It’s very rare that I do this, so rare in fact that I can’t remember the last time I did. But I urge you, dear readers, to share this post with the people you know who may be in this particular situation.
And I almost guarantee that if you live here in the Valley that you know of at least one person. The symptoms usually involve moving either by choice or necessity in the past handful of years and the utterance of some version of “well, I’m not going to give my home away.”
They have been in our midst for a number of years … except, now, the market is beginning to give them false hope. And like someone in Vegas who stayed at the table a bit longer than they should have, the outcome likely isn’t going to work in their favor.
These people are the accidental landlords, the homeowners and friends and family we know and love who opted to rent out their homes once they moved rather than have them either languish in a dead market or sell for a fraction of what they may have been worth once upon a time.
This is a critical time for them. Many parts of the Valley are seeing double-digit year-over-year appreciation. Except …
Current Market Conditions Are Unsustainable
I had a well-used analogy for what I expected when the Phoenix real estate market not only hit bottom but started to recover. Like a car stuck in the mud, after years of spinning its wheels the market likely would leap forward once some traction was found. After that point, however, the market would go back to its normal mechanics of 3 to 5 percent appreciation just as the now-released car would start down the highway as if nothing had happened.
We found the traction and the market has leaped forward. But it has done so only because of a perfect storm of conditions – near-historically low inventory levels, historically-low interest rates, buyer demand pent up for years and a market that over-corrected well past the reversion to the mean in many areas.
None of these conditions will remain eternally and when they change, while I don’t expect a tumble like we saw in 2005 (or even the double dip that some thought we’d be in the midst of right now despite all evidence to the contrary), what I do anticipate is appreciation working it’s way back to the 3- to 5-percent annual range.
Chasing False Hope
Those accidental landlords of which I spoke? They are watching the appreciation and calculating in their heads how long at this current unsustainable rate of appreciation they will need to hold their properties to get back to even, or at least close.
- They are the blackjack player who’s won two hands after losing two dozen and is convinced luck is on his side
- They are the Schwab Active Trader manager who sat in his hotel room a decade ago, calculating how many 2-for-1 stock splits would be needed for him to retire (and who then cashed his options for less than $900 three years later when he left the company.)
- They are the beagle who keeps waiting under their boss’ desk waiting for beef jerky long since finished.
The reality is, this is the best opportunity these accidental landlords have to escape the albatross hanging around their necks for the past several years.
Could they be leaving some future appreciation on the table? Absolutely. Will they have another window where almost any house in decent condition and priced well likely will sell relatively quickly because of the sheer volume of buyers still looking for homes? Maybe.
Is it really worth taking the chance? After all, there are better ways to plan for retirement than hoping fate helps you escape a past decision unscathed.
P.S. If you don’t recall how fall we’ve really fallen, refresh your memory below (when it says present, remember the video dates to early 2007) …