Archive for March, 2009

If you live where it snows and where rust is common, it might be time to think about moving to metropolitan Phoenix

This from my Arizona Republic real estate column (permanent link):

This is a note to the folks back home — in my case, the rust belt of Illinois. If, like many adults in metropolitan Phoenix, you come from someplace else, you might print this out and mail it to the people who stayed behind.

The topic: It might be time to pack up and move to Arizona.

Everybody wants to root for the home team, but there are cities that will grow out of our current economic mess and others that will not.

If you make your home in a region that thrived in the days of mass production, it’s likely that the sun has set on your local economy.

In cities like Detroit and Cleveland and Philadelphia, thousands of homes stand empty as people move away faster than they are replaced. Aging factories close one by one, and the high-paying jobs they once offered are not being replaced.

This is baked in the cake three different ways: Local laws make new-business formation difficult and costly. The climate often makes life unpleasant and more expensive. And the long-term movement of the nation’s population is south and west, away from loud, smoky cities and toward clean, quiet — and sunny — suburbs.

By contrast, Phoenix is growing — even now. Last year was another boom year for population growth, and our unemployment rate is remarkably low, considering what’s going on in the rest of the country. Our houses are cheap, our rents are affordable — and our horizons are unlimited.

There’s no way to put a price on psychological costs and benefits, but seeing the sun set every day — with a uniquely different majestical beauty every day — will effect a priceless change in your attitude about life.

If you live someplace where it snows and where rust is common — and not just as a decadent architectural ornament — it’s time to think about moving.

Even if you have to let your house go — and if your local population is declining, you’ll never get back what you paid for it — your future prospects — and your future mental health! — are probably better in greater Phoenix.

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Phoenix real estate bargain of the day: “I’m looking for a decent home in the Phoenix area that I can buy as a rental for now, but then use later as a getaway home — or maybe even retire to.”

I hear the request in the headline about twice a month. It’s a doable proposition, and it all really depends on price. Spend enough and you can have golf. Spend more and you can have gated golf. Spend way too much and you can have gated golf on the side of a mountain.

This house, in Ryland at Heritage Point in Tolleson, is the bargain-priced expression of that ideal. No gates, no golf, no mountains, but a nice-sized three-bedroom home with a pool in a near-in suburb of Phoenix.

For the record, I don’t love pools for rental homes. If you’re going to have one, then you simply must carry a liability rider while you’re housing tenants.

Beyond that, this house has a lot going for it. Bedroom number two has a closet, but it doubles as a den, a very practical configuration. The landscaping needs attention, but it was decent to begin with, so it should come back fairly easily. The pool was built by Paddock Pools, a reputable company.

We need appliances, along with flooring and paint, but the home is in pretty good shape overall.

The home is listed at $87,900, which is pretty aggressive. I might start at $80,000 and see who salutes. With $5,000 to whip it into shape, it could be rent-ready (or move-in-ready) for $85,000. It should be able to command $950 a month in rent, maybe even $1,000, very comfortably cash-flow positive.

And then, someday, you can lay on your back on your air mattress in your own backyard pool, watching the silent progress of the jets taking flight from Skyharbor Airport. There’s a beer or a margarita somewhere in this scene, but you’ll have to paddle over to the cool-deck to find it.

In the mean time, email me or phone me at 602-740-7531 and let’s go take a closer look at this property…

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If the Phoenix-area economy is too dependent on housing for jobs, why is our unemployment rate so much lower than other big cities?

Robert Robb in today’s Arizona Republic:

So, Arizona’s housing sector has suffered a sharper decline than probably anyplace else in the country. If the rest of Arizona’s economy is dependent on housing, then why does Arizona have a lower unemployment rate than the rest of the country?

January is the most recent month for which comparative figures are available from the Bureau of Labor Statistics. During January, the country had an unemployment rate of 7.6 percent. Arizona’s rate was 7 percent.

The paradox is even starker when looking at major metro areas. The Phoenix area’s unemployment rate was 6.7 percent. Only one metro area in the Case-Shiller group had a lower unemployment rate, Washington D.C., which has an economy clearly driven by government. The average unemployment rate for the 20 major metro areas was 8.4 percent.

