Nothing brings the amateur economists out of the woodwork like word that the Phoenix real estate market is starting slow down.
Yep,,,, market hit saturation point in relation to incomes. Get ready for stagnant prices for the next 5-8 years… Oh and don’t forget, when you buy a home you are virtually in the hole 7% right off the bat if you need to sell traditionally via a real estate agent!
That was a comment on yesterday’s post left on Facebook. I don’t disagree on the idea of leveling prices but I do disagree on the timeframe and the idea there will be no appreciation in home prices.
Taking the long view, homes in the Phoenix area appreciating somewhere in the 3 to 5 percent range annually. That assumes normal market conditions which, of course, have not existed here for the better part of a decade. But the trend line still holds as I’ve demonstrated here previously. It’s not always a smooth ride, but the market gets to the same place sooner or later.
As for the 5- to 8-year timeline … look at what just happened here.
The market topped out around Labor Day 2005 – Katrina hit New Orleans and someone shut off the lights in the market here almost instantaneously. We hit the depths, as far as monthly sales go, in 2007 and early 2008 and followed that with roaring sales for the past four-plus years. Prices didn’t start following until the last 20 months or so. So from nadir to some semblance of recovery there was a gap of almost 5 years.
In the middle of all of this was President Obama’s homebuyer tax credit which, while getting some homebuyers off the fence, also delayed the real recovery of the real estate market by creating an artificial surge. When the tax credit was there, buyers were rushing to purchase before it disappeared. Once the tax credit was gone, prices fell again as that extra demand disappeared and inventory remained relatively high, fueled by short sales and foreclosures.
It wasn’t until the short sales and foreclosures dried up that the market here really started moving.
And inevitably, the twin ideas of discovered equity due to rising values and the notion that homes could be sold and newer, bigger homes could be purchased at relatively low prices led many sellers to put their homes on the market.
That’s what is happening now. Except there are two issues …
First, while it’s still less expensive to buy than rent in some areas, we’re starting to reach an equilibrium point again as interest rates come up. I could give a dozen reasons in my sleep why it’s preferable to own than rent, but that’s another story for another day.
Second, there’s a great deal of buyer fatigue in the market. Regular folks tired of fighting investors, tired of bidding on homes new to the market only to see them gone almost immediately, are moving back toward the sidelines. Some are waiting for a drop that may not occur, others just want to rent for a while and catch their breath.
And, meanwhile, inventory continues to climb.
At the top of this post is a photograph of the Sunrise Mountain Marching Band, the Pride of Sunrise. These kids were in first through fourth grade when the market hit its highs and somehere in middle school (or just shy) when the market recovers.
Under the 5- to 8-year theory, these same kids will be graduated and gone (and some from college as well) before prices start moving again.
I don’t see it. Not unless the government steps in and does something really stupid again like the tax credit.
The market’s not dying here. It’s normalizing. It’s the way things work.