I've got a feeling people are waking up in Phoenix today in a cold sweat... The cat's out of the bag, and he's rabid.
I'd encourage all of you to spread the word through your local papers, especially when they report NAR b.s., when they let realtors and builders lie and mislead, and even in this case, when they report the dead-honest truth, compliment them...
The sooner the Ponzi scheme is completely over, and people are disgusted and repulsed with housing and real estate investing, the sooner we can all move on
Letter #1 (from HP): Housing market just classic Ponzi scheme
Regarding "As Valley home market cools, emotions heat up" (Republic, Sunday): I commend The Republic for focusing on what is truly happening with the Phoenix housing market, from the street level.
The epic real estate Ponzi scheme (a k a "housing bubble") has burst, the speculators and flippers have fled, and Phoenix homeowners are left holding the bag. A 50 percent-plus rise in home prices in 2005 will now be followed by a significant decline - what goes up must come down.
The price-to-earnings ratio of housing did not support 2005 values, as rents remain flat. Flat Phoenix income levels did not support a 50 percent rise in home prices or current valuations. Getting back to realistic home values will be good news for Phoenix families long term, albeit there will be significant short-term pain to come.
It was all one big fool's game, a classic speculative fervor, and it's over
Letter #2: The law of gravity trumps speculation
News flash: The law of gravity wasn't suspended in the Valley. In last year's sizzling real estate market, home prices and sales kept going up. And up. And up. At least one of four sales was to a speculator. Prices skyrocketed 55 percent in 2005. Sellers raked in profits as bidding wars drove up prices.
And now, an astonishing number of people are startled to find that the law of gravity still applies to the Phoenix area. They're stunned that prices are leveling off. Amazed that houses take nine weeks to sell instead of flying off the market in three.
For some, the market came down with a loud bang. Those who treated the Valley's housing market like a casino, buying homes sight unseen and expecting to cash in a big winner every time, deserve no pity if their gamble isn't paying off.
Average buyers who got caught in the middle - rushing to trade up to a more expensive house and now unable to sell their old home for enough to swing the deal - are a more sympathetic case. But some of them, too, have been caught up in a risky round of flipping property, letting greed overcome good sense.
August 02, 2006
Housing bubble letters to the editor published by the Arizona Republic today
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what was clearly evident to bubble blog readers a year ago is now just hitting the mainstream
when the shoe shine guy is selling his house, you know it'll be time to buy
Keith, what made you put that old Soviet's stamp on?
That old man is Russian scientist - Otto Schmidt is somehow related to the space research. But, if you're talking about gravitation, you'd better show Isaac Newton as a founder of gravitation law.
Regarding housing bubble in Phoenix - yes, it's ugly. However, don't expect a crash-like scenario. Prices are sticky to the way down, especially in the low-end market. The median price has not changed much in Phoenix area yet. It's gonna be slow torture, not instant death.
That's a pretty fair article, although I don't track markets in AZ so I can't tell you what's really going on there.
My favorite line, "Buyers need to do their homework before entering into a contract for a new house."
To which I add, and doing your homework isn't always easy. You can't find everything by using Google. Sometimes it takes picking up the phone, or even (gasp!) getting yourself an agent who you can direct to do the homework.
Isaac Newton lost his fortune in the South Sea Investment Bubble....
Perhaps that's what lead him to formulate the laws of gravitation.
Cheers, Haggis
I wish our local paper would print something like this. All we get is articles about how real estate is so red hot across Florida. The latest ones say Jacksonville is "one of THE places to invest in real estate across the country". Even our local business journal touts real estate as the hot way to invest. Letters to the editor rarely get published. The ones that do get published are usually political.
Wow, nine weeks instead of a few days? Major bubble pop and depression! What will we do? You have what, maybe 50,000 houses in a market of millions that were purchased in 2005 and maybe 65% of those bought during the price run up (May-Oct)? The rest of the homes in Metro Phoenix were bought years ago, loan balances are nowhere near the "average" selling prices, large numbers own their homes outright or have been paying their notes for over 10 years.
