Real Estate Crash Will Be "Different This Time" . . . Right??

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

A closer look at the 40 housing markets at risk of a 15% to 20% home price decline

Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local home prices. At the latest reading, Moody’s Analytics finds 183 of the nation’s 413 largest regional housing markets are “overvalued” by more than 25%. In some of those overvalued markets, Zandi says, buyers and sellers can expect to watch home prices fall by 5% to 10% amid this housing correction.

However, in America’s most overvalued housing markets, Zandi predicts a 15% to 20% home price decline.

Earlier this month, published a list of the 40 regional housing markets most likely to see a 15% to 20% home price decline amid a recession. At the top of the list, Zandi says, are Boise; Colorado Springs; Las Vegas; Coeur d’Alene, Idaho; Tampa; Atlanta GA; Fort Collins, Colo.; Sherman, Texas; Jacksonville; and Idaho Falls, Idaho.

Renters in high-cost cities like Seattle WA and Boston MA simply couldn’t pass up the affordability of markets like Austin and Tampa. The ensuing pandemic housing boom saw markets like Austin and Tampa become overvalued by 61% and 45%, respectively.

In places like Austin TX, which was overvalued by just 7% in the first quarter of 2006, this feels very new. In other places, it looks eerily similar to 2006. Look no farther than Las Vegas NV and Phoenix AZ, which Moody’s Analytics rates as being overvalued by 53% and 54% in the first quarter of 2006. Now, Phoenix and Las Vegas are overvalued by 51% and 54%. That’s not something that real estate professionals in those cities—two of the hardest-hit in the 2008 housing bust—want to hear.

6 Reply

100 views

Most Popular Reply

Kathleen McDowell

Realtor · Scottsdale, AZ · Member since 2018 · 64 posts · 47 votes

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.

It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.

Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.

Credit quality is good, thanks to tightened lending standards.

Foreclosures are low now, vs high in 2007.

Homes are more affordable than they were in 2007, thanks to record low rates.

I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.

We are in a cooling market, but are NOT headed for a crash.

Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

19 Reply

See this reply in the discussion

68 Replies

Jump to latestLatest

Sort by

Jon Martin
Member since 2022 · 1k+ posts · 1k+ votes
4y
Paywall
0 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
No one knows what will happen other than interest rates will go up. Chances are the market will slow, but the last crash in the US happened because people who shouldn't have been given loans were.
10 Reply
Stephen DeThample
Real Estate Agent · Las Vegas, NV · Member since 2020 · 459 posts · 305 votes
4y
Buyers in Las Vegas will benefit from the price reductions. Most home owners will not sell due to current interest rates which will keep prices steady because lower inventories.

I would love to see prices come down 50% but it’s not likely. The high interest rates can be refinanced, but purchase price can not.
4 Reply
Kathleen McDowell
Realtor · Scottsdale, AZ · Member since 2018 · 64 posts · 47 votes
4y
Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
Credit quality is good, thanks to tightened lending standards.
Foreclosures are low now, vs high in 2007.
Homes are more affordable than they were in 2007, thanks to record low rates.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.
19 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Obviously a 15% crash would be different. Last time we lost 5 years worth of appreciation. 15% would bring us back 5-6 months to January’s prices. Unless the crash doesn’t happen for another 4-5 months, then the “crash” will bring us back to today’s prices.
It’s a funny world we live in where people think there might be a real estate “crash” in 2022 and prices could still end the year up 5-10% for the year. An amount that used to be considered a housing boom.
11 Reply
Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
4y
Interest rates are already up and have been for longer then rate lock periods dream on about 50% "overpriced" markets. These are just markets with more demand then supply and people willing to pay. Owning is not for the average person in all markets those people rent while the top % earners buy.
1 Reply
Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

4 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
Great post @Account Closed

While I am not an economist, I sell a lots of houses in the Houston area and I see economic trends everyday.

I believe the interest rate will continue to rise in order to stabilize the economy. This does not mean real estate crash but will cool things down a little bit in most market.

