In Summary: Beware a real estate crash.
There are certainly some deals out there. Foreclosures, while not as prevalent in Scottsdale as the rest of the valley, are still at historically high levels. Inventory is up, home sales are down. Some people feel that we are reaching a bottom, and that it’s a great time to buy real estate in Scottsdale because it can only go up. I disagree, although I am willing to admit that Arizona’s enormous growth (3% per year, 2nd fastest growing state in the country) offers a significant hedge against a further real estate slowdown. Additionally, most people who move to Arizona end up wanting to move to Scottsdale, because Scottsdale is the nicest part of the state.) Anyway, here is why I think the market hasn’t bottomed out:
1) Home prices in Scottsdale are way beyond what anyone earning even $150,000 per year can really afford. A nice place in most of Scottsdale costs over $1,000,000 - a mortgage payment of $75,000/year, $110k pretax. If someone making 150k/year can’t afford a nice house in Scottsdale, things are in trouble. There just aren’t very many jobs in the Phoenix area that pay over 150k/year, and while there are some small business owners and wealthy individuals who have moved here, it just doesn’t add up to the number of houses over $1,000,000.
2) Home prices have gone down because they were overvalued and people couldn’t make the payments. So prices are down 15%. Add in the fact that this has happened over a nearly 2 year period, and that the natural state of things is for real estate to appreciate 4% per year, home prices are really down more like 23%. Still, the market was more than 23% overvalued. So I do think that just based on the market being overvalued, there is more room to go down. But again, that is somewhat hedged by the rapidly growing population of the state.
3) Here is what I consider the overriding factor: the recession has not yet hit in full force. And if you don’t think the recession is coming, think again. 100k jobs are being lost per month around the country. And that’s just the start. Inflation is out of control in China, and the Chinese Yuan is getting devalued against the rest of the world even while it gains value against the United States. This means that a manufacturer of say a steel knife in China faces the following problem: 1) their cost of steel has gone up 15% 2) US currency is worth 15% less. Ultimately, this means that Chinese products are going to start costing way more for Americans. Since everything we use is made in China, get ready to spend a lot more of your money on cost of living stuff, random appliances. Not to mention that the ethanol craze is driving up the price of food. Anyway, what I’m saying is that a recession is coming, and *everything* is going to get more expensive. People are going to earn less, and what they want to buy will cost more. This will leave way less money for buying houses. So what’s going to happen? REAL ESTATE WILL GO DOWN FURTHER!!
And thus the official position of lifeinscottsdale.org: The Real Estate Crash Is Coming. Or at least The Real Estate Downturn Of 12-18%. We’ll find out in 2 years if I was right. Goodnight!
