Phoenix Housing in the News, other tidbits

There was a recent article posted in New York Resident magazine that lists Phoenix as a top 10 place to own a second home. It gives a few highlights about desert life, and pretty accurately reflects the current situation with the housing market. Here is the link to that article...

Also, on the techinical side of things, there is a question that many people in the real estate industry have been wondering about for the last several months. I don't have the answer yet, but here is the question and some more evidence that the premise of the question is valid:

If we have so much growth of population in the Valley, why is our housing market still stumbling along?

Perfectly valid question, because I wonder about it myself. Where are these people living if they aren't buying houses, and to hear it from the apartment industry, that market is cooling as well. Well, a little birdy at the DMV says that 300,000 thousand licenses were turned in for new Arizona Driver's Licenses this year through August. There were over 10,000 Californians claim AZ status alone just in August. That is not an insignificant stat, and people have to live somewhere. If we do have strong growth of population, and evidence points to the idea that we do, then where are they going? These people are not going to be staying on friends' couches forever. I am optimistic that there is a growing amount of people that are going to be in need of housing in the very near future here. It seems almost inevitable, although this idea could be offset by the following piece of analysis.

On a related note about future demand trends, and this may set off some strong feelings with some of you; this is not a political blog, so please refrain from judgement as I am only analyzing this from a real estate professional's point of view, not a sociologist. There is a lot of talk about many immigrants leaving Arizona in preparation for a new employment law coming into effect in January. I forget the nature of the law, but it boils down to it will be hard to get work if you can't prove you are legal. At least in theory. This could have the effect of lowering the population in the valley, further exacerbating the housing vacancy issue. I will make no judgements here, but it is a side effect of a tougher immigration policy, and although I don't know how much effect it will have, it could be substantial, and whether you are in favor of strict immigration control or not, this couldn't come at a worse time for the housing industry and it will cause some pain. It is a brilliant example of why you address problems like these sooner than later. We have all gotten use to higher home values and lower home maintenance costs and job growth in part because of immigration, and now we have to fix it. We have become use to the things that come with it that do benefit us, whether right or wrong, and we will be paying in various ways, including flat property values as we thin the population. I hope the expected influx of baby boomers does offset this in the coming years, as i think a vibrant real estate market is crucial to Arizona's continued success.

One last item related to new home sales. A local tracking report that I read detailed a horriffic week in new home sales. There were actually a lot of new sales for the week-maybe not a lot, but a very respectable showing, let's say. The buzzkill was the number of cancellations that came too uncomfortably close to zeroing out the sales. It was really ridiculous. There are going to be weeks like that, I suppose, and I know of at least one builder administratively through a significant number sales into cancellations probably based on the public report not being up to snuff or something like that, but still a cancellation is a cancellation, and nobody likes to see those. There is definitely some hangover regarding loans, although I have heard that is easing significantly-or maybe it was just never as bad as the media pointed out. We are going to have to watch new home sales figures very closely; as I have said, I think there is a good chance that new home sales will recover before resales, as builders have pricing power that most owners do not, and it is no competition. We are seeing subdivisions come on line starting in the $99K's as I noted in an earlier post, and that is crazy reasonable. Eventually this will drive some sales. The buyers in this category, first time homebuyers, to a large degree, were the first traumatized by the price increases of 2005, and once they realize they can afford homes again, they will lead the market back to recovery, if there is to be one.

New Home Prices in Metro Phoenix too High? Think again...

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.

Resale Home Estimates 9-24-07 to 9-30-07

Home sales statistics for the week of 9-24-07:

Universal Pending Sales: 3656 (-599 from last week)

Pending Sales + Active W/Contingencies: 4108 (-643 from last week)

Sales Closed 9-24-07 to 9-30-07 1295 (+558 from last week)

Active Listings as of 10/01/07 56543 ( -685 from last week)

Obviously, this week benefitted from the end of month closings. More troubling is that the pending sales have fallen steeply, and active w/contingency contracts have not been replaced by an equal or greater amount of new sales. Still, the methodology I am using is less than a month old, so it is difficult to say definitively that sales are falling off for this week. It is nice to see total listings going down at least a little. Hopefully, this reduction in actives becomes a trend. New sales figures should be available on Thursday.