For anyone that want to buy real estate, always remember that high interest rates can be refinanced to a lower rate in the future.

Hmmm is Austin Real Estate really over-valued? I will like to see more opinion on this.
Thank you

[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
0 Reply
Kathleen McDowell
Realtor · Scottsdale, AZ · Member since 2018 · 64 posts · 47 votes
4y
Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
In 1977, housing prices had gone up 130% in the decade. There was talk of a housing bubble. But guess what....inflation doesnt care about affordability.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
6 Reply
Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
4y
I agree with @Russell Brazil, inflation is going to be much harder to beat then they're acting like it will be and I think the fed knows it. If you read to the very, very end of the article even those forecasting a reduction in prices only expect 5-10% in Austin.
[email protected]512-888-9122
The Moorhead Team5140 Reviews
Website View Page
1 Reply
Matthew O'Hara
Real Estate Agent · MA · Member since 2022 · 16 posts · 9 votes
4y
@Account Closed I wouldn't rely on redfin as your primary source of information. Their comps are not necessarily accurate for starters, they essentially base their comps on casting a fairly wide net and comparing square footage. More information such as the condition of the exterior, the interior, the mechanics (heat, electricity, plumbing, etc), and the potential income generation if it is a rental property are needed. I'd agree with those saying the market will cool down but headlines that scare are headlines that sell, unfortunately. I'd dive a little deeper into the MLS and try to narrow down comps to a .5 mile radius and see what you come up with. See if you can search interior photos of those comps as well and identify potential structural or mechanical issues.
2 Reply
Kathleen McDowell
Realtor · Scottsdale, AZ · Member since 2018 · 64 posts · 47 votes
4y
Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

Excellent point Mike. I was actually speaking to appreciation, the increase in home values and prices month on month and year on year. I see you are highlighting the recent price reductions.
About 18% of properties in Maricopa Co are dropping their list price (compared to about 7% in previous 2 years). In my opinion, this is because the agent has not priced ahead of the market. This is a KEY component of a successful pricing strategy. Before April when the market started shifting, I was setting list price about 5% above the most recent comps, knowing that it was the direction the market was heading and by the time we were closed it would reach that value. Same for my buyers - offering slightly above market value so they didn't lose out on a home by $5k that would be worth $10k more by COE. In today's market, homes should be priced to reflect the current shift.
I see the market cooling, not crashing. The millennial generation is the largest cohort the US has ever seen, and they (along with Gen Z) are now at home buying age. And as rents go up, their desire to purchase does too. I don't see demand slowing anytime soon, which should keep home prices stable.
These ARMLS stats are lagged by a month, but still show price appreciation in Maricopa County April to May ($285 to $290 per sq ft). To your point, need to see what June's number show us is happening over the last 30 days especially given the price reductions you mentioned..watch this space.
1 Reply
Aaron Gordy
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
4y
I question the validity of the study itself. Its a very popular eye catching thing to say that the sky is falling as it catches folks attention which in turn will sell advertising. Its another thing to face the real facts.
Austin metro has slowed down from scorching hot market where very few folks could play in the game (cash buyers and deep pocketed folks) to simply a hot market (allowing for first time home buyers to buy starter homes). Interest rates have increased no doubt about it and has slowed the market but its a good thing.
The months of inventory has increased from .5 months of inventory to 1.2 months of inventory according to the latest stats. Additionally the median home prices have increased by 19% year over year. That does not indicate by any logical measurement that the market is over inflated.
Lets dig deeper. "The analysis conducted by Moody's Analytics aimed to find out whether economic fundamentals, including local income levels, could support local home prices". They are making their case based upon local income levels. Anyone that lives in Austin can tell you that incomes are increasing rapidly. Community Impact which is a local publication pointed out that income levels have increased by 30% over a 5 year period of time and that was from a year ago. https://communityimpact.com/au...Austin is transitioning to a more tech oriented workforce which historically pays substantially more than most sectors.
In my old neighborhood off South Congress just south of downtown, I saw that first hand as the neighborhood changed from government workers at the state to Tech workers working from home or drive/ride a bike a short distance to downtown. Can the government workers afford that neighborhood anymore? Nope but the Tech workers can. That is the reality.
Is the sky falling? No not according to the very good numbers that keep coming in.
4 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
Anyone else find it interesting how the word "crash" is used in Real Estate? It seems to be the "ketchup" of Real Estate talk. If gas prices go down 10% is it a "gas CRASH"? If groceries come down 15% in price do we run to the internet to tell everyone of the food "CRASH"?

