Posted on 11/07/2006 5:39:16 AM PST by yoe
PHOENIX — Until recently, this fast-growing area was a paradise on earth for home builders. Fulton Homes’ developments, for example, were so popular last year that it was able to raise prices on its new homes by $1,000 to $10,000 almost every week.
“People were standing in line for lotteries,” recalled Douglas S. Fulton, president of the company, one of the largest private builders in the Phoenix area. And they were “camping overnight begging to be the next number in the next lot in the next house.”
No more.
Today, it is the company’s sales agents that do most of the waiting. Not only are there few new customers to talk to, but many buyers who put down a deposit are not even bothering to come back for the walk-through.
“All of a sudden, they just don’t show up,” Mr. Fulton said, noting that such cancellations often mean the buyers forfeit as much as 5 percent of the price. The reason? The prospective buyers got cold feet or simply could not sell their old home.
The striking contrast tells the tale of a housing bonanza turned bust. Today, the number of unsold homes in the area has soared to almost 46,000 from just a few thousand in early 2005. And builders are pulling back as fast as they can.
They have little choice. Sales cancellations among big builders, not just here but around the country are running as high as 40 percent, double the rate a year ago.
[snip] Local officials issued 60,000 single-family permits in the metropolitan area in 2005, twice the number issued in 2000.
(Excerpt) Read more at nytimes.com ...
While I don't buy the doomsday scenario, I do acknowledge there will be a correction.
How on earth can a real estate market be sustained when average household income is $48,000 and the average house is $300,000? Simple math says that doesn't work. The take-home pay on that income is about what the mortgage payment is on that house unless they have a HUGE down payment...which, on 48k a year, how much can they really have?
In my local area there have been a lot of price reductions, but sales are very, very stagnant. Very little moving at all.
I'm still here! Gave up trying to sell for the time being.
Oh, and more and more of houses that used to be for sale - both new and I noticed a few remodels - are now for rent.
I know of someone who "bought" a house but she is married, does not work, she had her husband sign a doc. saying he has nothing to do with the house, and her mother gave her 1k to use as a down payment. The house is a shack and she paid $230k for it. How in the world can someone buy a house like this? If it were you or I, this would be a no-brainer. The mother and the husband are not listed anywhere on the docs.
Go figure. I say this was a corrupt deal.
It's aliens alright, but from California not Mexico. Happens every 5 to 10 years in AZ, a bunch of real estate speculators who can't find anything to play with in CA anymore come to AZ and start throwing around CA money in the generally cheaper AZ market. This works great as long as they keep finding more Californians to sell too, but eventually it peaks out the same way the CA market was when they decided to look elsewhere, meanwhile they completely priced Arizonans out of the market so they can't sell to us. Eventually they crash and Arizonans get to buy back their property for normal AZ values or less, meanwhile the Californians leave a bunch of money behind in AZ so it's good for the local economy. But there's always that pinch time, and a few local companies who screw up and over commit. Happened in the commercial real estate market in the late 90s, happened in domestic before then, the pattern just keeps on repeating.
"AZ will recover because it has demographics on its side."
"It can't happen here, we're special". Heard that before.
"People will continue to move out of CA,NY,MI,OH etc. and move to the Southern US."
Who are these "people"? The fabled boomers who are going to sell their overpriced McMansions and flock to the southwest for the "good life"?
Sure, IF they can sell their homes in NY, CA, Maine, Utah...you might have heard, home sales are slowing everywhere. Kinda hard to buy a new overpriced sheetrock castle when you can't sell or rent the old one to cover the mortgage.
Add into that, AZ is severely overbuilt, a lot of the homes on the market are in the middle of nowhere, with no infrastructure, JOBS, or even shopping. Sure, it's warmer, but it's hard to justify the cooling costs in AZ on a fixed income. For the worker bees, the job market in AZ flatly sucks, and that's from the people I know who live there, or tried to.
We won't go into the near-war zone conditions of southern AZ. Some of the stories have been posted here. Better have good insurance if you move there!
"There are probably some good deals long term in AZ now."
Do tell.
Where?
"If you read the whole article is states houses are selling for between $60-80/sq ft. You CANNOT build a house anywhere near that price especially in that market."
It would be pointless to build, as the state is OVERBUILT. Irrelevant. The issue is, the houses are overpriced, the local economy cannot sustain the housing prices, and prices are falling. I don't care how much a house cost to build, the only number that matters is the price it will sell for. Right now, that's less each day. How long until it stablizes? That's the gamble. Are you willing to bet $100,000? I'm not!
