Wednesday, July 24, 2013 / by Jay Macklin
Are We In Another Bubble?
Just a few years ago, the Phoenix area was pummeled by the mortgage crisis. But now realtors and buyers are frustrated with how fast the market is recovering. The Median Sales price is up nearly 40 percent from the same time last year.
For an idea of how strange things have gotten, consider the story of area Realtor’s that show properties new to the market and must write up an offer in the house they’re showing just be in competition to have their buyers buy it, But wait, haven't we been through this before?
"I can think of eight reasons why it's not a bubble," says Michael Orr, a researcher with Arizona State University's W.P. Carey School of Business. First, unlike 2005, people are actually living in the homes they're buying, Orr says. Second, there aren't enough construction workers to build new houses, so oversupply won't be a problem for a while. And third:
"In the last bubble we had the availability of loans to almost anyone who could breathe," Orr says.
So, yeah, finding a house to buy is tough. But Orr says it's not time to go on bubble watch just yet.
Nine Reasons Why the Rise in Phoenix Real Estate Prices is Not a Bubble, according to Michael Orr:
1. The population is growing much faster than the housing stock in Greater Phoenix.
2. Prices are being driven up by a chronic lack of supply, not by excess demand.
3. Prices are still at the same level as 9 years ago. They still have a lot of room to increase yet.
4. Most buyers are putting their own money in with cash or large deposits, not borrowing it all from foolish lenders.
5. Lenders are still being ultra cautious.
6. Investors are mostly buying to rent - if and when they sell it is a neutral event for the market - one extra home becomes available and one extra family needs a home to live in.
7. There are major long term obstacles to developer trying to increase the supply of new homes.
8. Phoenix has a low vacancy rate both in homes for rent and for sale. Multiple generations and even multiple families are sharing single homes.
9. No bubble has ever occurred in the same market twice in the same generation. However after a recent bubble everyone is hyper-sensitive to every price increase and numerous false cries of "bubble" are par for the course.
In our wonderful North Scottsdale market, we have all the benefits that the area offers, gorgeous communities with walking paths, community centers, shopping, restaurants, open area to keep down high density sprawl but with these benefits comes a cost to keep and maintain these specialties. The cost is a welcome trade off for what we get as residents of some of the most beautiful pristine Sonoran Desert the Southwest has to offer. Home prices are rising, for some at an alarming rate but for me as Broker/Owner of RE/MAX Platinum Living in the DC Ranch Shopping center, I see the increase as a well needed and deserved adjustment to what was an dramatic “knee jerk” reaction to an out of control market. Recent comparable home sales are now just a suggestion as opposed to gospel when trying to find the “right” asking price on a client’s home. In a recent sale in La Strada, we priced our clients home at what we thought was “pushing” the market given past comparables but within 5 days we had 5 offers and ultimately sold the house at $1,650,000…Yes $100,000 over asking price…Yes…106% of asking price. As weird as this sounds, its not all that uncommon in our market but only if your Realtor has the ability to produce, market for and negotiate with strong buyers and buyers agents. With that said, past comparables are important but a strong Marketing agent will use them as a bar to be raised…