Something came to light today that illustrates my contention about the current housing slump. I haven't expressed it outright here previously, but my belief about the slowdown in home purchases has very little to do about price, and much to do about psychology. I don't know how much you study the news trends, but I do a lot, having previously worked in the media. This is what I know. Newspapers will hew to the line of whichever way the wind is blowing, and if it blowing south, well, expect your news to be slanted that way. We are no doubt in a trough, and it came about for a lot of good reasons, not least of which is a run up in prices. True enough. You could barely buy a home in the $200K's in Pinal County by the end of 2005. That number goes against pretty much every reason someone from metro phoenix would buy there: affordability you cuold qualify for as first time homebuyer. That all changed when prices started touching $300K for a home that sold for $109K in 2003. I digress from the point of this post, and that is that prices are not the main reason people aren't buying houses right now. We have created a monster of psychological block: that it is a bad thing to buy a home because its value may fall, and we can't get mortgages, and we won't be able to sell it anytime soon. Those are media driven issues, much like the way media drove the "housing hot spot" message in 2004-2005. People can make the argument all day that prices are too high, but here is why I disagree. Elite Communities is offering new homes in Pinal County south of Chandler starting from $99,900. When you can buy a new home in very nice master plan starting from $99,000, do not come and tell me that people can't afford to buy. This is a pre-2003 price, and while it may not be the house of many people's dreams, if you are living with a family in an apartment in Chandler or Gilbert or Mesa, it might be your dream right now. Ifyou can buy a home whose mortgage is going to be well under a $1,000 a month, simple math says it is likely going to be less than an apartment that you can rent in any crime-free area of those communities. Most people who don't follow this information might not realize this, but most "A" grade apartments sell for well in excess of $100k per door! I can give you a long list of those. What do you think that means for the owner of those units? They have to rent at a price that gives them a return, so you can start to see the math, and the math is that you can buy a new home for less than what it would cost you to rent an apartment. We don't even have to get into the deductions, etc, to understand what a good deal that is. It makes me nuts that I bought a home in central phoenix that is noticably more money for a home that needed major updating, when I should have waited a bit and and bought a home down there. Especially since I spend half my time in Pinal anyway. Off the point, but the point should be that the price of these homes should cause a boomlet of sales, but I am guessing it won't and it cannot be about price.
We have a psychological issue with the market right now-all of us, and it about a lot more than price. I read a report in the Minneapolis Star Tribune last night that 65% of Minnsesotans have a dim view of the direction of our nation. We have a national malaise, created by the war, the housing bubble deflation, the acrimony between the political parties-whatever it is, it goes beyond simply that housing is unaffordable. I agree the resale market is going to be tough for a while, because prices moved up so quickly. But what we have now is a disparity between new home and resale pricing, in favor of new, and people are still not flocking to buy. I have every intention of buying a home in Pinal County myself, and soon I hope. At that price, I can afford to have a little crash pad condo in central phoenix for the weekend social life, buy a new a home in Maricopa so I don't have to travel back and forth as much, and still be in both for half of what a phoenix home would cost. There are opportunities in the market for potential home buyers now, and I don't think you are going to see these prices last for long, and certainly it would be hard to see that they would have any chance of going lower. It is ironic that the media rarely covers the story that Pinal County homes are so affordable again. I imagine it just doesn't fit in with the current bad news trendline. A little less doom and gloom and a little more looking for a silver lining would be welcome from the news organizations.
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