"It is a CLASSIC correction in an overheated real estate boom where too many short term investors got into real estate similar to the stock market bust of 1999."
Finally, something that makes sense. Yes, it is going to be like the stock market bust...but this one might be a little bigger...it was'nt just flippers who drove this market up. Lets look at the lenders who allowed "no doc" loans, stated income, gave toxic loans to people making 24K a year so they could buy $500K houses, and then look at the equity locusts from CA who have been driving up prices across the country.
"If you can buy a house and rent it to cover your cost it could be a good LONG TERM investment."
This is becoming increasingly difficult even in the softer areas, as prices have been driven so high, the only way to afford the mortgage is through toxic loans, and then the rents you can get - which will drop in the next couple of years, it's already happening in some of the worst areas (My rent, which has always fluctuated quickly in response to the housing market, as I live close to SF, did'nt go up this year. That has never happened, in the years I have lived here) - rarely cover even the principal, let alone the insurance and taxes and such. The time to buy rentals is a couple years from now, when it's cheaper to buy than to rent, because you will quickly be losing money every month if you buy now. Rentals purchased 10 years ago are money makers now. Rentals purchased now, will lose you a lot of money for a long time. AZ housing prices do NOT reflect the local economy, and the local renters cannot afford to pay your mortgage. Period.
Your advise would make sense in a different market - right now it's financial suicide, unless you can afford to get a traditional 20% down, fixed rate mortgage you can afford - and it's dumb to buy in a falling market, if you don't have to. All I see these days is a lot of wishful thinking and damned nonsense when it comes to the housing markets, and utter deja vu to the tail end of the .com implosion.
http://thehousingbubbleblog.com/
They've been right for over two years, they predicted everything that's happening now. The real estate shills and naysayers here? Most of them have been utterly wrong. Do the research. I can't see AZ as anything but utterly screwed, for quite a while.
production homebuilding is a low margin factory business without the factory. tremendous capital requirements mean high leverage; means high risk. ask anyone who was in the "oil patch" in the mid 80's. the competion is anyone from a pubicly traded company who cares a wit about profit and instead is after "market share", to the guy who has to unload his inventory because of his 3rd divorce. it is one tough business, i know because i did it for years. like any other business, it's what you don't anticipate that crushes profits.
cheers.
It depends what state they are in. In many states, if your spouse buys a home, even if you're off the deed and sign off on the mortgage you are STILL considered owner of the home according to state law, and therefore responsible for it in an indirect way.
Assuming her husband is living there, it's probably a legitimate deal. He makes the money, has bad credit, she makes no money and has good credit.
I see what you are saying. Yep, he lives there and works, she lives there and does not work. Interesting.
Last I heard about two months ago, the average home price in the Phoenix area was up 7% over the last 12 months. So if the price corrects back down 7% then prices will be flat over the last 12 months, which is hardly a crisis. There are always corrections in all overextended markets, and bigger rallies have bigger corrections in terms of the dollar price.
Yeah but be careful how you interpret housing inventory: new home inventory is a much more meaningful number because those houses have to be sold, whereas there are a lot of people living in existing homes who put them on the market just fishing for a high price. They're only going to sell and move if they get that high price. We saw this in California a few years ago when we were selling my parents' old home. You may think that prices are 50% too high, but I promise you there will not be a 33% correction nationwide to take out the 50% excessive pricing that you perceive.
Or put another way: My home is worth exactly what someone else is willing to pay for it, and not a penny more. Unless I refuse to negotiate, in which case it worth not a penny less than my minimum.
Your average California homeowner, after selling his/her CA real estate will probably be able to pay cash for the house they buy in Phoenix so don't cry much for them b/c they won't have to worry about a mortgage.
Isn't that the truth?
I went into a Carl's Jr. the other day, and all five workers there, from cooks to cashier to busboys, were native Mexican, and both times that I ordered food, the accents of the two cashiers were so heavy that I could barely understand them...and everything they said to each other as they worked was in Spanish. It was bizarre, it felt like I was in Tijuana!
It seemed like Carls Jr. is discriminating against native-born Americans. Our Latino population here is probably 1%, so how else could a crew of six people ALL be Mexican-born workers with extremely heavy accents if they weren't deliberately onlyhiring Lations?
Ed
It works out he paid about 210/sq ft. Now houses on his same block are selling at 121/sq ft.
Yeah, he's a moron, but all the houses on his block have been up for sale for months and prices cut quite a few times.
Where did he buy this property?
SE of Carefree Highway and I17
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