Roubini has been predicting a fiscal crisis on his blog for some time now, and on on TV when invited but, no one wanted to hear his gloomy outlook and ruin the “Goldilocks” economy being espoused on CNBC.
First off, I enjoy reading Housing Doom. A little history. I lived in Arizona from 1985 to 1996. I now live in Cleveland (I don’t want to lose credibility here, but believe me, I missed home). When living in Phoenix, I learned the appraisal business at ADOT. I worked as one of your state’s condemnation appraisers for about four years and assisted in the building of the then non-existent freeway system and for maintenance of state routes. After ADOT, I worked another three-four years as a commercial real estate appraiser and became fairly familiar with the Phoenix and Tucson commercial/industrial markets. As I am still an appraiser (own my own residential business) and still have family in Phoenix, I have kept some interest in your area’s ongoings for some time now. That is how I came across this site.
Having said all of that, I would like to offer my thoughts, hopefully with some credibility, as to where I think housing values will go in the next several years in the Phoenix area. At some point, housing values will have to mirror a borrower’s ability to pay in any given market. If that’s the case, the last time the Phoenix market was considered anywhere near an equilibrium was probably close to 2002. I pick this year because I don’t remember anyone conversing about the remarkable housing market prior to this time. With the decline in interest rates starting to take hold during that time period, the housing market took off and all of the speculation began. Also at that time, your typical resale house might have sold for $80-$120 per square foot in Glendale, Mesa or Phoenix (north of Thomas Road). Now from what I read, housing prices rose far above that during the boom and are still far higher even with the recent decline. And if prices were to truly to be affordable again, they would need to return to the prior preboom level. Now if you figure in appreciation which would account for incomes rising in the market over the last six years, I bet you would have your bottom. In this case, assume a $100 per square foot for a typical resale home in 2002. If the next six years saw a 4% increase in Phoenix area incomes, home values could realistically have risen to about $125 per square foot. If I were still living in an aparment in Phoenix, I would not feel comfortable buying in the market until something approaching this figure is reached.
Shrewd, insightful analysis. Not to sound like a pi*p, but I would hope and believe that many of the regular contributors will chime in on potential add-ons and/or flaws in the analysis. I think many of the regulars on the board are waiting for a concensus bell-ringing on when it is financially appropriate to go back in the water. Personally, I have always believed in an income-driven “channel” for home prices, and I think we’re still well outside the channel. A few comments:
1) There are some downright undesirable places to live in the Phoenix metro area, much moreso than even just ten years ago. This has to skew some numbers somewhere.
2) As the boomers retire, I believe (and this may be a gross understatement) there will be a healthy demand for second homes, even if cheapies, by snowbirds and the like. This produces a skew as well, and is perhaps unquantifiable.
3) I don’t know if your 4% annual income increase was hypothetical or fact, but with the real estate industry as such on its back, I’m hard-pressed to believe its anything close to that over the last 1-2 years. Maybe you were just throwing out the 4% number as the basis for the $125/sf number.
Twist, do you know anything about Phoenix average incomes? Or average price per sf for the different Phx communities over time?
By the way, you guys all need to check out that Roubini interview on Canuck TV. I don’t know if the YouTube segment (above) has the whole thing, better to link through Roubini’s blog. Best monotone ever.
Thanks for the comments. The 4% income growth is likely high. I threw the figure out there as I hear it quite alot on a national level. So I assume it must be a good ballpark.
One other thought, if I could. This is a major bugaboo of mine as I like to consider myself an honest appraiser (ADOT taught me well as every appraisal report I wrote had the potential to put me on a witness stand and the best way not to be fool was to be honest). When I visit homeowner’s in Greater Cleveland, and this would apply to Phoenix too, they are scared to death about falling property values. In order to talk them off the ledge, I point out that if you bought a house prior to about 2004 (in Cleveland, prices did not rise noticably until about 2005-2006 and, even then, it was high single digits per year for a year or two), chances are you will not lose any money when you sell. In fact, as I explained in the example earlier, you might have made a little money. That is as long as you weren’t suckered by just about every mortgage company operating into believing your house somehow doubled in value in two years. Many people who were suckers do not understand that there wealth was only on paper. And once they signed on to a refi and saw the “appraised value,” they went to the local hangout and claimed they were wealthy (tech boom anyone?). Now they scratch their heads and discuss the housing collapse (partially non-existent as it was only paper wealth). Who I truly feel sorry for is the foolish people who did not wait this out and actually bought a home. In Cleveland, this was not a large amount of people as new construction is a small percentage of annual sales. In Phoenix, I’m guessing it was a much larger percentage of the population as many more new homes were built during this boom period.
If anyone would care to listen, I would love to give some insight into Ohio’s foreclosure crisis. Refi liar loans anybody?
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That great big sucking sound.
Well, they don’t call him Dr. Doom for nothing.
My ears cant handle what he said.I have grown accustomed to spin.Why isnt he on our TV saying that.
Funny that he has to go to Canada to be heard.
