There’s an article that keeps appearing in my Inbox these days – from my wife, from links on Trulia, from investment groups who are claiming it as original work – so much so, that I have to link to it and comment along …
(And by the way … those folks in the Inland Empire and San Diego County who foolishly and selfishly thought they were the epicenter of the housing meltdown … pishaw! If an economics correspondent based on Hong Kong says it’s Phoenix, clearly we win.)
Paul Hickman, the head of the Arizona Bankers Association, says for Arizona the current recession is worse than the Great Depression of the 1930s. “Then,” he told Cronkite News of Arizona State University, “our economy was young and we were just barely a state.” Now, he says, Arizona is suffering because it became excessively dependent on a “one-dimensional housing economy.”
Fair enough on the last bit. Arizona does depend in large part to housing, to construction, etc. That’s what happens when the state has been growing for the better part of four decades, for better or worse. There have been lulls, for certain, but even past real estate mistakes from the savings and loan days eventually came around.
However … this recession is worse than the Great Depression? Perhaps our correspondent thousands of miles away is seeing large tent cities (and not Sheriff Joe’s Tent City) filled with those who no longer have a home on Google Earth. Maybe he’s finding craigslist ads of apples for sale (and not the baked goods my daughter took home $20 selling a few weeks back at a lemonade stand.)
After all …
The local unemployment rate is stuck at around 8%. While below the national average, only 4,900 jobs were added in the past year.
Eight percent unemployment. While I am in no way trivializing who devastating being jobless can be (take it from someone who with his wife both have been through layoffs in our lives), that doesn’t quite stack up to Depression-era woe. And, please, don’t bother with the explanation given that Arizona was barely a state in 1930. That was the case, but in admitting it’s an unfair comparison you’re also admitting it ought never have been made.
The scope and severity of the current crisis easily eclipses that of the ‘80s and ‘90s. Phoenix’s population is now 45% larger and, as new suburbs encroached ever farther into the desert, residents have been squeezed by long commutes and the sharp run up in gas prices. Housing economist and retired ASU Prof. Jay Butler says of the current downturn, “nobody thought it could get this bad.” He foresees no significant recovery for two more years.
I’m not necessarily going to argue with that, though much depends on how the banks respond to the current conditions of extremely low inventory. If more homes come on the market at current value, values almost certainly would need to rise at least a little.
Some local realtors dispute that pessimistic assessment. They point to strong existing home sales in June, up 22% according to the National Association of Realtors. It was the second consecutive month of strong sales, with the June figure the strongest recorded since December 2006.
Here’s where we’re running into trouble … bringing in national numbers to try and explain a market that led the way up and led the way down. In June, we had the strongest sales we’ve seen since the 2005 hysteria – more than 8,000 single-family detached homes in Maricopa County alone and more than 10,000 properties overall. Doesn’t much matter what happened elsewhere, honestly.
But while sales may be up, prices are not.
Depends where you are, actually. (Go ahead and look, I’ll wait. Good? Good.)
The NAR report says the median price of a home sold in the Phoenix area in June was down 13% from the same month in 2010.
Again, shocking. Do me a favor and jump back to the charts, or just take a look at this letter “u”. By definition, for a bottom to be reached, it means prices were higher in the past. I’m almost certain that if prices were to be higher year-over-year next year, suddenly folks trying to prove a point would go back two years to look at prices.
Or go back to the 2005 high water marks.
In this city of 4 million, the 14th largest in the United States, the median home price is down 53% since the bubble peaked in 2006 to just over $120,000. Only smaller cities such as Las Vegas and Orlando have witnessed equally catastrophic drops.
Damn, I’m good.
In Phoenix, that is already happening. As home prices declined over the past year, rental rates rose 9%. Nearly half of the distressed homes sold over the past year have been turned into rentals. Michael Trailor, the director of the Arizona Housing Department, says “the shift from home ownership to rentals in the Valley will continue as home ownership shrinks more.”
A little off-putting for those who own, as renters tend to have more of a laissez-faire attitude with the properties in which they live, but not really a problem in and of itself.
Ironically perhaps, the shift to rentals is occurring while home affordability has improved. With home prices way down and mortgage interest rates very low, this is the best time in at least 20 years to buy. In Phoenix prices have slid back to the levels that prevailed in 1998 or 2000.
Hey, I didn’t even say it! A non-Realtor said it’s a great time to buy! Though I do confess to adding the boldface type just to make it pop.
Finally, here’s probably the best part of this article:
The unexpectedly severe downturn over the last five years shows that nobody really knows the future direction of the housing market.