Home Prices Not Expected to Go Down anytime soon

Sharing an article from Michael Orr – March 18, 2020

A number of people seem to assume that we are heading for a recession and that home prices will fall. The first assumption is quite reasonable. The second assumption is based on fear and has little analytical data to back it up. Obviously anything can happen in an uncertain and disrupted world, but a fall in home prices is still looking very unlikely from today’s numbers.

In 2005 the housing industry started to sicken because homes were being used as speculative commodities not for places to live. In 2005 I met a man in his early 20s who owned 12 homes in the Phoenix area, all with no occupants. How had he been able to buy them? 100% loans from unscrupulous lenders who went bust between 2007 and 2010. The housing industry (and more particularly the lending industry within it) was the cause of the 2008 recession. Phoenix was a hot spot for the cause of the problem, as was Las Vegas.

In 2020, housing is an innocent bystander to a probable recession caused by a pandemic. It has supply at extremely low levels and most homeowners have a large amount of equity. Even if they lost all their income and could no longer pay their mortgage, they could quickly find a buyer to release that equity. There is little likelihood of them facing foreclosure because the lender can be paid off with the sale proceeds. Only when demand collapses do the banks have to foreclose to get their money back. At the moment demand is still well above normal and has only shown very tiny signs of easing. In 2006 demand fell off a cliff yet home builders continued to build even more new homes because lenders continued to write ill-advised loans in huge numbers.

In 2020 builders are probably going to have to build fewer homes than they wish because of shortages of labor and materials. We are unlikely to see a glut of homes on the market for a very long time. A successful vaccine for the novel corona virus is more likely to appear before a surplus of homes could possibly develop.

Because the virus has not been contained yet, except in several parts of Southeast Asia, we are likely to see a lot of people out of work. We do not yet know how long it will take to get control of the pandemic in Arizona, but many people may be out of work for quite some time. These people are more likely to be renters rather than homeowners. Landlords may find it much harder to collect rents and the yields from their portfolios are likely to fall. Some may decide to evict tenants and sell their properties. At the moment the extra supply would be welcomed and receive multiple offers, even in these troubled times. The evicted tenants still exist and therefore still represent demand for shelter of some sort. There will be hardship, but not a flood of homes with no-one to live in them.

Housing demand is created by the existence of people and increases when more people turn up and decreases if they go away. In 2005 the people we were building new homes for were largely imaginary. In 2020 they are very real and migration trends have been very favorable with families and individuals moving to Arizona from other parts of the USA.

All the indicators for the Central Arizona housing market remain very healthy at the moment and we will report any change as soon as we spot one. There is no cause for panic and if you are delaying a purchase because you think the price will come down, you are probably making a poor decision.

Mike Orr

Cromford Report

www.cromfordreport.com

Sharing an article from Michael Orr – March 18, 2020

A number of people seem to assume that we are heading for a recession and that home prices will fall. The first assumption is quite reasonable. The second assumption is based on fear and has little analytical data to back it up. Obviously anything can happen in an uncertain and disrupted world, but a fall in home prices is still looking very unlikely from today’s numbers.

In 2005 the housing industry started to sicken because homes were being used as speculative commodities not for places to live. In 2005 I met a man in his early 20s who owned 12 homes in the Phoenix area, all with no occupants. How had he been able to buy them? 100% loans from unscrupulous lenders who went bust between 2007 and 2010. The housing industry (and more particularly the lending industry within it) was the cause of the 2008 recession. Phoenix was a hot spot for the cause of the problem, as was Las Vegas.

In 2020, housing is an innocent bystander to a probable recession caused by a pandemic. It has supply at extremely low levels and most homeowners have a large amount of equity. Even if they lost all their income and could no longer pay their mortgage, they could quickly find a buyer to release that equity. There is little likelihood of them facing foreclosure because the lender can be paid off with the sale proceeds. Only when demand collapses do the banks have to foreclose to get their money back. At the moment demand is still well above normal and has only shown very tiny signs of easing. In 2006 demand fell off a cliff yet home builders continued to build even more new homes because lenders continued to write ill-advised loans in huge numbers.

In 2020 builders are probably going to have to build fewer homes than they wish because of shortages of labor and materials. We are unlikely to see a glut of homes on the market for a very long time. A successful vaccine for the novel corona virus is more likely to appear before a surplus of homes could possibly develop.

Because the virus has not been contained yet, except in several parts of Southeast Asia, we are likely to see a lot of people out of work. We do not yet know how long it will take to get control of the pandemic in Arizona, but many people may be out of work for quite some time. These people are more likely to be renters rather than homeowners. Landlords may find it much harder to collect rents and the yields from their portfolios are likely to fall. Some may decide to evict tenants and sell their properties. At the moment the extra supply would be welcomed and receive multiple offers, even in these troubled times. The evicted tenants still exist and therefore still represent demand for shelter of some sort. There will be hardship, but not a flood of homes with no-one to live in them.

Housing demand is created by the existence of people and increases when more people turn up and decreases if they go away. In 2005 the people we were building new homes for were largely imaginary. In 2020 they are very real and migration trends have been very favorable with families and individuals moving to Arizona from other parts of the USA.

All the indicators for the Central Arizona housing market remain very healthy at the moment and we will report any change as soon as we spot one. There is no cause for panic and if you are delaying a purchase because you think the price will come down, you are probably making a poor decision.

Mike Orr

Cromford Report

www.cromfordreport.com

If you would like a print version of any of my reports, or if I can help you buy or sell anywhere in North America, please let me know denise@AZMultipleListingService.com or text602-980-0737

About the Author: Denise van den Bossche has been a licensed Agent and homeowner for over 35 years in the Scottsdale – Metro-Phoenix Valley. 

Legacy LEED® AP and designated SRES, Denise has a focus on healthy indoor environments and Aging/Chronic Illness. She is an affiliate of Seniors Advisors Advising Seniors®, a consortium of experts to surround and support families facing aging or ailments. To request a no-obligation market report, home evaluation, or consumer guide on your specific market, contact Denise at 602.980.0737 or email  Denise@AZMultipleListingService.com.  Denise’s husband Patrick is President of Realty Executives International, with 500 offices throughout North America.

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Denise has built a 30+ year career in Arizona Real Estate sales. Licensed as a Realtor since 1985, she has also held licenses in construction, securities Series 7, and is a Legacy LEED AP. She holds a SRES certification and works with families facing Aging and Chronic Illness. She & husband Patrick are long time members of YPO and share a strong passion for faith, community and fitness. Patrick is President of Realty Executives International, founded in Scottsdale in 1965 with over 500 offices worldwide. Denise is passionate about sustainability and healthy indoor environments. She is a LEED AP, Ecobroker, past Chair of the AZ US Green Building Council, Charter member of the Institute for Sustainable Infrastructure and an Envision Verifier. She works equally with both buyers and sellers. 

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