Jay’s Opine: Sorry, I haven’t had time to really disect this latest one from the Republic. I see it’s actually time-stamped as being released 26 minutes from now, which seems kinda odd… So here at The Phoenix Real Estate Guy you can actually get some news stories before they are even written. I’ve been trying to tell you people how amazing this blog is!
Last year we sold home houses to investors site unseen, much like the article mentions. Investors are a big reason there are now over 46,000 homes in the MLS, as opposed to 4,000 in January 2005. More on that later (and July stats are coming SOON, I promise!). I’ve just been insanely busy lately. I apologize to those avid readers who come here to find something new. I’ve neglected you lately.
So here’s a tidbit from the Republic. Not my favorite paper, by a LONG shot. But at least they are good for the occasional gem like, “Buyers need to do their homework before entering into a contract for a new house. ” Well duh. I believe 90% of the population has enough sense to know that. OK, 70%. Regardless of the dumbing down of a lot of the Republic’s articles, they do at least offer some local insight…
The law of gravity trumps speculation
(article link)
Aug. 2, 2006 12:00 AM
News flash: The law of gravity wasn’t suspended in the Valley. In last year’s sizzling real estate market, home prices and sales kept going up.
And up. And up.
At least one of four sales was to a speculator. Prices skyrocketed 55 percent in 2005. Sellers raked in profits as bidding wars drove up prices.
And now, an astonishing number of people are startled to find that the law of gravity still applies to the Phoenix area.
They’re stunned that prices are leveling off. Amazed that houses take nine weeks to sell instead of flying off the market in three. (Jay adds: actually in the height of the boom, houses were flying off the market in three hours, not three weeks. And MANY take more than nine weeks to sell now, largely due to over-pricing. There ARE buyers out there….)
For some, the market came down with a loud bang.
Those who treated the Valley’s housing market like a casino, buying homes sight unseen and expecting to cash in a big winner every time, deserve no pity if their gamble isn’t paying off.
Average buyers who got caught in the middle - rushing to trade up to a more expensive house and now unable to sell their old home for enough to swing the deal - are a more sympathetic case. But some of them, too, have been caught up in a risky round of flipping property, letting greed overcome good sense.
Good sense was also missing among homeowners who rushed to tap equity and will owe more than their houses are worth if prices decline.
The truly sad tales are home buyers left in the lurch by construction companies that stop projects in midstream because of rising costs, cash flow or other problems. Turner-Dunn Construction Inc. abruptly halted work on some 200 houses in Casa Grande and Maricopa.
It may be a cold comfort for buyers left holding the bag, but at least the state Department of Real Estate and the Registrar of Contractors are investigating Turner-Dunn.
And Arizona, unlike some states, has a recovery fund in case customers are stiffed by licensed contractors. But there are a lot of hoops, including getting a legal judgment, and payouts are capped at $30,000, with a $200,000 limit per contractor. A lot of Turner-Dunn home buyers stand to lose thousands in earnest money or pay out big bucks to get other companies to complete the construction job.
The boom-bust cycle is so much a part of the Arizona landscape - and real-estate history has repeated itself so often - that it’s unlikely any lessons will sink in.
But here are a few things we should learn:
• The definition of a good market depends on your point of view. The run-up in prices last year, which pushed the median home past the quarter-million-dollar mark, was great for people in the real estate business and buyers who could cash in.
But it jacked up the price of housing in a place where affordable rents and mortgages used to offset relatively low wages.
Two years ago, the typical metro Valley household had more than enough income, 114 percent, to buy the average existing house. Now, that household earns just 84 percent of the amount needed for an average home. (Jay adds, I wish these reporters would cite their sources. I believe this one, I’d just like to know the source)
• Buyers need to do their homework before entering into a contract for a new house. That includes looking into a company’s track record with the Registrar of Contractors, the Better Business Bureau and other projects, as well as carefully reading the public statement. The down payment should be paid out in several installments as work progresses. But it’s hard not to be swept away when the market is so hot that builders hold lotteries for their next phase. And a relatively new company may be hard to check out.
• The Valley is tied into worldwide trends. (wow, how profound!) The innate value of our housing market wasn’t driving prices here. Favorable interest rates, low returns on other investments and demographic changes have fed a wave of speculation in places like Dublin, London and Singapore, according to Jay Butler, director of the Arizona Real Estate Center at Arizona State University.
• The next time around won’t be different. (Jay adds–THAT is indeed a fact!)
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