Is Phoenix in a Real Estate Bubble? Heck no! Here’s why…
That’s the question on so many peoples minds along with:
Are we in a bubble?
Will we crash like we did in ’07 and ’08?
Are prices going up too high?
Let’s answer those with some fun facts. Shall we?
In 2005 and 2006 real estate was rising out of control in price and there were only 3500 homes for sale. We had no appraisal and underwriting guidelines and home loans that only required that you were breathing. There were also stated income loans where you just said “Yup I make $200,000” and you didn’t have to give the lender anything to back that up. We also had those nasty subprime loans.
Now we have guidelines that will not allow a home to appreciate and sell for $200,000 more in the same day. Yes this happened many times over back then and it was okay because there was no Dodd Frank and there was no Consumer Financial Protection Bureau. I saw this happen first hand many times however it was glaringly apparent as I took bank owned listings.
In 2010 I had an REO in Fountain Hills that sold as new construction for $575,000 on May 20, 2005. On the same day it sold for $775,000. In fact the recordation shows it was done at the same title company simultaneously. The first sale was cash however the 2nd one was a loan backed by Fannie Mae so there was an appraisal done with full knowledge that it was selling for much less. Nowadays if you did this you’d be getting in trouble.
So thats the big difference between today and what happened back in the crash. There is also DATA aka FACTS that you should know…
Population Growth: Out of 3,142 counties in the United States our county, Maricopa County, is number 1 in population growth. There are 202 people moving here every day!
Employment Growth: Maricopa County is gaining 151 jobs per day! Wage growth is 3rd in the United States at 4.8%
Home Sales and Inventory: The number of home sales is up 2% from last year and the number of new listings aka homes available for sale is down 1%. This is why we only have 1.9 months of inventory. Now thats the average. If you look at homes priced from $1,000,000 to $1,500,000 that goes up to 6.3 months and some areas are as high as 15 months. So the market as a whole is in a Seller’s Market and the Luxury Market is normal until you go over $1,500,000 which is in a Buyer’s Market. The median sales price is chugging along at a very healthy 8-10% appreciation whereas in ’04 and ’05 it was in the 50% range, not healthy at all.
Summing it up: As I said in the beginning the biggest change that is stopping us from reliving what happened before is appraisal and underwriting guidelines. Appraisers are not and just can’t justify price increases of $200,000 in the same day. Heck they won’t even do a $5,000 one in a month in some cases. There now has to be several sales over a 90 day period that shows a trend to back up the purchase price. That was not the case in ’04 and ’05.
Now all you renters out there thinking that we are in a bubble and are throwing your money down a black hole need to get off your rental couch and build some wealth. Just over the last year the median price in Maricopa County has gone up 8% which is $21,500. That’s $21,500 you lost in equity by renting. If we go up 8% again that will be an additional $22,800 you could have gained in equity.
Same goes for real estate investment. There aren’t many places you can park money and earn 8-10%. Thats something to dive into later…
If you have any questions about real estate let’s sit down over a cup of coffee or your favorite beverage and discuss. ☕️🍻😊🏡