With home prices dropping across the country and as much as 30% here in Phoenix (S&P|Case-Schiller) and its towns of Peoria, Glendale and Tempe, it may seem that the real estate market is ugly.
However, like Doug Willis says, there may be A silver lining in this Dark Cloud.
The Good from Bad & Ugly is that Pheonix area home prices have back towards more affordable levels. A quick story:
A family member moved to Phoenix in early 2003 and bought a wonderful home for $220K. In less than 3 years, the same homes sold were comparable at $440K; nearly twice the value. He told me that if he moved here (at that time, that he (with wife and baby) would not have been able to afford to purchase.
This little anecdote goes towards the root of the problem that led to this debacle.
Too many people, who just needed to fill out an application, were given loans to buy houses, at almost any price. Thus, inflating home prices to a virtually unaffordable levels. Think musical chairs; and then the music stops.
Affordability, or lack of affordability, was one of the main contributors of the housing market decline.
The good from this bad and ugly is that homes in Scottsdale, Tempe, Fountain Hills, Peoria and even Paradise Valley have retraced to much more affordable pricing.
The National Association of Realtors (NAR) released their Housing affordability Index this summer which ( very simply put) compares family income versus mortgage amount. Which shows percentage increase of more than 12% from year ago. In some cases, like California and Arizona , the numbers are even higher.
It is sad to see prices drop and home equity evaporate. However, we need to get back to affordable levels to 1) stimulate buying and 2) banks will feel comfortable lending again.
Then, and only, then we will see the stability and then eventual recovery of our Phoenix area real estate market for which we are eagerly awaiting.
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© 2008 By James Wexler, *the Good from the Bad & Ugly of Phoenix Area Real Estate*
Contact James Wexler (480) 221-8080 for all your Phoenix Scottsdale area Real Estate needs
you raise an extremely important point. Home prices just got ahead of income.
I know that if I had moved here in 2004-2005 , I could not afford a home for my wife and 3 kids.
one of the most overlooked aspects to the credit crisis is that lenders are less willing to lend on inflated prices. If prices get to more reasonable levels, the risk becomes much less (houses cant go to zero) , especially with 10% or more down on houses 30% from their highs of 2005
Jason - great observation. If banks were lending on a home that was $300K, with 20% down , the loan would be $240K..
Now, that same home is (about) $210K. Put down 20% and you have a loan amount of (about) $170K. Quite a bit less risk to the banks.
I know it is sometimes difficult to find the silver lining in the dark clouds. And silver lining may be a strong word in these tough times. However, activity is picking up as prices have declined. like it or not, buyers are what drive real estate and we need them back. if price declines are the necessary evil, so be it.
Barbara - I agree, this price decline and bank owned iventory may be a necessary evil. It is sad to see the bad loans and the credit crisis drive down home values for hard working americans who did nothing wrong , just paid on time and stay in their house for years and year. Yet, I believe you are right in that until prices drop further, we will not see any improvement here in Phoenix. Affordability for homes and now mortgage affordablity (down paymnet requirements) have been just too high
Affordability and more reasonable prices will definitely be one of the key elements that help the housing market rebound. On the other hand, loosing all that equity will be a bitter pill for many to swallow.
Rich - the real victim is the good-paying, on-time paying homeowner, who works hard to pay the mortgage and as a result of risky lending and greed, their home value and equity is being dragged down by the foreclosures next door. It is indeed a difficult pill for many americans to swallow.
I dont want to see banks turn over their debt operations to the government. All we will see is more foreclosures and bank owned real estate hit the market and further dragging down home prices