Monday, April 25, 2005

Speculators Buy 25% Of New Phoenix Homes

BusinessWire is reporting an uptick in foreclosures in the Phoenix area. "Foreclosures.com reported today that new Notices of Trustee Sales in Maricopa County increased slightly to 1020 filings in March, up from 925 in February. 200 homes were actually sold at Trustee Sale Auction in March."

Not huge news, but one interesting sidenote. "With 25% or more of new homes being sold to out of state investors who never intend to occupy the properties, the market is slightly distorted on the upside." Everyone in Arizona knows what state most of these "investors" are from. I wonder if they are using home equity loans to do so?

13 Comments:

At 10:03 AM, Blogger deb said...

Foreclosures are sure to be a major problem in the future. How long before these unbelievably horrible decisions come back to haunt us all.

Here's more on the lenders scraping the bottom of the barrell to find yet another sucker...

http://inman.com/inmannews.aspx?ID=45881

"A new type of credit score is available for loan applicants with little or no traditional credit history. The First American Corp.'s Anthem Score aims to increase loan approval rates in under-served communities and narrow the gap between minority and non-minority home-ownership rates."

Now people with NO credit history can borrow hundreds of thousands of dollars. That should end well.

 
At 10:17 AM, Blogger John Law said...

(Everyone in Arizona knows what state most of these "investors" are from.)

californians.

 
At 10:27 AM, Blogger John Law said...

I keep reading rents are going up in some areas faster than inflation, this can't be true.

 
At 10:47 AM, Anonymous Anonymous said...

From a local developer's point of view down here in the East Coast of Florida: While realtors tell you things are "hot" - the truth is we have seen a marked slowdown in buyers, especially "real" buyers, not just "investors" or "flippers". Houses are sitting on the market for months now not days, price increase have stalled, and there is a lot more marketing, advertising and "open houses" with the word "reduced" in their descriptions. We give it a maximum of 6 months before the prices dive bomb; about the time all the "investors" need to start reselling.

 
At 10:47 AM, Blogger Sunny said...

Somebody a while back made an observation about real estate "paper profits" in that they are latent. Others have also said that you aren't enriched by your real estate until you sell it. If everyone tried to realize their gains, only the first few or a small percentage would win big and then the gains would taper off and then turn into losses. Those bullish on real estate trumpet the fact that if prices go down, people just hunker down and wait out the storm, because their asset is supremely usable and livable.

So two questions:

1. After this investor 25% put "For Sale" signs in their yards and start selling, will there be room for residents to make some money?

2. What is the magic percentage at which profits turn flat and then go down? If every single owner sells at once, values plummet.

 
At 10:52 AM, Anonymous Anonymous said...

(Those bullish on real estate trumpet the fact that if prices go down, people just hunker down and wait out the storm, because their asset is supremely usable and livable. )

That is only true when one (or someone) lives in the purchases. An empty and/or depreciating asset doesn't do anyone any good. Kind of like buying petstore.com stock was 5 years ago...

 
At 10:58 AM, Blogger deb said...

John Law,

I read rents went up 6% in LA last year. I think this may be because the apartments that are being built are all higher end (at least in my area), which drags up the average rent. I know that house rents are very flat. Homes in my area are still renting for the same amount they were several years ago.

I read somewhere that there is a lot of pressure on the low end for rental properties, but once you go up to the larger homes, rents are soft. Makes sense since the only people not owning are on the very bottom of the income scale (and people like us!)

 
At 11:03 AM, Blogger Ben Jones said...

Local Developer,
Thanks for the insight, please keep us updated.

 
At 1:02 PM, Anonymous spectator said...

---Others have also said that you aren't enriched by your real estate until you sell it. If everyone tried to realize their gains, only the first few or a small percentage would win big and then the gains would taper off and then turn into losses. Those bullish on real estate trumpet the fact that if prices go down, people just hunker down and wait out the storm. ---

To be fair, 25% of all Phoenix homeowners aren't speculators. Just 25% of those who bought lately. So it's not like 1/4 of all the homes in the area will flood onto the market during a downturn.

However, bubbles like this are emotional in nature. It's all about investor/buyer sentiment. Assets are priced at the margins. This means that even though only a few % of homes in an area are for sale at any given time, all the homes in the market benefit (or suffer) depending on the prices generated.

Right now, because of the bubble and the speculators it attracts, every homeowner in Phoenix (or insert any other bubbly city) thinks their home is worth a lot more than it used to be. But in a downturn, as the speculators are shaken out, prices come down. And even though most homeowners won't sell, they will feel poorer. This process could last for many years as the mood shifts from ebullience to fear to panic to resignation.

That's why having speculators buying 25% of a market is very detrimental to intermediate term returns. Even if you choose to "ride it out", you will feel less wealthy and you will adjust your spending habits accordingly.

 
At 1:32 PM, Anonymous Anonymous said...

I disagree.

As soon as the speculators see that the boom is over, they will sell, regardless of how recently they bought. Speculators, by definition are looking for the quick profit, not a long term residence.

Thus 25% of the houses will be on the market immediately once people figure out the crash is on. Think of it this way: how many people kept their petstore.com stock because they thought it was a good long term value ? None. They sold almost immediately or suffered huge losses.

 
At 3:14 PM, Anonymous Anonymous said...

I think Spectator is right on the money.
----------------------------
Anon 1:32 pm

While we will surly see the speculators selling fast and first, I agree with Spectator that owner occupied homeowners will hunker down and ride it out, because they know that prices do go back up, although it may be many years this time before they return to pre crash values. The homeowners that do need to sell during that time will of course suffer a loss. Which, due to the amount of adjustable mortgages in use right now, there will be many homeowners that will need to sell once their rates start moving up. However I do not see 25% of all properties coming on the market at once, that would be 1 out of every 4 homes, I don't think so.

 
At 3:44 PM, Anonymous Anonymous said...

They must be day trading ?

 
At 5:47 AM, Blogger Sunny said...

Well, I hope everyone is living where they want to be for the next decade, we might be hunkering down.

On the "feeling" richer or poorer because of house values, that makes me feel manipulated by those setting economic policy in our country.

 

Post a Comment

<< Home