Bank-owned signs line neighborhoods like suburban grave markers. New subdivisions have roads, but no houses. People ‘walk away’ from upside down loans as they might a restaurant tab after bad service.
Tougher mortgage guidelines, unemployment, prolonged ineffective harangue out of Washington regarding our $15,000,000,000,000 uh, ‘problem’, a European financial system on the verge and an overall ‘burn me once but never again’ attitude have conspired to turn about 8 million homeowners into tenants over the past year. (48% increase according to the real estate site Trulia.com)
Yes, Humpty Dumpty has had one helluva a great fall. If this were a championship fight, the trainer would have flung in the white towel years ago. Pundits have piled on too calling homeownership a ‘must avoid’, not worth the risk, the headache or the heartache.
Noted CNBC contributor, Venture Capitalist, James Altucher, earlier this year posted “Why I Am Never Going To Own A Home Again” along with ten well-crafted reasons in support of his thesis.
All of which is precisely why, as our housing bear market enters its 7th year, I posit: Has there ever been a better time to buy a house in Phoenix? Consider the following:
Interest rates are hovering just over 4%, historically low by any measure. Median home prices have remained in the 120,000 range for the past 12 months signaling a bottom being tested. Total REO’s (bank owned) closed sales during past 60 days vs same time last year, are down 21%. Buoyed by the continued influx of technology jobs, Phoenix area unemployment fell to 8.2% in September vs 9% from a year ago and under the National Average of 9%. MLS Inventory is pushing one-year lows. From over 37,000 homes on the market last December we are now down to aprox 19.5k – almost a 50% haircut (only 3.3 month supply vs 6.6 months a year ago). And don’t look now but the XHB, the homebuilders ETF, is quietly up more than 33% off its 52 week low vs the S & P at about 15%.
I will indulge with one more and perhaps most important stat: According to the Cromford Report, a leading Phoenix area industry research database, just 339 new homes were completed in October as compared with some 4000 in September of 2006.
When you merge the lack of new construction with annual lows in inventory and Phoenix’s rapidly improving home affordability index (measures debt-to income-to mortgage payment ratio) you get someone like Doug Brien, former New York Jet place kicker, now managing director of Oakland based Waypoint Real Estate Group coming to town. Doug has purchased 700 rental properties over the past couple years. “At some point, there will be a shortage of housing. Everyone is realizing that single-family buy-and-hold is the way to go.”
Yes, the big boys aka ‘the smart money’ have been in Phoenix for a while. Cromford estimates 40 to 50% of our market to be investor driven. And helping to lead the charge, Oh Canada! An October 2011 Wall St. Journal story attributes a whopping 23% of our nationwide foreign market to Canadians (up 11% from 2007). Germain Villeneuve, former Montreal real estate broker/investor and director of the Living Well Homes Investment Fund has a tidy 50 million to spend in the Valley of the Sun. Since October, he’s gobbled up 110 houses and two apartment buildings!
We have significant hurdles to be sure. Distressed inventory will continue to hold down prices near-term. The economy needs to begin expanding again and with that consumer confidence, job creation – all the usual suspects. But the underlying indicators look good and the table appears set to allow basic laws of supply and demand to eventually move the market higher.
Perhaps 70 year-old rancher Mike Castleman, founder and CEO of the real estate analysis firm Metrostudy, which has compiled new home sales data for over 30 years including crash states like Arizona, said it best, “I’m a dirt road economist who sees what’s happening on the ground and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today. The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall.”
Sources referenced in this blog:
1. ‘Canadians Warm to Phoenix’ by Chana R. Schoenberger, Wall St. Journal – October 6, 2011
2. ‘Big Money Gets Into Landlord Game’ by Robbie Whelen, Wall St. Journal – August 4, 2011
3. ‘Phoenix Home-Price Puzzle: How to Rise from Ashes?” by Jim Carlton, Wall St. Journal – November 21, 2011
4. ‘Why I Am Never Going to Own a Home Again’ posted by James Altucher, March 19, 2011.
5. http://info.trulia.com/index.php?s=43&item=131
6. CNN Money: Real estate: It’s Time to Buy Again’ by Shawn Tully, senior editor, March 28, 2011
7. Smart Money Magazine: “It’s Time to Buy That House,” September 2011, by Jack Hough
8. The Cromford Report, October 2011, by Mike Orr