I don't dispute that the current market is over-valued and due for a significant correction, if I didn't I wouldn't have sold my house in the spring of 2005. Still I dismiss the notion of an apocalypse. Even in the meltdown of 1989 (I lived through that and bought a home then because it sold for 2/3rds of the previous price) the valley didn't dry up and blow away. Those who had to sell lost money. Those who lost jobs, moved away (NICE!) Life returned to normal, Phoenix became affordable and thus attractive. Live went on. The same in the 1980-83 crunch when interest rates hit as high as 18%. We bought our first home when rates were 14% (luckliy they fell to 11% by the time we closed). The house we bought was lowered (new construction) 20% from the previous prices (hey, $20,000 was lot of money then). Homes were still being built and sold, people still had jobs, there were lots of folk still buying for investment as rentals. Our mortage was $535 PITI which seemed so expensive on our income (was an E-4 in the AF) but rent would have been close for a 2 bedroom apartment (and actually owning was less with the tax deductions).
So you want people to run out and rent, loose their tax credits, pay for someone else's house? The year we rented (2005-2006) after we sold our house in Phoenix and was waiting for our house in Austin to be completed (took a year instead of five months) we took a major hit on taxes. Not only did the rent on our place cost as much as our mortgage but with the loss of a year's deductions it cost us a thousands more in income taxes.
I agree that it is silly to own if the cost is significantly more than renting, but if they are within say 20% of each other owning is definitely better.
with the amount of homebuilder and realtor advertising (and entire supplements) in newspapers, and considering they're a dying business in a world of financial trouble, I'm shocked that the editorial department has the freedom to publish stuff like this
cheers to the republic.
Mortgage Applications Down 29%
The Mortgage Bankers Association today released its Weekly Mortgage Applications Survey for the week ending July 28. The Market Composite Index, a measure of mortgage loan application volume, was at 527.6. This is the lowest that the index has been since May 2002. On an unadjusted basis, the Index was down 29.0 percent compared with the same week one year earlier.
It depends on where you live when deciding to rent or buy. In San Diego a mortgage for a Condo smaller than the one I rent and in a really bad area would cost twice as much to own (including the tax implications). I'm way better off "flushing" my rent money down the toilet than buying right now. It really all depends on where you live at this point. Until the cost to own comes close to renting, I'll continue to rent. It just doesn't make any financial sense.
Sad. sad. sad. Move to the mid-west, we haven't been spoiled by the "ponzis" ...............yet.
aj
Nice job getting your letter published in the Republic, Keith.
foxwood: , "Still I dismiss the notion of an apocalypse"
I agree.
As I've said before, the sky isn't falling but there are alot of markets which experienced an unsustainable runup in prices and a high degree of speculative activity. Those are the bubbles and it's the same places now most likely to see "market corrections."
Thanks Osman. The only thing that can cause an apocalypse is THE APOCALPSE and WWIII. That with-standing, Japan weathered a much greater Bubble (stock and property) and so will we. When my wife and I first started thinking about moving out of Phoenix in 1998 to 2000 we considered places as far away as Maine but found them all too expensive compared to Phoenix. We loved Austin but way too expensive back then. Turn the clock forward six years and now Austin seems like the bargain child of the USA for the type of jobs, culture, beauty, size. With the dot.com meltdown and loss of jobs and real estate distress where many people couldn't sell and those who had to leave rented them out at a loss but could afford to since they got tax credits for the loss as well as moving where the jobs were and people here thought, Great, prices will collapse and I'll be able to swoop in and buy. Well the only bargains were bargains in 2000. The good areas continued to increase in price (inflation under control you say?) and the majority of descent areas stagnated and thoses breedervilles way out in the burbs declined....until now. People suddenly think, Wow, $150,000 for a 2000 sq ft house or larger? Bargain.
This is the meltdown we most likely will see without a world wide economic collapse.
Seattle also had it's first ever (for the current run-up anyway) "negative" press on the housing bubble this week.
Also written as an editorial.
Title: "Easy Credit Driving Housing Prices?"
What a relief for somebody (local!) to finally point out the obvious, it's the free money, not salaries that made this cycle go berserk.
These editorials are right on! Keep 'em coming!
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