December 20, 2005

Cut off time in Arizona - Home loans catch up to consumers


Hey, when there's no good jobs, no real economy, and you needed some cash, taking out that cash-out refi seemed like a great idea.

But then the equity line runs dry, appreciation stops (and depreciation starts) and what's a broke homeowner to do now?

By the way, when this phase of the bubble hit the UK, the first noticeable drop was on the "high street" - the worst retail sales performance in 23 years as consumers ran out of cash.

That Bankruptcy law that Congress passed a few weeks ago is looking more and more conspirital by the day, isn't it?


The housing boom has bailed out a lot of people in metropolitan Phoenix.

Homeowners caught between higher bill payments and flat incomes have been able to tap their rapidly rising home equity to stay afloat or even buy new cars and furniture. Others have been able to refinance using adjustable-rate loans to cut their payments.

Those with too much debt have been able to evade foreclosure and bankruptcy, and even pocket some cash, by selling their homes quickly.

But now, Phoenix's home appreciation rates are leveling off, and it's taking longer for homes to sell. At the same time, interest rates are rising on many home equity lines and adjustable-rate mortgages. Gas prices are higher. Health care is costlier. Credit-card payments are rising.

56 comments:

foxwoodlief said...

So, what is a bubble and what is a fair market adjustment for inflation? My first home was bought in Phoenix in 1982 when interest rates had just fallen from almost 16% to our low rate of 11%. Our home was 1600 sq ft and bought for $67,000 or about $83 a sq ft. The model two years earlier had been selling for $85,000 a sq ft. Today that $83 adjusted for inflation would be about $166 a sq ft. Now my home investment guidelines has been never to pay more than $100 a sq ft for a fully loaded house. I also set a goal of 3-5% appreciation per year and a goal to sell in five years and if that rate is reached prior to my five year goal, to sell. We bought a house in Litchfield Park in 2003 and moved in that December. We had it loaded with every upgrade, granite, rod iron stair rails, landscaping, pool, the works and still stayed under $100 a sq foot. We weren't a standard lot with homes looking into our yard and had great views of the mountains. We sold in March for $132 a sq ft after living in the house two years. Yes, we could have stayed longer and maybe played into the rapid runup that occured this summer and made another $50-100,000 but I'm not greedy and at the price increase in two years more than exceeded my goals and felt that price was a "bubble". We bought a home in Austin that is larger, better built, on a 1/2 acre 9 miles from downtown with views in the Hill country and paid only $100 a sq ft and got real rock, brick, austin limestone terraces, granite counters, cherry cabinets, jacuzzi tub, lots of tile, interior paint, landscaping, aggregate stone driveways and walkways, real steel and porcelain tubs (not plastic) to just begin the list as well as 500 sq foot larger home for less money than we sold our house in Phoenix. The home has risen in value already $75,000. The apartment conversion I live in wants $65,000 more than I paid for my house in Austin for 1/2 the sq footage and no upgrades. Now who says bubble? Fiver years ago a home in Austin was twice a home in Phoenix, now that is in reverse.

The point? Price alone means nothing. I believe at $100 a sq ft for a great neighborhood, location, quality, how can that be a bubble. There must be value for the dollar. Can prices go down? Yes, I looked at foreclosures in Austin for as low as $50 a sq ft that were nice homes (even if cookie cutter in the far out burbs, but at least built better than here in Phoenix). Are there homes in Austin I feel are bubble priced? Yes, many areas with $200-500 a sq ft for dated homes. I searched for six months for a house of "value". And I found it offered by builders who were struggling through the five year drought in home prices in Austin who could offer a house almost at cost with a slight profit built in. You have to compare apples with apples.

Oh, and Austin is a TEN for quality of life and growing economy not based on REAL ESTATE but real jobs and real industries.

What is a realistic price per sq ft for a quality built home in a good neighborhood on a large lot? What factors really decided if a market is over valued?

9:47 PM

keith said...

Many parts of phoenix are now approaching $400 a sq. ft. and more. New condo developments are seeing $500 to $1000 (yes, $1000) a sq. ft.

I'm hearing investors that are fleeing Phoenix are heading to one town.

Austin, Texas.

Enjoy.

john3232xx said...

Austin TX?? Give me a break.
http://money.cnn.com/best/bplive/snapshots/25959.html

Besides business from Cal are FAR more likely to move to Az than Tx. considering the state is right next door.

keith said...

yup - and I think their rationale is that real estate in texas is cheap, didn't rise during the bubble and it's getting tougher and tougher to find any property that isn't horrifically overpriced

not to say that austin texas isn't overpriced (hey, it's what the market will bear) but it's where I'm hearing these locusts that decended on Phoenix are now heading

Ferromancer said...

Don't mean to flame here, but what's the obsession with buying newer property over older property? I've always been under the impression that the newer the property you buy, the more poorly constructed it is.

For example, if you look at a brick home built ten years ago over a brick home built 100 years ago, I will buy the brick home from a 100 years ago. Why? Because with the older brick home, the walls are made *entirely* with brick, and brick supports the structure of the whole home. Newer "brick" homes simply have brick curtain around a stick frame. Granted, the older home might need a new roof, and maybe new insulation, but I'll know that the foundation has settled by now and is built to last another 100 years. Also, black mold is a huge problem with the brick-on-stick homes due to moisture accumulation.

moonvalley said...

if you look at a brick home built ten years ago over a brick home built 100 years ago, I will buy the brick home from a 100 years ago.
I heartily agree. We live in an old farmhouse and it's far better put together than manyof the mcmansions I see around me..and better laid out too.

Wes D said...

if you look at a brick home built ten years ago over a brick home built 100 years ago, I will buy the brick home from a 100 years ago.

I concur as well. It always amazes me at how cheap the McMansions are built. White particle board cabinets that make 20 year old apartment cabinets look nice. Cheap exterior doors that cost $59 at home depot. Carpets that are thin. Everything is cheap about the home except the price. I've even seen homes without real soffits - builders spray paint it black so you have to look close to tell.

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