John Wake

The Anticipated Prime Mortgage Problem Has Arrived

Great analysis of the supply side.

Now, let's talk about the demand side or, rather, the quantity demanded. The prices are so low and the number of sales is so high, in Phoenix for example, that markets are clearing. In a several low cost areas of Phoenix, the quantity demanded is so high that they could clear MORE supply.

To give you an idea how crazy the market is in Phoenix, let's look at homes sold within the City of Phoenix, not metro Phoenix. The median sold price was $64,000 in March. That means, of course, that half the homes sold for $64,000 or LESS. By June the median price in the City of Phoenix increased to a whopping $78,000. (Based are Arizona State University data.)

Prices are so low in a several zip codes in the City of Phoenix that the quantity demanded has exceeded supply and prices have increased. At their current price level, those zip codes could likely clear continued high levels of foreclosure supply and, indeed, prices have likely bottomed out in those zip codes already.

Prices, however, haven't fallen to that point in most metropolitan Phoenix zip codes and at current prices the quantity demanded is less than the supply.

Housing on Fire - Can Someone Please Explain?

Tom wrote, "Currently, Phoenix is the worst employment market in the United States. That’s right, dead last, even worse than Detroit."

Misleading. From your comment it's apparent Phoenix had the highest amount of job loses in the country but elsewhere I've read that the Phoenix unemployment rate is still only 7.3 percent while the national average is 8.9 percent.

Next year construction employment will pick up from an extremely low 2009 and even though construction employment will still be way below "normal" everyone will say what wonderful employment gains Phoenix has made in 2010.

Banks Are Unwilling to Solve REO Problems

That would be a great strategy once banks figured prices have bottomed out in an area. Right now, I assume the banks assume prices will continue to fall so they want buyers to have some skin in the game. 100% financing and falling prices is a bad combination.

Another strategy as prices approach bottom would be for banks to become landlords and just rent the properties until market conditions improve. But again it's a strategy that depends on prices leveling off to be successful.

It's all moot however because banks aren't clever enough to use either strategy. Bureaucracy is more important than profits for banks.

Housing: Most of the Decline Is Over

Yes, Virginia, we are approaching a bottom, at least for the metro Phoenix, Arizona median home price. Prices are half of the peak price. We could do another 10-15% decline standing on our head. (That would be only 5-7% off the peak price and we have already fallen 50% from the peak.) So maybe 90% of the correction has already occurred. In fact, maybe 100% of the correction has already occurred to the metro Phoenix median home price. Let's see what the March median price turns out to be. (FYI: There is great variability within the metro Phoenix market. Not every sub-market is approaching a bottom.)