Everyone knows that the number of homes on the market is at an all-time high in almost every community in the state.
But, did you know that our population growth continues to increase at the same rates it has for years? So why the glut of homes on the market? The current oversupply is being driven by a couple of issues.
First and foremost, a lot of people inside and outside Arizona got very greedy when prices started to increase rapidly in 2004.
(See the chart for reference.
) Homes suddenly became a hot trading commodity instead of places for families to live.
Like a stock market bubble, the value of a home was suddenly being driven by what you could sell it for next month, not what it was worth as shelter and a long-term investment for a family.
This buying and selling frenzy drove prices through the roof.
(if you will pardon the pun.
) When this activity caused prices to reach a ceiling, the whole get-rich-in-real estate crowd was caught with a huge inventory of houses that no longer could be flipped for a short term profit.
That's a large part of it.
The run-up in prices far exceeded wages being paid here.
Arizona's median income is lower than the national average by more than $10,000 per year.
All of a sudden, a median income didn't qualify for a median priced home.
Many people already living here or moving into the state were literally priced out of the market.
Their incomes simply could not support the mortgage necessary to buy a house here.
When we look at affordability issues, a family buying a $250,000 house needs about $35 per hour in gross income to qualify for the resulting mortgage payment.
In many communities, a nurse married to a fire fighter don't make that much money combined.
This fact left many more unsold homes on the market.
With the government insisting that everyone has an inalienable right to own a home, (as opposed to an inalienable right to EARN one) the mortgage banking industry kept coming up with more imaginative ways to get people into homes.
Many of the resulting loan programs were just plain wrong for the average working guy and gal.
The result, more homes going on the market because the home owner couldn't really make the mortgage payments he signed up for.
Some "Stated Income" program that allowed or encouraged him/her to lie about how much money he/she made wasn't a good idea and it quickly became evident.
Both the banker and the borrower are equally at fault in this case.
If the borrower lied to get a house he couldn't afford, he/she deserves the foreclosure on his/her credit.
If the bank designed a program that they knew would be abused, they deserve the loss they are going to take on the foreclosure.
(adding yet more homes on the market.
) Once the foreclosures started to rise,and Wall Street saw the weakness of these "science fiction" loans,the mortgage banks started returning to sanity in their lending policies.
Now we have a situation where more homes than ever are on the market and fewer people can qualify to buy them.
This is not necessarily a bad thing except in the short term.
If there are too many homes on the market, prices will come down.
if the banks are making loans to qualified borrowers, the foreclosures will go back to normal levels.
In Arizona, we have very low unemployment, a growing economy, great weather, and a great lifestyle.
People are still moving here in huge numbers.
This real estate cycle is well into its correction phase and will start to turn around very soon.
Is it a good time to sell a home? Probably not.
Is it a good time to buy? If you have normal loan qualifications, it's a great time to buy.
Prices will never go back to 2003, but they are falling off the all-time highs reached in 2005.
There is plenty of money available at great rates if you qualify under normal guidelines or are a first time home buyer.