No one wants this news to get to the Sheeple
Roubini has been predicting a fiscal crisis on his blog for some time now, and on on TV when invited but, no one wanted to hear his gloomy outlook and ruin the “Goldilocks” economy being espoused on CNBC.
Prepare for the worst, Hope for the best. And make sure to fasten your seatbelt.
First off, I enjoy reading Housing Doom. A little history. I lived in Arizona from 1985 to 1996. I now live in Cleveland (I don’t want to lose credibility here, but believe me, I missed home). When living in Phoenix, I learned the appraisal business at ADOT. I worked as one of your state’s condemnation appraisers for about four years and assisted in the building of the then non-existent freeway system and for maintenance of state routes. After ADOT, I worked another three-four years as a commercial real estate appraiser and became fairly familiar with the Phoenix and Tucson commercial/industrial markets. As I am still an appraiser (own my own residential business) and still have family in Phoenix, I have kept some interest in your area’s ongoings for some time now. That is how I came across this site.
Having said all of that, I would like to offer my thoughts, hopefully with some credibility, as to where I think housing values will go in the next several years in the Phoenix area. At some point, housing values will have to mirror a borrower’s ability to pay in any given market. If that’s the case, the last time the Phoenix market was considered anywhere near an equilibrium was probably close to 2002. I pick this year because I don’t remember anyone conversing about the remarkable housing market prior to this time. With the decline in interest rates starting to take hold during that time period, the housing market took off and all of the speculation began. Also at that time, your typical resale house might have sold for $80-$120 per square foot in Glendale, Mesa or Phoenix (north of Thomas Road). Now from what I read, housing prices rose far above that during the boom and are still far higher even with the recent decline. And if prices were to truly to be affordable again, they would need to return to the prior preboom level. Now if you figure in appreciation which would account for incomes rising in the market over the last six years, I bet you would have your bottom. In this case, assume a $100 per square foot for a typical resale home in 2002. If the next six years saw a 4% increase in Phoenix area incomes, home values could realistically have risen to about $125 per square foot. If I were still living in an aparment in Phoenix, I would not feel comfortable buying in the market until something approaching this figure is reached.
Former,
Thanks for the extrapolation based on previous and current information.
F/P -
Shrewd, insightful analysis. Not to sound like a pi*p, but I would hope and believe that many of the regular contributors will chime in on potential add-ons and/or flaws in the analysis. I think many of the regulars on the board are waiting for a concensus bell-ringing on when it is financially appropriate to go back in the water. Personally, I have always believed in an income-driven “channel” for home prices, and I think we’re still well outside the channel. A few comments:
1) There are some downright undesirable places to live in the Phoenix metro area, much moreso than even just ten years ago. This has to skew some numbers somewhere.
2) As the boomers retire, I believe (and this may be a gross understatement) there will be a healthy demand for second homes, even if cheapies, by snowbirds and the like. This produces a skew as well, and is perhaps unquantifiable.
3) I don’t know if your 4% annual income increase was hypothetical or fact, but with the real estate industry as such on its back, I’m hard-pressed to believe its anything close to that over the last 1-2 years. Maybe you were just throwing out the 4% number as the basis for the $125/sf number.
Twist, do you know anything about Phoenix average incomes? Or average price per sf for the different Phx communities over time?
By the way, you guys all need to check out that Roubini interview on Canuck TV. I don’t know if the YouTube segment (above) has the whole thing, better to link through Roubini’s blog. Best monotone ever.
Thanks for the comments. The 4% income growth is likely high. I threw the figure out there as I hear it quite alot on a national level. So I assume it must be a good ballpark.
One other thought, if I could. This is a major bugaboo of mine as I like to consider myself an honest appraiser (ADOT taught me well as every appraisal report I wrote had the potential to put me on a witness stand and the best way not to be fool was to be honest). When I visit homeowner’s in Greater Cleveland, and this would apply to Phoenix too, they are scared to death about falling property values. In order to talk them off the ledge, I point out that if you bought a house prior to about 2004 (in Cleveland, prices did not rise noticably until about 2005-2006 and, even then, it was high single digits per year for a year or two), chances are you will not lose any money when you sell. In fact, as I explained in the example earlier, you might have made a little money. That is as long as you weren’t suckered by just about every mortgage company operating into believing your house somehow doubled in value in two years. Many people who were suckers do not understand that there wealth was only on paper. And once they signed on to a refi and saw the “appraised value,” they went to the local hangout and claimed they were wealthy (tech boom anyone?). Now they scratch their heads and discuss the housing collapse (partially non-existent as it was only paper wealth). Who I truly feel sorry for is the foolish people who did not wait this out and actually bought a home. In Cleveland, this was not a large amount of people as new construction is a small percentage of annual sales. In Phoenix, I’m guessing it was a much larger percentage of the population as many more new homes were built during this boom period.
If anyone would care to listen, I would love to give some insight into Ohio’s foreclosure crisis. Refi liar loans anybody?