Saturday, May 23, 2009

The Phoenix Housing Boom

by Bill McBride on 5/23/2009 05:38:00 PM

A couple of articles on Phoenix...

From David Streitfeld at the NY Times: Amid Housing Bust, Phoenix Begins a New Frenzy

With this sweltering desert city enduring one of the largest tumbles in housing prices for any urban area since the Depression, there is an unrelenting stream of foreclosures to choose from. On some days, hundreds are offered for sale at the auctions that take place on the plaza in front of the county courthouse.

There is also a large supply of foreclosed families who can no longer qualify for a loan. And that is prompting a flood of investors like Mr. Jarvis, who wants to turn as many of these people as possible into rent-paying tenants in the houses they used to own.
...
The low end of the real estate market here — and in some equally hard-hit places like inland California and coastal Florida — is becoming as wild as anything during the boom.

One real estate agent was showing a foreclosed house to a prospective client when a passer-by saw the open door, came in and snapped up the property. Another agent says she was having the lock changed on a bank-owned home when a man happened by, found out from the locksmith that it was available, and immediately bought it. Bidding wars are routine.
And from Nicholas Riccardi at the LA Times: Phoenix's housing bust goes boom
After four years of renting because they were priced out of the real estate market, Jamia Jenkins and Scott Renshaw concluded the time had arrived for them to buy.

They saw that home prices had dropped so fast here -- faster than in any other big city in the nation -- that mortgage payments would be less than the $900 they paid in rent. The city is littered with foreclosed houses, so the couple figured they could easily snatch up something in the low $100,000s.

Three months later, they're still looking.

They have submitted 13 offers and been overbid each time.

"It's just pathetic," said Jenkins, 53. "Investors are going out there and outbidding everyone."
It is important to note that this activity is at the low end, and many of these buyers are cash flow investors (assuming they can find renters).
“If Phoenix loses population,” Mr. Jarvis says, “then buying houses here is a bad bet.”
But this is just at the low end. Since most of the activity is distressed sales - foreclosures and short sales - there are no move up buyers. As Mike Orr, a Phoenix real estate analyst notes in the LA Times:
Orr thinks mid- and high-priced properties still will lose value in the coming months.

"I wouldn't be investing in luxury right now," he said.
And Streitfeld concludes:
As Mr. Jarvis scouts for houses, he sometimes finds a familiar one. In February, he saw a home that one of his brothers bought from a builder in 2005, camping out overnight for the opportunity. With its value now shrunk, the brother was letting it go to foreclosure.

Mr. Jarvis’s daughter Jade also bought a house at the market’s peak — in her case to live in. The other day she asked for advice: should she keep paying the mortgage on something that had declined in value by 60 percent? His conclusion: “probably not.”

“Am I teaching my kids right by letting them walk away from something they made a commitment to?” Mr. Jarvis wonders.
At the low end there is demand from first time buyers, renters and cash flow investors. The supply is coming from foreclosures and short sales - and when that activity eventually slows, the supply will probably come from these investors!

But without move up buyers, where will the mid-to-high priced buyers come from? That is an important question.

For more, see House Price Puzzle: Mid-to-High End