According to BLS, of the 49 metro areas in the country with a population in excess of 1 million, Phoenix had the seventh-lowest unemployment rate.

Phoenix has done much better than many metro areas alleged to be our economic betters. San Diego, the proclaimed bioscience leader, had an unemployment rate of 8.6 percent. Charlotte, N.C., which supposedly does right in education what Arizona does wrong, was at 10.5 percent. Portland, Ore., the antithesis of an economy driven by housing, was at 9.8 percent. Seattle, which has the big companies we supposedly can’t attract, was at 7.5 percent.

So, most large metro areas have unemployment rates substantially above the national average while Phoenix, whose housing sector has been hit the hardest, has an unemployment rate substantially below the national average.


All this unveils what should have been obvious all along. Housing does not create its own demand. Something else has to draw people to an area, which in turn creates the demand for housing.

Arizona has a fundamentally solid underlying economy that benefits from, but is not dependent on, housing. And it has a frothy real-estate sector that depends on growth generated primarily by other factors.

The real-estate sector is oversized. But that is inevitable in a place that is growing faster than other places. That’s not the same as the rest of the economy being dependent on housing.

My take: There are cities that will grow out of this mess and others that will not. If you live someplace where it snows and where rust is common — not just a decadent architectural ornament — it’s time to think about moving. Even if you have to let your house go — and if your local population is declining, you’ll never get back what you paid for it — your future prospects — and your future mental health! — are probably better in Metropolitan Phoenix.

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Real estate bargain of the day: The Lavendar floorplan at Coldwater Springs could be yours for $90,000…

I’ll make it back to Coldwater Springs sometime soon, but, for now, this house is making me crazy. I’ve been following it for six months, and, despite a very sweet pricing history, it just won’t move.

What’s this property’s Achilles’ Heel? It’s missing its dishwasher, and I think the lack of a $600 item is sending buyers elsewhere.

If you can make a mental leap, you’re in for a nice bargain. The home faces south, and you’re just steps away from the Coldwater Springs Golf Course. There’s ample shopping nearby, and the public school is right in the middle of the subdivision. Kids can walk or ride their bikes to school without ever crossing a busy street.

As a starting bid, I like this home at $85,000. It has competition at $88,5000, but the recent low sale in the Lavendar floorplan was $105,000. The all time high for a Lavendar without a pool was $267,107.

You’re looking at around $5,000 after closing to whip it into shape — dishwasher, range, refrigerator, carpet, paint, landscaping and touch-ups.

How will it rent? It should go for $950 a month, comfortably, throwing off around $7,200 a year in before-tax cash-flow.

This is a smokin’ deal in an Avondale neighborhood that should be a pace-setter, once the real estate market starts to recover.

If you want to give it a closer look, email me or phone me at 602-740-7531.

Not home yet? Not to worry. We’ll talk about another great deal tomorrow.

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Phoenix real estate bargain of the day: Sweet suburban homes with a community pool. Schools, shopping and jobs nearby, with easy access to Phoenix and the West Valley — all for $60,000 — or less…

These houses are making me crazy. The Phoenix real estate market is awash in incredible bargains. I’m going to start writing about them until they’re sold.

Here’s the way it is: Decent-quality homes are for sale for fire-sale prices. Interest rates are at all time lows. Whether you’re buying a home for your family or a rental home — perhaps to produce income now and serve as a retirement home later — opportunities abound.

Today’s bargain is actually four bargains, four homes in the same floor plan in the Ryland at Heritage Point subdivision in Tolleson, Arizona.

If you follow that link, you’ll find photos on eleven houses, but today we’re just going to talk about the four that are selling for the lowest prices.

The photos I’m showing you are “warts and all” pictures. These are lender-owned homes, and all of them will need some work before they are move-in- or rent-ready. But, as you’ll see, most of them won’t need much work, and we can help arrange for contractors and handymen to get these minor jobs done — quickly and economically.

So let’s take a look at our four houses. Tolleson is a near-in suburb of Phoenix, and Ryland at Heritage Point is the jewel in its crown. There is a community pool and ample green belts, some with playgrounds. There is great shopping nearby, and freeway access could not be easier. You’re in the heart of the West Valley warehouse zone, so there are lots of good-paying jobs in the immediate area. In short, this is a nice place to live and a profitable place to own rental homes.