Real Estate pricing does not, and never has, moved up at a static line rate. Nor anything else for that matter. Over time, it's a step action. 2 steps up, 1 down, 3 up, 1 down, etc.. Given the rate of rise, a 15% step-down (YES, "step-down" is a FAR more accurate label then "crash") would be a GOOD thing, healthy, it would signal some normalcy, and be the next chapter which will inevitably be followed by next step's up.

@Kathleen McDowell I LOVE your BALANCED DATA approach, fantastic stuff!

@Russell Brazil I think it's time to write a book because I don't think people are grasping inflation until it's what there reading in relation to REI.
Look, there is some simple SIMPLE foundation pieces that need to be addressed before anything of a "crash" in R.E. pricing can even have a shot at happening. First, it's a simple fact of supply/demand, supply is not fully meeting demand, in 2007 we were building entire communities that were 40%+ investor held with NO occupants, I know as I was one of those builders so this is 1st hand knowledge, all of us on the building side say it all coming a mile away we just didn't know when the music would stop but it was inevitable. That is not happening today. We have net unit SHORTAGE. Second is ability to LOWER cost of inputs in a sizable manner. How will labor costs go down 30%? Material costs down 30%? Taxes and various red-tape expenses down 30%? Well, if can't do that, then how do you get to a "glut" of units?
I don't need to read any articles to know we are in a SIGNIFICANT net unit shortage, I experience it daily. Affordability an issue, 100%, that's across the board, and nobody is talking about toothpaste or shampoo about to take a "CRASH" over affordability are they? Which can a person live without, a roof over there head or consumer goods? The affordability is more a basis income item then housing one but yes it affects housing just like all other items.
Home purchases suffer from affordability issues rentals will surge from increased demand. And as income basis adjusts as labor market forces such movement sales will rebound. Again, supply demand, when there is significant demand it can NOT be stopped, only delayed, stifled, redirected, but NOT stopped.
#1 thing all leave out when talking about a market "crash" or various kinds is where will those people go to have a roof over there heads? Shelter is not optional, food, water, shelter, the fundamentals of life, can NOT go without.
Market COMPRESSION, yes, market "CRASH", hog-wash.
7 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
4y
It's impossible to predict when or how long or how much.
There are a few scenarios from doomsday to a blip on the radar.
One thing is time on market increasing drastically, and if a lot of sales are bank owned (repo's).
Those who suffer a Repo, often do not (can not) get back in the saddle and (will be) replaced by new-bee's who (know not the dangers).
So there may be a genuine cut in the number of buyers who can buy (either to rent out or to live in).
Watch and see if people are doubling up, such as cousins family living in the garage or in a camper in the driveway with an extension cord kind of stuff.
That will give you a boots on the ground idea if the area is "Really Suffering Hard" and will probably stay down for a while, or if it's just a flash in the pan--time wise.
Home Repo's are something to keep an eye on too.
Just my 2 cents.
1 Reply
Jewel Defiores
Real Estate Agent · Tarpon Springs · Member since 2022 · 4 posts · 2 votes
4y
@Mike Hern
Thank you for the valuable insights and statistics greatly appreciate keep up the information pipeline!
1 Reply
Anthony Williams
Investor · AZ, USA · Member since 2021 · 11 posts · 2 votes
4y
Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

@Mike Hern
To be fair, if you filter "Time on Redfin" you can see that many of the reductions were on Redfin for over 2 weeks. This could indicate quite a few things from too high of an initial asking price for the condition of the home, +$1M McMansions shaving off 5%, banks not being able to keep up with value increases due to their slow mortgage processing times, etc.
Overall, I agree with you that I have never heard anyone else claim homes are "more affordable" than in 2007 and I would love to see some data on that.
I think she is talking about the costs with higher interest rates included versus lower interest rates, but are we factoring in the 125% LTV loans that were being offered as well?
Homes in most markets were way more affordable in 2007. It's easy to look at the national average home price from 2007 vs. now, but there are many more factors other than the cookbooks kept by the FRED.

