with a profit. Wait much longer and that may not be true.”
Yes, but these people were spendthrift fools, with multiple cars, parties costing thousands of dollars, didn’t even sell thir dumpy house in the snow/rust belt. Heck, it’s been a while since I saw that article, but were they even working? Sometimes people deserve the financial disaster they’ve earned themselves. These lazy idiots didn’t even try to make a go of it.
This is unbelievable. The guy is asking $5.5mil. The realtors tell him it’s worth $2.5mil. And they talk about a “worst case scenario” of $1mil. This guy will never sell the house, and it will end up in foreclosure.
As I read this, it struck me that this household has absolutely zero understanding of basic finance. They were gifted a large asset (the house), but they went on to crank up their spending by actually living in the house and driving the SUV. Is there NO ONE around them that can provide any advice?
“The lights in the great room are going out one by one because the lamps that hang from the ceiling are so high, they’d need scaffolding to change the bulbs. Don, 41, and Shelly, 38, have never slept in the master bedroom–it’s too secluded. At night, “Don obsessively checks a live video feed of Donald’s room, two floors away from the bedroom they occupy, to make sure his son is okay. ”
Well, hey, who WOULDN’T want to live like that?
I’m seeing more and more posts about ‘walking away’ from one’s house (and mortgage).
First of all, it seems that people don’t realize that when one signs that mortgage one is making a personal PROMISE (and legally binding agreement) to pay back the money.
But the conventional wisdom these days seems to be that if things don’t work out to the borrowers advantage…well, oops, too bad, never mind!
ah…that’s NOT how it works folks. If you signed the mortgage, YOU ARE ON THE HOOK FOR THE MONEY. Sucks I know…but thems the facts.
For folks who have mostly purchased no-money down, it will be a hard task to digest the fact that they will now have to “save” their downpayment after all (forced) if they wish to refinance/sell when they are underwater. And unlike saving for a downpayment without time pressure here you have to save enough to keep up with dropping prices. Perhaps the US savings rate will grow tremendously after all.
not only that ken, but when they use the defense that they do not have the capacity to pay the mortgage (as they “stated” their capacity on their loan application), they’re setting themselves up for a nice fraud case as well. deficiency judgements can and will be enforced if there’s meat on the bone.
“What sort of ass names a town “Surprise”? Imagine living in a place with a stupid name like that. You would think that alone would hold down property values by 20% to 30%.”
Probably the same guy who named a town Truth or Consequences.
SURPRISE, your new house payment has just doubled!
O.K. a bit off the Phoenix track, but I’ve just got to tell this story.
I have a co-worker (actually subordinate and as of today, ex subordinate) who had set his transfer date (today) to move out of state about 4 months ago (Broward CO, South Florida) due to a job transfer. Four months ago he priced his home at what he thought he might have been able to get last summer (which was way too high for the current market). He also was doing the FSBO route as he felt his house was “special” and would sell fast, so why bother with a realtor and paying a commission, a rich Venezuelan or Colombian will buy it with cash (that’s a popular statement with sellers around here), blah, blah, blah. In an instructional sort of way (I’m about 10 years older than him) I tried to explain everything about the housing bubble, what was happening with the South Florida market, real buyers being priced out, buyers not wanting to catch a falling knife, speculators gone from the scene, sellers chasing the market down by setting the price too high all along the way, etc. As most of you have experienced, all I got was the vauge look from him like I was nuts. I capitulated a bit and said, well o.k., since you do have four months, you might as well price it high for now and maybe you will get lucky…buttttt, pick a point in time, say about 40 days before you leave town and do a sincere price drop (below comps) to make your house stand out in price and you should be able to sell and close before leaving town.
- Any way, as you can probably guess, he is following the mold of all the other greedy sellers. The interesting thing is, I don’t think that he actually believes he is being greedy. These sellers who have had almost 100% appreciation over the last 3 years (if they sold at the end of LAST year) REALLY think that their houses are worth the inflated bubble price and are not ready to lower the price much. Even though these sellers can easily sell at lower prices and still walk with a decent profit. When he told me it was worth the price he was asking, I asked him how he valued worth? Especially since he only paid half as much 4 years ago. I told him worth is only what a buyer will offer to pay, not some arbitrary number that you set. As my story continues, this guy finally listed with a Realtor last month after three months of no offers while doing the FSBO route. The new price is 21k less than what he started at (5% cut), AND now he will also have to pay the commission. However, it is still probably priced at least 20k to high to attract any attention. So…to wrap up this story, this guy and wife and kids are moving cross country tomorrow and the house is empty. He now is on the hook for paying PITI on the empty house, plus HOA, AND UTILITIES, which here in South Florida are expensive in the summer (try $275 min) due to air conditioning. He stated at his going away lunch today that he hopes no neighborhood teenagers vandalize the house or that a hurricane hits before he gets an offer. Geez, I almost puked up. I just sat silently though and made no reference to our previous conversations. It just wouldn’t be polite to do a “I told you so routine”. This guy is a mid-range employee with a stay at home mom wife. He can’t afford to carry the costs of the empty house. I think he is banking on the fact that his new realtor told him it would probably sell in about 60 days (1 month ago). Even when I heard that, I wanted to say the realtor just pulled those numbers out of their a@@. Dude, it is all about price. Just lower the price! He is a sterotyped example of the denial stage here in South Florida.