8330 West Hughes Drive Tolleson AZ 85353

This house is in decent shape overall. Alas, the air conditioner compressor will probably need to be replaced. The most recent sale in these units is $55,000, so $50,000 would be a fair offer on this home. You should figure your net entry cost at around $60,000, although it could be less.

2612 South 84th Glen Tolleson AZ 85353

This house is better than it looks right now. The lister promises to do something about the front-yard landscaping, and the rest of the house is not in awful shape. The carpet needs to go, and the house faces east — which means the back of the house will get very hot on summer afternoons. I like it at $52,000 to start.

2620 South 84th Glen Tolleson AZ 85353

Not awful, but it faces east, and there is a lot of bad decorating to be undone. I like it at $50,000 as a starting offer.

8433 West Preston Lane Tolleson AZ 85353

I see this one as a reject, but you might see it as a challenge — and a bargain. The kitchen has been gutted, down to the walls and plumbing. The water heater is gone and the AC compressor is damaged. It’s going to take $15,000 – $20,000 to whip this house into shape, so I think $35,000 is a fair place to start negotiations.

Why not lower on all these? Because the list prices on these homes are already so low that you will have competition in bidding on them. But each one can be made turn-key livable for about $60,000, gross, and this exact floorplan in this subdivision has sold as high as $237,000 in the past. They’ll rent for around $850 a month, so they’ll be cash-flow positive from the first tenant.

These are smokin’ deals. If you want to jump, email me or phone me at 602-740-7531 and we’ll get cracking.

Are these homes not for you? Fear not. I have thousands more available. We’ll talk about another great deal tomorrow.

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Can Canadian real estate investors take over Phoenix one lot at a time?

Perhaps not, but it’s not for a lack of trying. From the Toronto Globe and Mail:

The subprime mortgage crisis in the United States may have helped push that country into a recession, but for one Calgary company the financial fiasco represented a cross-border opportunity.

CBI Group, a real estate investment firm, has launched a fund that aims to raise up to $12.5-million to buy about 175 single-family homes in Phoenix over the next year. The idea is that Canadians will be able to invest in the United States, profiting from the housing market collapse.

“The opportunities are limitless for CBI,” said Jarrett Zielinski, CBI’s vice-president of property acquisitions. “For Canadians with a good cash flow, real estate has become so distressed the opportunities are boundless.”

Here are some interesting facts for you to consider:

1. You don’t have to be a Canadian to take advantage of the perfect storm in the Phoenix real estate market.

2. Canadian or not, you don’t have to be a millionaire.

I’ll have more to say about this later, but this will suffice for now: If you have cash or credit, Phoenix is ripe with investment opportunities.

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Why should you buy real estate — and lots of it — now? Well, inventory abounds, prices are low, and interest rates are incredibly low. And there’s one other factor you might take into account…

Follow the tiny blue line. That’s the growth of the U.S. money supply. That vertical surge you see there at the right is, essentially, a doubling of the number of dollars in (virtual) circulation since August 2008. Every dollar you own will soon be worth fifty cents. And every dollar you owe will soon be worth two bucks. You do the math…

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The Phoenix real estate market will turn around when our population rises to match our housing supply

This from my Arizona Republic real estate column (permanent link):

If you’re going to call a bottom for the Phoenix real estate market, be prepared to do it more than once.

When the real estate market was booming, there were people declaring that the market had reached its peak 18 months before it actually did.

I was on the other side of that error. While prices for bread and butter suburban homes reached their high water mark in December of 2005, I was convinced at the time that the boom would run for another eight months.

This week new construction analyst R.L. Brown announced that he may be seeing an incipient stability in the median sales prices for new builds.

That’s a prediction with the tensile strength of a willow frond, but that hasn’t stopped pundits from speculating that Phoenix may be nearing the bottom of the market.

Not to rain on anyone’s parade, but prices for those bread and butter suburban homes — the ones that told us when the boom had ended — fell 5.79% last month.

That’s a big drop. Year over year, those homes, on average, are down 31.31%. They’re down 53.32% from the peak.

