Real Life Real Estate Stories

Developers now eyeing big picture over the quick buck

Link to article

Apr. 23, 2006 12:00 AM

It’s not all about the money these days in metropolitan Phoenix’s real estate world, at least with some developers. Some builders are talking more about planning for the Valley’s future than what they can make on a deal.

[Jay's opine: Trust me, it IS all about the money.]

Look at the Superstition Vistas deal in the far southeast Valley. That giant swath of desert owned by the Arizona State Land Department could easily turn into the next series of Valley subdivisions with congested roads and not enough jobs or retail to support the homes. But for what is likely the first time in Arizona, developers, utilities and a wide range of government agencies are brainstorming how to work together to grow better. [And "grow better" = "more money". Duh.]

The groups even paid the Morrison Institute, a public-policy think tank, to come up with some ideas of how to better develop the 176,000-acre Superstition Vistas site.

Now look at Papago Park. A dozen prominent Valley real estate executives got together to brainstorm how to make it metro Phoenix’s version of New York’s Central Park.

And some in that group will likely never make money off the park’s facelift.

[Jay's opine: If you don't think a well devloped and high traffic Papago Park won't make money for these folks, I can hook you up with an agent selling swampland in Florida. Check the real estate values around Central Park compared to other parts of Manhattan...]

Also, at recent real estate industry forecasts, the talk has been more focused on water shortages, transportation problems and housing affordability than how much a building sold for or how many housing permits a builder pulled in a subdivision.

Some market watchers, like Rob Melnick of the Morrison Institute, say the Valley’s real estate market is at a crossroads. Developers see growth coming and realize there’s more money to be made if it does. [Jay says, "Um, so much for it not being all about the money..."] But if the area’s problems aren’t tackled now, growth will slow.

Talking about the issues is a good start. But it’s time for action.

Pricier apartments

The average rent on a Valley apartment jumped 6.3 percent in the past year. That’s the biggest annual increase since the mid-1990s.

It now costs $772 a month to rent the typical apartment in metro Phoenix, reports RealFacts. Renters are bound to be shocked because the monthly payments on apartments had been basically flat since 2001.

[Jay's opine: And when apartment rents rise, typically rental rates across all types of housing rise. Rents have been flat here for quite some time.]

Sweet home Arizona

Does the band Lynyrd Skynyrd have ties to the Valley’s real estate market?

According to the Arizona Department of Real Estate, a group of people claiming to have connections to the Southern rock band is contacting real estate agents across the state, claiming to have an investor who wants to buy houses or land. They try to rush the deal and ask for the agents to pay for their hotel rooms and meals. Then when the real estate agent finishes all the paperwork, the potential buyer disappears. And the deal never closes.

The Phoenix Police Department has received several complaints from real estate agents foiled by these Lynyrd Skynyrd groupies.

[Jay's opine: The Arizona Department of Real Estate should receive several complaints about idiotic real estate agents. Any agent who falls for this scam ought to have their license revoked. Too bad there's not a minimum IQ requirement for getting a real estate sales license...]

Arizona

Annette Haddad of the LA Times wrote an interesting article on real estate investors. I’ve had the pleasure of exchanging emails and speaking with Annette and can tell you she knows her stuff. The link is here, but I don’t know how long it’ll stay active. I’ve copied the full article below. (Annette, I told you I’d quote you on the blog! Hopefully since I’ve provided full credit I’m not violating any copyright rules. I don’t need the LA Times copyright police knocking on my door!)

Housing Speculators Relocate to Hotter Spots

Some who scored with L.A.-area property take their profits to Las Vegas and Arizona. Their flight may soften the local market’s landing.

By Annette Haddad, Times Staff Writer
March 18, 2006

Southern California’s high housing prices have at least one silver lining. They have kept speculators like Jay McKee from driving prices even higher — and from making them more likely to tumble.

The former technology worker from Manhattan Beach was among thousands who caught the real estate investment bug during the housing boom. He bought an ocean-view condominium in neighboring Hermosa Beach two years ago, spent $30,000 to spruce it up and swiftly resold it for a $250,000 profit.

Instead of pouring his profits back into local properties, McKee took his spoils to Phoenix. He invested in 10 properties there and started a real estate development and home-building business.

“To do it in Southern California would be much more costly,” said McKee, who has already sold some of his Arizona investments. “You definitely get more for your money in Phoenix.”

Southern California’s high housing costs have become a big turnoff to investors like McKee, who have fled for more affordable pastures.

Many analysts say that’s a good thing. Although the falloff of speculative activity probably means Southland home prices won’t surge soon, it also could keep home values from tumbling — and lead to a much more desirable “soft landing,” or flattening of prices.

Too much speculative activity from investors hoping to turn a quick profit is perhaps the biggest sign that a market — whether real estate or stocks or any other asset — is in an overpriced “bubble” condition, economists say. Too many speculators drive prices too high, and when they sense that the market is topping, they tend to sell all at once, sending prices into a free fall.

