Of course the legal disclosure that our high priced attorney’s make us issue… This is our opinion, in no way do we have a crystal ball, and while I would like to think I have an open line with God, he is not whispering real estate advice in my ear.
Now back to our regularly scheduled problogging.
No doubt about it, prices in the last couple of hears have gone crazy. Many areas of East Valley have seen spikes as much as 30-35%. So the easy assumption is this is another run up in pricing and the only way to go is down.
Michael Orr, the Arizona State real estate expert recently said it best, it is only a bubble if it pops, otherwise it is just a large increase of value.
So let’s look at some of the differences between what is going on now and what happened in 2005-06 time period.
First, in 2004-2006 the lending standards loosened to an unreasonable level. This caused an artificial demand of home buyers looking to buy a house. People who should have never come close to qualifying for a loan were doing so. Results were your basic supply and demand caused by an artificial demand.
Now, anyone buying a house easily qualifies for a loan. Lending guidelines have swayed the other way and are stricter than they probably should be. Anyone buying a house right now is qualified to do so and there is not a higher than normal risk of them defaulting later.
Despite how it may appear, the demand now is not unnormally high. The demand for houses right now is very standard.
The issue is inventory. When half of Phoenix home owners are still underwater or are just at a break even point and unable to sell for a profit, that creates a big issue with supply. Half of the people who normally be selling right now are still riding it out.
When you look at the numbers, that is almost exactly where the active listings are compared to a normal market, about 50% of a normal market.
The most likely scenario is prices continue to increase another 10-12% over the next year and with that many thousands of people who have been waiting to sell will be able to. At that time we will see a loosening in inventory and the natural balance of supply and demand will start working to level out the market.
What about the investors dumping inventory?
I have heard this argument a few times recently too. What about all those large investment portfolios that own 10-11,000 homes who may sell for the quick profit. Won’t that kill the market when they flood the market with homes?
Any agent who represents buyers will tell you, bring it!
Because if they dropped all 11,000 homes at once, won’t ever happen, but let’s go with it anyways, if they dropped all 11,000 on the market today we would be at what we call a normal market. 11,000 homes would get us to about 24,000 active listings, just below what a normal market would be.
I have heard every argument you can imagine. If you think you have one that explains why the great bubble II is coming leave a comment below and let me know. I will debunk that next
The only one I have not been able to debunk is “what if the national economy completely collapses like in Japan?” Well if that happens then all bets are off, but I am willing to take that gamble.
Image credit: tdoes / 123RF Stock Photo