Great anecdote. I am sure there are millions of others who have contributed to that nationwide mountain of used home inventory who are going through exactly the same denial stage about now.
You are so right. It IS all about price.
“I told him worth is only what a buyer will offer to pay”
Exactly. Econ 101. This was one of the fundamentals of economics hammered into us in my high school economics class. I remember what a hard time most of the class had accepting this, because they had never really thought about it before. They’d argue price was set by the sellers, or by ‘the market’. Well, who makes up the market? Those looking to buy. Once this was discussed, debated, and digested, I think most of us students finally ‘got it’. I just wish more high schools offered
classes in economics/finance/money management.
Where is Phuckthe flippers and his Arizona inventory list? Haven’t seen that in a while….
is it at 50k yet?
He posted a few days back. About 50,400.
As slow as this server is and as long as the AZ inventory list is he may have started the download last week. Should be posting any moment….
download, upload, whatever….
I’v seen lots of commentary over the months following the housing market in Phoenix. Is Tucson a mirror image of Phoenix from a real estae perspective?. Retiring in a year and considering a move from Salt Lake to Phoenix or Tucson. Comments on the two would also be interesting
Phoenix is an acquired taste, for sure. I have lived here for about 10 years now, and am just now coming to terms with the heat. It is a pretty “rural” place for a so-called “big-city”. The cultural events, etc, are pretty slim.
We have a hell of a lot of crime here, and I’ve noticed that it’s gotten a little worse each year.
The jobs are there for now, but don’t expect to make a ton. The average employee here makes about $35 - $40k per year. The average “household” income is less than $70k. There are a ton of service industry jobs if that’s your thing, just don’t expect to be able to afford a house.
Also, before buying a house here, I suggest living here for at least two years. It is extremely easy to find a “great deal” on a new home, even close to Phoenix. But what they don’t tell you is that they built the shiny new home smack in the middle of meth row, and that you dare not leave your house at night, let alone leave it unbarred / unlocked for fear of getting shot. The only people who buy them are those that had / have no clue.
These pockets are hard to spot if you are not extremely familiar with Phoenix and the surrounding areas. One block can be fine with great neighbors, etc, while just one block away it is cars on cinder-blocks and dope dealers blasting music hanging out in the front yard all day. Most people who are newer to Phoenix don’t find out in time, or do poor homework on their neighborhood.
Phoenix isn’t horrible, with all of that said. It is just… Provencial. Suburban to the core, with very little personality of its own other than the heat.
Disillusioned - Well done commentary. I agree that Phoenix lacks any discernible personality. More than anything it lacks that ‘pulse’ that you find in more dynamic cities. Miami has it, but Phoenix…zzzzzzz. Phoenix in a way is just one sprawling retirement mecca . It is that retirement undertone that this city can’t seem to shake.
“The cultural events, etc, are pretty slim.”
It’s not NY or LA, certainly , but there’s enough going on from September - May. Herberger, AZ Opera, and the Phoenix Symphony all have decent seasons, Scottsdale Center for the Arts brings lots of varied things, and ASU has plenty of music and theatre events during the school year. Some weeks I often find two or three events that interest me.
Of course, during the summer it’s best to just sit in air conditioning and rent a DVD.
Good points, I do love the Herberger. My problem is that these things, the Opera, Symphony, Theatre… none of these really stand out or get anywhere *near* the attention that they should get.
Nothing here really “stands out” I guess. Phoenix just needs something to make it ‘pop’…other than the heat. Heh
I just heard on the news last night that the mid-decade census for the U.S., now has Phoenix as the 5th largest city in the country. The Valley of the Sun (all of the cities and towns) has a population of about 3 million (or 1% of all Americans). So I wouldn’t classify all the communities the same. At the high-end you have North Scottsdale and Paradise Valley with multi-million dollar mansions and businesses that serve their owners. On the poor end you have communities like Guadalupe where you can still find very inexpensive property. Out on the fringes in Pinal County (home of the ground zero of the housing bubble - Queen Creek) you can find farms and LOTs of new construction. Keep in mind this is 50 miles from downtown Phoenix.
BTW .. The Phoenix Symphony is great and has a tremendous new conductor - Micheal Christie. I highly recommend it.