How Far Down the Rabbit Hole Can Phoenix Real Estate Go?

avatarthumbnail.jpgOver the past three months, the Phoenix real estate market has accelerated from slowing down to a steep fall down the rabbit hole. The over-arching question is how much deeper into Wonderland can the market fall. And for this, I’m afraid there doesn’t seem to be an answer. Logic is on holiday.

Those who argued – and rightly so – that it was illogical for real estate values to rise by multiple percentage points ever month back in 2005 would almost certainly have to argue it’s equally illogical for values in some areas to be dropping by percentage points over the past couple of months even after the gains of 2005 have been stripped away.

Of course, logic doesn’t have anything to do with this. In many areas, the state of the market is wholely due to the proliferation of bank owned homes and the banks’ desire to move inventory. It’s 2005 in reverse; recent comparable sales mean next to nothing when it comes to pricing property, aside from providing a baseline from which several percentage points can be shaved for a new listing price.

In some instances, the value of a given property gets lifted back to the past sales levels because of the presence of multiple offers. But that’s not a given. And that leads to banks putting almost ludicrous prices – prices akin to what my parents paid for their house in 1977 – on homes in an effort to elicit multiple offers and a far higher price.

Emotion has everything to do with the current real estate market. Fear has kept many on the sidelines. Yet when people do jump in, they’re more than willing to forget all that they have heard the past couple of years and start raising the bidding on one particular home when there are others available.

The best example I’ve seen recently was a bank owned home in Laveen that had a 3-car garage but no air conditioner. At one point, the bidding was more than $10,000 above the original asking price of $105,000 – this, for a home without air conditioning. There were a dozen other comparable homes, comparable in every way except for the 3-car garage … that lack of supply was causing the same hysteria we saw in 2005 to happen, just at 33% of the price.

An utter lack of logic permeates everything. The other day I read someone’s comment that buyers should just sit on the sidelines until the market improves. Which, of course, is impossible. Without demand, supply doesn’t diminish and prices fall further.

If you don’t need to sell, don’t. If the planets aren’t aligned correctly and this isn’t the best time for you to buy, don’t. No blanket statements here. For some it’s the right time to buy, for others it’s not. Plain and simple.

At least it seems plan and simple. But as we continue to delve deeper into the rabbit hole, fewer things seem cut and dried.

[tags]Phoenix real estate[/tags]

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at


  • red 9 years ago

    i read several phoenix blogs, but nobody explains why housing should bottom any time soon – considering the huge disparity in price-to-rent ratio and earnings to price ratio. families on average make, maybe, 40-50K in phoenix == 125K-150K average home price. we are at 200K avg price now right? consider stricter rules for mtgs in the picture.

    another factor obviously is the deflationary forces(= everybody wants to wait for prices to comedown) in economy and high unemployment rates in 2009-2010 timeframe. That said, i am sure you will see seasonal reliefs in real-estate – which i wouldn’t mistake for “the bottom”.

    Houses as an investing idea is lost forever (ifnot, atleast for next 10 years).

  • Jonathan Dalton 9 years ago

    For some, Red, yes, investing’s dead. For others, not so much.

    In some places the disparity exists. In other parts of the Valley, it no longer does.

    My point was whether it’s logical for homes to be selling now in some places for prices from a decade or more ago?

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