0 Reply
Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Matthew O'Hara:

@Account Closed I wouldn't rely on redfin as your primary source of information. Their comps are not necessarily accurate for starters, they essentially base their comps on casting a fairly wide net and comparing square footage. More information such as the condition of the exterior, the interior, the mechanics (heat, electricity, plumbing, etc), and the potential income generation if it is a rental property are needed. I'd agree with those saying the market will cool down but headlines that scare are headlines that sell, unfortunately. I'd dive a little deeper into the MLS and try to narrow down comps to a .5 mile radius and see what you come up with. See if you can search interior photos of those comps as well and identify potential structural or mechanical issues.

You need to be more observant and actually read the thread my friend. This isn't about using Redfin for comps.
It's about availability of product, overall trends and price reduction - not comps.
0 Reply
Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Anthony Williams:

Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

To be fair, you filtered all of Maricopa County homes for sale for "price reduced," but didn't show the number of available homes before that filter was placed.
If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%

Your Comment: "If you do this search for Phoenix, you will see the amount of price-reduced homes is only around 0.4%"

I think you need a new calulator:
For ONLY Phoenix - Redfin lists
6,424 homes for sale
2,145 reduced in the last 30 days
That is 33.39% Price Reduced in the last 30 Days
0 Reply
Ryan Swan
Real Estate Agent · Phoenix, AZ · Member since 2012 · 640 posts · 457 votes
4y
Phoenix was extremely overbuilt in 2005-2008 and then when the market crashed, there were no buyers for the glut of excess inventory. The wave of foreclosures from 2009-2013 only added to the oversaturation.

The situation over the past ~3 years has been the exact opposite: buyer demand greatly exceeded supply, both in terms of resale and new build inventory. The market was so fierce that many buyers were out bid over and over again until they got "buyer fatigue" and decided to stop trying to compete. These buyers still want to be homeowners, so they will re-enter the market when the time is right (more on that below).

My predictions are as follows:

• Current inventory is increasing, but the interest rates have made the payments unaffordable for many first time buyers

• Prices will decline until the homes are affordable given a rising interest rate environment. The important thing to note is that price declines do not equal a crash! Prices could go down 10-20% and most home sellers will still have positive equity (compared to negative equity in 2008/2009)

• We're already starting to see the price declines, and that will continue over the next 6-12 months

• Higher priced homes ($800K and up) will be less affected as these buyers are making the decision to still buy and deal with the higher current payment as a fact of ownership. These buyers have the financial ability to buy now and refinance later..."marry the home but date the rate". I just closed a $950k home for a buyer using a dentist loan with a 5% rate and no PMI...5% is certainly worse than 3% but it's not unaffordable for this class of buyer.

• I have boots on the ground experience and I can tell you with certainty the buyer demand is still high here. I wrote an offer on a Phoenix home priced in the $600s that had over 20 showings yesterday and still has multiple offers. The good "no brainer" homes that tick the boxes are still selling quickly. The homes with shortcomings that are priced as if it's still 2021 are the ones that will see the price declines.
8 Reply
Account Closed
OP
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Kathleen McDowell:

Quote from @Account Closed:

Quote from @Kathleen McDowell:

Hi Mike. As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods. These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.
It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal. 30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.
Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.
I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007.
We are in a cooling market, but are NOT headed for a crash.
Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s.

If you hold your real estate for 10 years or more, historically you would have always made money.

