This is my column for this week from the Arizona Republic (permanent link).
What went wrong in the Phoenix real estate market? We told homeowners to treat their homes like investments — and they did…
If you were to turn back the clock on the Phoenix real estate market by four years — that would be just about right.
Judging by prices for bread-and-butter homes, it’s just as if the last four years didn’t happen. The average stucco and tile suburban dream home sold in July of 2008 for almost the same price you would have paid for it in July of 2004.
A lot has happened since then, of course. The 1,400 square foot single family home you could have had back then for $150,000 soared to $250,000 by December of 2005. That seemed like $100,000 in free money, and, regrettably, many people borrowed against that paper equity in their homes. Even if they did not, it has proved difficult to eradicate that entirely imaginary $100,000 from list prices.
The real estate market got hammered good and hard by two very bad ideas. The first is that homeownership is an unlimited good, that everyone should own a home regardless of their circumstances. Governments — and the National Association of Realtors — came up with program after program to induce more and more people to buy homes — regardless of their income, regardless of their credit, regardless of their debt load.
At the same time, lenders threw away all of their old, time-tested, flinty-eyed ideas about thrift, declaring that real estate investment was just like securities investment, the leveraged path to assured wealth.
By the old rules, a homeowner or rental property investor had worked and saved for years to accumulate a down payment. That down-payment was more than enough to cover the foreseeable losses of a foreclosure action, so the loan was secured by the property. Buyers and investors didn’t abandon homes when the market went down, dumping the investment like a declining stock in the face of a margin call.
The market is what it is, but it would be a boon for all of us if we could turn back the clock on those four years and play the game over — by the old rules.
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Linsey says:
My dad and I were laughing at each other recently saying, ‘Please God, just give me one more great real estate market and I promise this time I won’t screw it up!’ 🙂
I bought 2 properties in AZ in ’04. One I sold and one is a long term investment. I’m happy with them but I’ve watched the values climb and slide right back down.
August 17, 2008 — 8:52 pm
Long Island Realtor says:
Thats what I tell people all the time. Just cause it went up it can go down just as fast. Do they listen. NO now I have to sell there house because they borrowed to much into it.
It’s not Timing the Market.. It’s Time in the Market.
August 20, 2008 — 1:57 pm