You make sense but who knows whether you’re off base or not. Frankly, I doubt anyone in this country truly knows the bottom per se. But at least you’re thinking the issue through and making a defendable argument.

Heck I don’t know if any of my opinions are right or wrong but at least they are plausible. And, IF the opinion of value is subjective, then really there will be a different definition for what “value” is for every single buyer out there. If your position makes sense, which it does to me, then some buyers will also think that way and feel that it’s time to buy. And as you state some of them are buying. If my opinion makes sense to other buyers then they too may buy etc….

The risk I see is if there is any other type of “event” (e.g. mortgage meltdown, lender bankruptcies, FHA problems etc…) that shakes the new born and tentative buyer “confidence”. If this happens we’re in for another year of fence sitting regardless of population growth, job growth and desireability.

It will also be interesting (and maybe painful) to see what the foreclosures will do to the market in general. Clearly foreclosures will affect prices in outlying areas. But what affect will they have on the “key” areas? Maybe significant…maybe insignificant. Afterall, if the three rules of real estate are location location location and if the draw of the outlying areas has always been price then perhaps the properties within loop 101 will not be affected and we will see a recovery in demand if not a recovery in prices.

Finally, I don’t believe the sub market of NEW high rise has seen the bottom. Established buildings built prior to the boom seem to have adjusted and “make sense.” In fact I’m writing a post that will demonstrate why I believe this using my own home as the example. However, it the buildings that were built during the crazy boom that still need to adjust PLUS we have hundreds of new units about to hit the market. If those developers go under and the entire building goes back to the banks (and I’m not saying they will…I’m saying “IF” that happens) then you can bet that the entire niche will be affected.

How’s that for a Saturday morning rant? W

I think prices for sf homes are nearing the bottom. Here’s my reasoning based on some rough estimates. I bought my first house in Ahwatukee in 1993 for 110K. (Based on purchase price and improvements I added in the first few years). In 2003 I refinanced and had the house appraised for 150K. That is only a 3% per year appreciation over a ten year period. In 2003 I added some addition floor space to the home that I estimate increased the value by about 20K ( based on price per sq ft calculations not the cost of the improvement). This would have put my house at around 170K. If you ignore the bubble year speculation and add a reasonable 10% appreciation in the low interest years of 04 thru 06 the value of my home should have been around 226K. (Incidentally, I sold the house in 2006 just as the market was slowing down. I sold it for 306K and could of gotten 10 K more but I had to move fast and priced it aggressively.)

If we once again if we make believe the bubble/crash never happened and add reasonable 5% increase over the last two years because of still low interest rates I would place a reasonable value on my former house of about 250K. The current Zillow estimate is 246K and I assume they calculate value in a totally different way. The comps on Zillow do show that houses are starting to sell in that price range in Ahwatukee so perhaps we are near the bottom. At least the bottom is being established. We do tend to confuse listing prices with sales prices. There are a lot of developers and individual sellers who are holding on to the hope that someone will buy their homes/condos at higher prices. It will take a while for these prices to come down as people accept (or are forced to take ) the losses.

The number of people moving into the valley each year has been increasing but it did not explode in 2004 thru 06. These are the people who are buying houses to live in, not invest in. This is what ultimately will drive the supply /demand curve. (and of course interests rates.) We all know the speculators drove the bubble to unreasonable levels. That’s why I try to ignore the bubble in my estimates. Ultimately it’s people who want to live in Phoenix that will dictate the price of homes.
This is something that condo developers and a lot of home sellers don’t quite seem to understand yet.
My current neighborhood as been devastated by foreclosures (potentially10 out of 26 homes) and the prices have dropped dramatically. Homes that were bought for 550K are now selling for under 300K. (down more than 40% from the peak selling price.) There is lot of activity now and there are some offers being made. This is a good sign.

Does this make any sense or am I my way off base?

Thanks for that article.

Did you recieve the “make us an offer” email from Jayson at Portland Place Condos? As far as the Phoenix market – I think we have farther to fall between now and the end of the year.

The short sales and auctions are letting the buyers know that there is “blood in the water” – so they will bide their time.

The reaction to the US economy, from here in China is humorous – they wish we would “get it together” and stop letting the value of the dollar slide.

The author, a hedge fund manager, did not disclose his current holdings. This is problematic at best.

The biggest flaw in his logic is that he uses new home inventories as his basis. The used home inventories are swelling with many being due to forclosure. The level of used homes will divert sales from new as the banks don’t want to own real estate, vis-a-vis, the RTC with commercial in the 1992 time frame. The RTC gave away properties and made some local guys with cash huge returns. Even I turned 25K into 75K in three years with a LP on the 4020 building on 40Th street ans nice symington property

The author also quotes a 5.7% 30 year fixed. Love to see it. Sue has a 820 and I have an 810 credit score and we did a 70-30 LTV and paid a1/4 point to secure a 5.75% last year. As you can imagine I keep an eye on the rates to see if we were smart or stupid. I dont think we could get as good a deal today. The author says we could do even better. I have to call BS on that one. Furthermore, I think rates will be going up due to inflation and the fact banks are tight on cash.

The banks are the real crushing blow to this “bottom is in” scenario. People with great credit will always get loans. Problem is, to move the hue inventory, you need to sell to people that have so-so credit at best. The banks are not giving 5.7% to these folks–as now they have to keep to loans on the books.

As a last point. Wait until the pension funds that bought the CDO’s find out that if fraud is involved (can you say inflated appraisal) that they can legally force the seller to buy the CDO back at face value. Now the banks and mtg originators all go BK as they dont have the money to fund such a buy back.

I would wager the actual path will be a mixture of the author’s and my visions.

As in the past–really good properties will always sell and hold value. LOCATION LOCATION LOCATION. Unfortunately, most of the new stuff was built due to the market demand and forgot about LLL–think Maricopa.