@Kathleen McDowell:

Your Comment: "Homes are more affordable today than in 2007"

I have not heard that from any other source. Can you point me to where you saw that?

Anyway, Your Comment: "I can tell you, prices are still increasing"

I guess we have very different sources for our information. Redfin says the following: 1 in 3 homes reduced in last 30 days I don't know how to control the image size so it is larger than intended but here are the facts for June 30 2022

Excellent point Mike. I was actually speaking to appreciation, the increase in home values and prices month on month and year on year. I see you are highlighting the recent price reductions.
About 18% of properties in Maricopa Co are dropping their list price (compared to about 7% in previous 2 years). In my opinion, this is because the agent has not priced ahead of the market. This is a KEY component of a successful pricing strategy. Before April when the market started shifting, I was setting list price about 5% above the most recent comps, knowing that it was the direction the market was heading and by the time we were closed it would reach that value. Same for my buyers - offering slightly above market value so they didn't lose out on a home by $5k that would be worth $10k more by COE. In today's market, homes should be priced to reflect the current shift.
I see the market cooling, not crashing. The millennial generation is the largest cohort the US has ever seen, and they (along with Gen Z) are now at home buying age. And as rents go up, their desire to purchase does too. I don't see demand slowing anytime soon, which should keep home prices stable.
These ARMLS stats are lagged by a month, but still show price appreciation in Maricopa County April to May ($285 to $290 per sq ft). To your point, need to see what June's number show us is happening over the last 30 days especially given the price reductions you mentioned..watch this space.

I think what is actually happening;

1. Prices have clearly gone up faster than incomes and they've reached a tipping point - not a crash, just a tipping point. We shall see where that takes us, depending on the Fed and how much they raise interest rates. The Fed is not your friend.

2. Real Estate Agents who get listings are bowing to homeowners when it comes to pricing and basically saying "we can try it at that price and we can always drop it if it doesn't sell". That is a pretty common approach to get the listing rather than actually trying to guess pricing in a slowing market.

3. Migration has shifted and we're playing "catch up" to what that means.

4. Real Estate is local. What's true for Phoenix doesn't necessarily mean it's true for Austin, etc.

0 Reply
Anthony Williams
Investor · AZ, USA · Member since 2021 · 11 posts · 2 votes
4y
@Account Closed
Apologies, my response earlier was meant to be a draft and I am still getting used to the forum as a new member.
However, I do appreciate the insights of the forum so far and the variety of people who use it.
Keep up the great work!
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
4y
1. Prices have clearly gone up faster than incomes and they've reached a tipping point - not a crash, just a tipping point. We shall see where that takes us, depending on the Fed and how much they raise interest rates. The Fed is not your friend.
>>>>
When price goes up faster than income IT DOES not mean the price will go down. What makes price up or down is total number of buyers /seller and their own buying power.

If the demand side cant' catch up, to buy it's rent price will increase.

When Asia hits by hyperinflation of double-digit 2 decades ago, real estate did skyrockets because people that have money keep buying and they know it was the only way to hedge against inflation long term.

It has nothing to do with migration,etc. It's pure supply and demand side. In our market the price is still up 20% from last year for the most expensive area.
1 Reply
Adam WeinstockPro Member
Real Estate Agent · Member since 2019 · 36 posts · 22 votes
4y
The simple answer to your question I would say is that yes, this next "crash" will be different. The difference is that the crash in 2008 was largely from lenders lending on homes to buyers that had no business buying or proving they could pay back in the first place. Since this crash there have been many regulations implemented to protect consumers from predatory lending while also holding lenders accountable as well. Because of these regulations there is not an artificially overinflated demand of "buyers" that are unqualified to buy a home, but rather a large number of qualified buyers outnumbering the available homes on the market. (A much more natural supply/demand cylce)
Point being, if you mean crash like 2008 you could be waiting awhile. I would say if anything a "correction" may be a more applicable term, though the media wouldn't be making headlines with that verbiage at the top of their articles.
[email protected]
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.