My good friend John Wake over at the Arizona Real Estate Notebook wrote a few days ago that the esteemed Robert Shiller (as in Case-Shiller, as in the Case-Shiller index which tracks home values in multiple metropolitan real estate markets) has said a bubble may be forming in Phoenix, Florida and other locales.
Mr. Shiller a couple of years ago had said some areas of the Phoenix real estate market had overcorrected, which proved to be absolutely correct. (This means you, Maricopa and Queen Creek and West Phoenix, among others.)
Realistically, it’s hard to question his conclusion. In fact, it’s not too far different than what I’ve said for some time – the rapid appreciation we’ve experienced this year is totally unsustainable. The only question is whether there is a bubble to burst or, if I had said using my “car stuck in the mud” analogy, now that the market has gained some traction and leaped forward it will resume it’s “normal” historical 3 to 5 percent appreciation.
While the future can’t be foretold, I can tell you this …
- Inventory is creeping up
- Sales of detached homes in Maricopa County were down by 1,000 homes year-over-year.
- The decreased sales could indicate diminishing demand, the inevitable result of laughable supply levels or a little bit of both. I tend to vote for the latter.
Woody Hayes used to say he despised the forward pass because there only were three outcomes and two weren’t good. If you’re a would-be seller trying to decide whether to put your home on the market, either as an equity sale or a short sale, there are three possible directions for the market and as Coach Hayes would say, two ain’t good:
- Values can continue to rise, likely not at the same hectic pace of the first two quarters, but rising nevertheless
- Values can level off, which could encourage buyers to play hardball in their negotiations and generally leave the sellers with the additional cost to carry without any sort of increase in values to offset (read: bad scenario #1)
- Values can start to fall a bit, which would likely attract and scare off potential buyers in equal measure (read: bad scenario #2)
If there’s been one consistent message here it has been this: it’s a really bad time to be sitting on the fence. Because while the fence seems stable, the ground beneath it remains decidedly in flux.