We have to hit bottom sometime, surely, but new home sales won’t tell us anything about the bottom of this market. Why? Because resale homes are selling for substantially less than their replacement cost.

How can that be?

The ponderous, pontificating answer is that buyers are radically underbidding our home values.

The plain-spoken answer is much simpler: We’re overbuilt. We have more bedrooms than people wanting to sleep in them, more kitchens than people looking for a place to cook dinner.

So when will the market in the Phoenix area finally turn around? When the population increases to match the quantity of available homes.

This won’t take long — particularly since the new-home builders cannot compete against the prices of resale homes. But it won’t happen overnight — and our current economic troubles aren’t helping.

Even so, Phoenix has it a lot better than other markets. Our climate will attract the people we need to fill our excess housing. Just give it time.

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Maricopa County is first in the nation in population growth

From the East Valley Tribune:

The economy may be in the tank. But people continue to move into Arizona – at least parts of it – in record numbers.

New figures Thursday from the U.S. Census Bureau show that Maricopa County added 89,550 people in the year ending June 30, 2008. That’s a change of 2.3 percent.

Potentially more significant, the number of people living in the state’s most populous county is up by more than 882,000 since the official count in 2000. And that numeric change, according to the Census Bureau, is not only the greatest of any county in the country. That difference alone is larger than the populations of six states.

There are caveats, of course. The study is backward-looking, and it covers a period of time prior to this economic downturn.

But still… The sun shines almost every day, and we’re an opportunity state for new business formation. And half of the Baby Boom will be retiring here.

The real estate market stinks pretty much everywhere right now. But it will recover first and strongest where the population is growing fastest.

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Trolley fares to go up for the first of many times

I hate to say it, but “I told you so…”

The politics of light rail is very well-established. We will never be told what the actual operating losses for the Trolley are, but we will go through a rash of fare increases, service cuts, advertising initiatives, corporate “partnerships,” etc.

Mass transportation cannot show a profit, that’s understood. But government-controlled mass transportation results in losses far greater than necessary.

The true victims won’t even be the Trolley’s riders. The people who will be hit hardest by the light rail boondoggle will be the poorest of the Valley’s residents, who will have their bus service cut to subsidize the trolley.

These are folks who can’t get to work — or to the doctor — without bus service, but their bus routes will be curtailed or eliminated for the benefit of preening rich people.


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There is money to be made in Phoenix-area rental homes — unless you lose it to a scam artist

This from my Arizona Republic real estate column (permanent link):

Yet another rental property scam operation hit the skids last week. I would tell you the company’s name, but, alas, its name is legion.

This particular scam works like this: The company acquires residential properties that it then promotes to out-of-state investors. Think of the operation as kind of a used car lot for houses. As with used cars, the sales rep works for the seller. The investor is on his own.

Buying real estate without representation is usually a poor idea, but don’t worry: It gets worse.

The sales pitch behind scams like this is “one stop shopping.” Investors get to buy the seller’s property, exclusively from the seller’s limited inventory. They get to take the seller’s word about the resale value of the house or apartment — along with the seller’s projections on rents and vacancy rates.

Even better, investors get to use the seller’s lender. There will be inspections, an appraisal and title and escrow work — and the seller will be taking a kick-back on every fee the investor pays.

Once the home closes, the seller will become the property manager for the rental. There will a lease-up fee, of course, but that won’t be payable until a tenant is procured. But there will be a monthly management fee whether the home is vacant or occupied.

The lure of “one stop shopping” is a ruse, of course. A rental home is a business, and investors must anticipate and provide for reasonable business expenses. But nothing costs as much as it does when someone says, “Don’t worry. We’ll handle everything for you.”

The state has shut down several of these scam operations in recent months, but others are still in business. Your only real protection is caveat emptor: If a seller — of anything — offers to handle everything for you, be on your guard.

There is money to be made in rental homes in the Phoenix area right now, but it’s all cash flow, not price appreciation. If a “one stop shopping” scam operator eats up all your cash flow, you may never profit on your investment.