Proportionately fewer homes in the Southland are bought by investors than in Phoenix, Las Vegas, coastal Florida and parts of Central and Northern California. In Los Angeles and Orange counties, investor activity peaked during the first half of 2004, when the absentee-ownership rate reached 14% of sales.

Speculators accounted for about 25% of U.S. home sales in 2005, according to the National Assn. of Realtors.

There are reasons investors have found the Southland less attractive. Speculators often prefer to buy and sell new homes, and relatively few new developments have been built here. And the median prices of homes in Los Angeles and Orange counties, now at $490,000 and $617,000, respectively, continue to rise at a steady rate year over year.

That has made the region’s market both more costly and less prone to price surges — and quick profits — than Phoenix and Las Vegas.

Justin Lane is seeing the consequences of other speculators’ efforts in Arizona.

After watching prices double in the 16 months since he moved into the newly built Queen Creek neighborhood east of Phoenix, Lane says he can’t afford to sit on the sidelines. So he listed his five-bedroom house for sale in November.

Six other neighbors had the same idea, including one absentee owner who priced his house about 10% below the rest. That forced Lane to reduce his asking price from $362,000 to $343,000, still well above the $165,000 he paid.

“The investors are pushing down prices,” he complained.
[click to continue...]

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Regards,
Jay

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After months of a frenzied buying craze, the Phoenix real estate market appears to have shifted toward a buyer’s market.

Notice I said TOWARD a buyer’s market. That doesn’t mean we are IN a buyer’s market (yet).

On a scale of 1 to 10, with a “5” being a neutral market, a “1” being a ridiculously strong buyer’s market and a “10” being an insane seller’s market, I’d say the current market should be labeled as a “7” (and dropping). Just a couple of months ago, it was an “11”.

So the shift has been significant, but we are still in a seller’s market. Some people would argue my assessment and claim we have shifted to a buyer’s market. Everyone is entitled to their own opinion.

What evidence do I have of a change in market conditions? Lots of anecdotal evidence, not too many hard numbers…

1) Inventory is up, significantly. I’m still waiting on September numbers, but the inventory of existing homes that are listed has probably tripled in the last couple of months. WHOA! You say. Tripled?? That’s HUGE. Yes, it is. But remember the inventory was incredibly low at one point. Despite tripling, there still aren’t enough homes listed to push us in to a buyer’s market. Yet.

2) The number of homes in the MLS that have had price reductions has increased quite a bit. 3 or 4 months ago, you NEVER saw price reductions. Heck, sometimes you saw price INCREASES. Now it’s not difficult to find a listing that has a price reduction. Please note, “price reductions” is not meant to imply that the values in Phoenix homes is dropping. On the contrary, our average appreciation rate year-to-date is a stunning 40 - 50%, depending on whose numbers you use. Compare this to a national appreciation rate of 10 - 15% (which is still really good!). Now, in my opinion, there is **NO WAY** we can sustain 45% appreciation rates. No way. I think appreciation will slow, a lot, and return to more normal rates. Listing prices are being reduced in the MLS because people are still used to the previous months buying frenzy and are, to be blunt, getting greedy when they set prices. People are still setting prices with 45% annual appreciation rates in mind. Then when homes don’t sell, they drop list prices in order to generqate more interest and the dropped price reflects current reality better.

Again, home prices aren’t dropping in the Phoenix area. They just aren’t accelerating and the torrid pace of the past several months. That’s actually a good thing as it stabalizes the market.

3) Open houses. Just a couple of months ago the only time you saw an Open House sign was with a FSBO (For Sale By Owner). Now Open House signs are *everywhere*. The reason for this is simple…houses are staying on the market longer than they used to. Which leads to…….

4) Time on Market is increasing. Back in April, the average time on the market was just a few days. Homes often sold just hours after they were listed. They often got multiple offers OVER list price. This was a buying FRENZY. It was nuts. That frenzy has ended. It’s not unusual for homes to be listed for a few weeks now. (Agents from other parts of the country that just read that are shaking their heads. There are places in the US where average time on market can be measured in months.)

These are significant changes. If they continue, we may indeed find ourselves crossing over from a seller’s market to a buyer’s market. We are not quite to that point yet.

My guess, and it’s purely a guess, is that the factors I listed above will continue to shift and we will over the next few months find ourselves in a neutral market, where we may stay for awhile. Economists will tell you that all markets want to be neutral, and there is nothing wrong with a neutral market.

Should something change, and it can be just about anything, then we could swing back toward a stronger seller’s market, or swing into a strong buyer’s market. No one really knows for sure. If you could predict what the any market will do in the future (be that the stock market, commodities market, futures market or real estate market), you wouldn’t be reading this blog. You’d be sipping mai-tai’s on the beach in Tahiti….

Stay tuned, it’s going to be fun!!!!

EDITED TO ADD: Just a couple of hours after I wrote this, I received a document from my local Real Estate Association board. It contains some very interesting “anti-bubble” data. You can view the PDF file here

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