Phoenix Real Estate Problems; In Silver Lining

It’s a bad wind …

Headlines are a funny thing. By their very nature, they are, of course, designed to get our attention. They are supposed to prompt the reader to read on. Unfortunately, today, few do. I mention this because a customer recently pointed to a headline, in a local Phoenix newspaper, that read, or words to this effect, “Survey shows Phoenix home prices are rising.” Boy, was he excited; and no, he did not read the article. The survey was conducted, and I will not give names, by a cable company. Yes, a cable television company. Respondents were invited to answer a series of questions by pressing a button on the remote control. They thought overwhelmingly that house prices would go up next year. How unscientific can it get? A survey is only valid when questioning a broad demographic, in this case hopefully people who buy or sell a home in the coming year, or at least have the means to do so. Potential respondents in this “survey” could range from bored teens, babysitters, people trying to change the channel, or even the wandering leg of the family dog. But people point to the headline because they want to believe. Unfortunately, the facts may lead you to a different conclusion.

I decided to do some research to see where this could all lead. I chose an area, the type of subdivision of which there are many in the Valley of the Sun, again I will not name it, that had 37 homes for sale, all very close, in the range of $ 200- $ 300K. They were all basically 3 bedrooms and 2 baths and in essence the houses were very similar as they had been built by the same contractor. Of those 37, 29 were vacant or had a tenant. This means that 78% of them are owned by an “investor”. What does logic tell you will happen to prices if some of these guys “start to panic” (if you’re a seller) or “get real” (if you’re a buyer)? Combine this with the fact that Builder continues to frantically build more competition every day – plus, it offers no-down payment financing, low-interest financing, granite countertops, and various other upgrades. Do you still think prices are going up?

Disaster, huh? Not at all. The vast majority of people bought these houses 2-3 years ago in the $ 150-175K range. It is true that some people who bought last year may have bought at the top, but historically everything should be over a period of 5 years or more. Just not in 6 months. But people who still have equity in their property get really stubborn. They hope against hope that prices will rise at the same rate as they did 2 years ago. Extremely unlikely. It never ceases to amaze me when, otherwise, sane people; doctors, lawyers and other professionals go blind to the evidence to the contrary. Many say to me: “I will rent it for 6 months and it will be fine … right?” I could, but somehow I doubt it.

Let’s look at the positive sides. For those folks who thought they were lost forever owning a home in Phoenix, this is another opportunity to set foot on the ladder with sellers, both private and corporate, doing their best to help you. They have in it!

This is also a good time to change. Remember a year ago you were so happy that your home was worth $ 500K? But it’s also sad, because your dream home with a pool and horse facilities on one acre was $ 1,000,000? Well guess what? This year, your home is only worth $ 350K, but your dream home is now only $ 700K. So last year, the move would have cost you $ 500,000 ($ 1,000,000 – $ 500,000 = $ 500,000); This year it will only cost you $ 350K to make that move. What are you waiting for?

Sailors have an old saying: “It’s a bad wind that doesn’t blow well …”

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