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Looking for a cause for hope in Obama’s mortgage-relief plan? In Phoenix, for now, every cloud may have another cloud inside it…

J. Craig Anderson in today’s Arizona Republic:

The Obama administration’s $75 billion mortgage-relief effort is projected to help as many as 9 million overextended borrowers, including thousands in Arizona.

If recent history is a guide, though, financial relief for some could be short-lived.

More than half of the past-due loans modified in the first half of 2008 were back in default six months later, according to a recent report by federal bank-oversight officials.

While many have lauded President Barack Obama’s plan as a worthwhile effort to help struggling homeowners, local and national experts said there are clear signs that loan modifications that reduce payments, interest and even principal won’t significantly curb foreclosures.

In the Phoenix area, modifications are even less likely to prevent foreclosures than they are nationwide, experts said. Borrowers who owe far more than the current value of their homes may quit paying their loans regardless of how affordable the payment is.

As always of late, this is bad news for homeowners, very bad news for sellers, but it is good news for buyers and investors. Moreover: The sun will come out. Maybe not tomorrow, but someday soon. All we have to do is soak up our excess inventory and the Phoenix real estate market will turn, regardless of what happens in the rest of the country.

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Do you own a home in Metropolitan Phoenix? Trying to sell one? I feel your pain. But for investors and first-time home buyers, prices and interest rates are low and incentives abound.

This is my column for this week from the Arizona Republic (permanent link).

Do you own a home in Metropolitan Phoenix? Trying to sell one? I feel your pain. But for investors and first-time home buyers, prices and interest rates are low and incentives abound.

It can hurt to be a home seller right now. Buyers are thin on the ground, and the fire-sale prices available for bank-owned homes makes holding out for more very tough.

It’s really not all that pleasant to be a home owner for now. Whatever equity you had is gone, and every time another one of your neighbors loses a home to the bank, values go down even more.

If you keep making your payments, you’re probably throwing good money after bad. But if you let your house go by short sale or foreclosure, your credit’s wrecked.

Is there anyone for whom the housing market is not a disaster?

There is, actually. Two groups of consumers have a lot to gain from this real estate market.

The first group is rental home investors. Prices in Metropolitan Phoenix are very low, as are interest rates, but rents have held steady for the past five years. And Fannie Mae just raised the limit — from four houses to ten — on the number of homes investors can buy.

The second group — first time home buyers — has things even better. FHA loans require only a 3.5% down-payment. And the newly-passed stimulus bill includes an $8,000 tax-credit for first-time buyers.

That’s a true credit against taxes owed, not a deduction from taxable income. Buyers will be credited 10% of the purchase price of the home, up to $8,000.

So let’s go buy an $80,000 house — which can be a lot of house in Metropolitan Phoenix right now.

You’ll need $2,800 for the down payment. But since we’re going to get the seller to pay closing costs, that’s all the money you would need to buy the house.

Principal and interest is going to run $463 a month, and taxes, insurance and the HOA fee will add another $193. A three-bedroom home in the suburbs is going to cost you less per month than a three-bedroom apartment.

And next April, $8,000 cash is going to come back to you from the tax credit.

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Buyers and investors can look upon the February Market Basket of Homes with a smile on their faces. Owners and sellers not so much.

Here’s the news, a short, sharp shock: Home prices are down by 5.79% in the February Market Basket of Homes. A total of 125 homes in the market basket sold, down from the trend of recent months. Days on market was up.

Were it not for the machinations going on in Washington right now, I would say that the market is arguing that prices are not done declining. Given the manipulations being proposed by the president and the congress, what will actually happen is anyone’s guess.

We produce the Market Basket of Homes every month. It is always available from this link, with the new month’s addition usually be available on or before the seventh of the month.

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The world’s most perfect newspaper headline: “Police: Man hits cop at beer festival”

I’m not going to link to the news story, because this poor sap’s got troubles enough.

But the headline itself is perfect like algebra:

        man + beer_festival + cop = man_hits_cop

That’s as perfect an outcome as any math can achieve.

But wait. There’s more:

        man_hits_cop = arrest

Easily understood. But consider this:

        arrest = jail = bail

Not quite so obvious, but, given that proposition, this outcome must follow logically:

        jail = bail = marriage_counseling

It’s the math of suburban life gone awry…

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