Housing price drops in Phoenix
November 21st, 2007 by KenricOver the past few days I’ve seen some large price drops on areas that I’m familiar with in Phoenix. In the outer areas we are very close to being back to 2004 pre-run prices.
One of my new construction houses that I purchased at $235k in June 2004 and ran up to $440k in June 2005 is back down to $299k. Based on the prices of the many homes I looked at in 2004 and 2005, I’d say we are back to January 2005 prices.
There’s a short sale in Goodyear on a 3000sf home for $199,000. Homelife Communities has new construction 3300sf home starting at $139,000 in Pinal county. Can you even build for that price?
Can we really have a 50% price drop from 2005? Remember how crazy that sounded? If you have cashflow or breakeven you can survive this. That’s why cashflow is so important.
Sometimes I wonder about buy & hold. If I had 1000 shares of Google I would have lost $100k in past week. I don’t believe that you can buy and blindly hold. Although I believe that buy & hold is a good strategy, I don’t believe its the most efficient for real estate. Real estate cycles are slow and can be somewhat timed so you can buy on the trough and sell near the peaks.
Posted in Real Estate | 9 Comments »
Stumble it!
Here are some related posts
I sure hope you have the cashflow to cover the mortgage payments.
By Living Off Dividends on Nov 21, 2007
What’s happening on a lot of these short sale listings is that agents are listing them well below what the bank will take to draw offers. The agent is collecting the offers and forwarding them to the bank. The agent’s objective is to get the bank/servicer to move off the recent but unrealistic appraisal based on comps from last summer.
The most recent comp on this house was a $320,000 sale in July. I heard there are several offers pending, some well below the asking price. My guess is that the bank/servicer wants something close to $300,000 and this one might go to foreclosure.
The problem in Phoenix today is supply and demand. The inventory (supply) is huge. There are simply more homes than there are buyers, now that the speculators have been removed from the market. Very few people can get financing, which further reduces the pool of buyers. The few buyers out there are extremely hesitant to make offers in a market where no one really knows what market value is.
Before you dismiss buy and hold, look at some investors that have been invested for over 20 years. In Phoenix, they have been through two severe downturns. The houses and small multi-units have gone up and down in value, but the net income has grown dramatically. These folks prudently used leverage to get into their properties. They reaped the tax benefits and the equity build-up from paying the mortgages down or off. Now they are sitting back, collecting a nice income every month.
You can diversify your real estate investments and do a little speculation along with the buy and hold. When the market is going up, rehabs and flips can make sense. When the market starts down, prune your portfolio so that your cash flow is well insulated, and look outside real estate for opportunities.
By Another Investor on Nov 21, 2007
I agree you can’t “buy and hold”. There should always be a plan behind what you do.
The question, using your Google analogy, is the stock goes down and you lose $100k. How long do you wait before you decide to sell and take the loss?
By Clifford on Nov 21, 2007
AI, on that Goodyear short sale, the agent is advertising that the bank has already said they will accept a short sale of $199k. I do wonder if that’s true since 15 days ago he had the same ad at $296k.
As for buy&hold, I don’t dismiss it. I’m just saying that you can’t buy and forget, which seems to me what some people do. I don’t know if its smart to keep holding during a downturn or to sell and sit on the sidelines. With real estate you’ve got tax implications and selling commissions. For example the condo I bought at $70k went to $180k, it was cashflowing $200/mo. I sold at $175k. It is now at $155k, but it would be cashflowing $500/mo. Selling it cost me $30k in taxes and commission. I still don’t know if that was a good decision or not.
By Kenric on Nov 21, 2007
How much can that 3,000 sq ft property in Pinal County rent for? Is that a good area? CI can’t believe the cost? That’s about $46.50/sq ft including the lot. Sounds good from the Bay Area.
By Edwin on Nov 21, 2007
Edwin:
I suggest you get a map and look up places like Queen Creek, Maricopa, Florence and Coolidge. Check the distance and driving routes to employment centers. Then look at the number of foreclosures in the subject and surrounding subdivisions. If you still think you want to buy, get on a plane to Phoenix and drive around your target areas. Drive the commute to the nearest employment center. Look at the landscaping and the cars in the driveways. Call the property management companies listed on the “for rent” signs you see to see how long the properties have been for rent and what the vacancy rate and average lease-up time is. Be sure to ask them if they are taking new clients in these areas (many aren’t). Then decide whether you want to invest in these areas.
If you buy and you have gambled correctly, in 10 years, you may have the next great “outer ring” suburb. Based on what I see today, I’m passing on that bet.
By Another Investor on Nov 21, 2007
AI, Thanks for the information!
By Edwin on Nov 22, 2007
Are you talking about the same community thats located in Florence? My brother lives there and unfortunately got caught in the peak. I got a home price sheet today and sure enough, there’s homes over 3000 sqft selling to investors for approx 140k (without lot fees of course). I think prices did go down about 100k!!
To me, this area is in the middle of nowhere.. However, you can see that in ten years it will be built out.. This got my mouth watering because I am looking for my next move in the next 6 months.
I don’t know about rental rates and competition, but this is definitely interesting.
I’m in Tucson, and there’s a community called Redrock that is in the same situation. These communities that half an hour outside of cities sure dropped the prices!
Good investing..
By bginvestor on Nov 24, 2007
We bought out house here when there was nothing at all around it. It was rather cheap too. Now our lot (not the house even) is worth two times that; and if you add the house’s cost to it, three times it. Great investment.
By ninja.s on Dec 1, 2007