The Phoenix Rising- An Investor Speculation

As many real estate investors have noticed, the housing market hit critical mass a few years ago... the access to easy money and a wild upswing in potential equity creation brought a great excitement to the market.

Speculators arrived- both seasoned and new. Fortunes were gained and lost.

Now the challenge is to look at the current market... to assess the traps and pitfalls while also looking for the diamonds in the rough.

I'm Chuck Willman, a real estate agent based in the Phoenix, Arizona metro area. This is what I do on a daily basis... look for opportunities.

A couple weeks ago a reporter asked me the following:

How have real estate values been changing in the Phoenix Market over the past two years, and are they expected to continue on this trend?

Here's Part II of a series I wrote for publication regarding the Phoenix real estate investor market.

It seems everyone discovered Arizona in 2004-2005.

• Californians cashed in on their homes and bought a place in Arizona for pennies on the dollar.

• Snowbirds, worried about the massive weather disturbances of the southeastern coastal cities began to eye the southwest as a safer destination.

• Students flocked to our universities- when it’s snowing outside and you’re seeing spectators watching football games in short sleeve shirts you begin to think ASU sounds like a good idea.

A Rising Popularity: We became very popular quite quickly. Our market suddenly had more potential buyers than sellers. Prices doubled and, in some areas, tripled very quickly. Homes that had sat on the market for weeks began to receive multiple offers. It caught most everyone, even the most optimistic investor, off guard. Easy money became available… there appeared to be no end in sight for the price rise. It seemed that anyone who had ever contemplated the possibility of making money on their home, or moving up put to a nicer house, placed their homes on the market.

Invasion of the Home Builders: Every large builder in the nation either flocked to the valley or increased the building pace. They had seen that the more specs they built- the more quickly their communities sold out. Many communities had waiting lists- buyers purchased homes via lottery… those whose numbers were drawn from a hat “won” the rights to purchase. So the builders did the logical thing- they built homes as fast as they could to satisfy the demand… a demand that was soon satiated. As a result, builder inventory is now greater than demand. Prices fell dramatically and buyers were greeted with extraordinary incentives. Some builders have left the market and some of the smaller builders have gone out of business. While there is much doom and gloom in the press about new home builders I’m seeing some light at the end of the tunnel. There are a few builders that are moving quite a bit of inventory. And it’s only plausible- they’re making their homes very easy to buy. I’ve even see a few builders begin to issue their first price increases.

Market Correction: When the correction hit, many of the less savvy investors who had over-extended themselves discovered that they couldn’t find renters to cover their expenses. We’re currently seeing the fall out of the investor scramble. We’ll continue to see this for the next year or more.

Phoenix Beginning to Rise: Homes in the far flung sections of the valley are going to continue to face pricing pressures. There is room for prices continue to fall. Meanwhile, existing homes in the heart of the valley… those closest to Phoenix are beginning to see better activity. I’m running up against multiple offers in these areas... in a way, it’s starting to feel a little bit like early 2004.

To a large extent the increased activity, by investor and traditional home buyer alike, is driven by these factors:

• Increased gas prices.

• The Fed’s recent hint that we may have seen the last of rate cuts for a while.

• The potential for rising interest rates- as a measure to curb inflation.

• Pent-up demand among the fence-sitters… those who’ve needed a home and can no longer wait for the best deal.

• Sellers accepting the new reality that they can’t hit a home run on their asking price… they’ve begun price thier homes closer to the going sales price of the neighborhood.

• Savvy investors are noticing the signs of the bottoming out of the market- they see that certain areas are rebounding and are beginning to purchase again.