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Will Home Prices in AZ Keep Going Down?

By SEO Expert: Michael George

Services for Real Estate Pros

February 28, 2010 12:11 PM

poison assets

Where are Arizona Home Prices heading? Will they go up or continue to go down?

I am almost 100% positive I have the answer to that question.

How could I be positive?

Because this is the most simple concept in economics-- supply and demand.

First, I'll tell you what you want to know: this Arizona Mortgage Pro believes home prices will continue to decline or at least stagnate in value for years to come.

Now I realize that this is contradictory to what many states and agencies are claiming.

"We are starting to see a turn-around," they claim.

Um. Yeah. For now, briefly.

But they'll go back down again (or stagnate) and everyone should know it's going to start with the mortgage loans.

The government has changed many requirements and situations regarding who gets a mortgage loan from now on. Every loan is getting tougher to do, each and every month that I continue as a loan officer.

Right now, I have a client with a $1,000,000 home that is paid off, "free and clear". He and his wife are retired, and they both live off very generous pensions.

They have outstanding credit. Both of their scores exceed 800.

They need a cash-out loan. How much? $125,000.

That's right mortgage brokers! Start drooling! A loan with a 12.5% loan-to-value ratio (LTV) and 800 credit scores.

Well, the loan was denied today because the debt-to-income ratios were slightly high-- bu about a half of one percent.)

The underwriter refuses to work with me on this. The banks are cherry-picking their loans right now. Why not just do the government deals and screw everyone else?

The next thing is...and I think it starts tomorrow...FHA borrowers who don't meet a minimum credit score requirement will have to come up with 10% down.

Many of you will probably applaud this and say, "Good! If you don't have 10% down, then you shouldn't be allowed to buy the house!"

Well, if you are a Realtor or a homeowner or a home buyer, you might want to rethink that.

If we can qualify fewer and fewer people (ask any mortgage pro-- that's exactly what's happening), then there are fewer and fewer buyers in the market. Fewer buyers mean more houses that won't get sold.

*** Increasing the supply of houses will decrease the home's values. Home prices will stagnate or, more likely, lose even more value. This is not my personal opinion, but economics a freshman business student understands. Supply = Demand ***

Of course, there is an argument to my argument.

An economist might say: Or, the lack of buyers could cause less homes to be on the market, thereby equaling supply with demand and keeping prices from falling.

Well who wants that crap? How is less inventory and fewer sales good for our business? It's not. So either academic argument is correct, whichever one you think to be true. It's just that both arguments screw us (who make our living in Real Estate).

The lending situation needs to improve dramatically. I totally agree that sub-prime loans contributed to the downfall of the American Mortgage Market; and I can honestly say I never wrote a sub-prime loan myself.

But going in the completely opposite direction (not allowing anybody to qualify) is not the answer. Leave the FHA loans be...please!

VA loans? Actually no problem qualifying-- almost always good to go. (If you are a seller's agent; take the VA offer.) I advertise and service veterans heavily (relative to this terrible market), but that still adds very few loans to my final bottom line- or to my Realtor's bottom line. I come up very high in Google for Arizona VA Loans, but I still only get a few every month.

Whatever the government does though, it can't increase the number of eligible veterans! So that is a very limited supply of buyers anyway.

Hang on for a slippery ride ahead. I think the herd is about to be thinned. Loans are harder to qualify for; home prices are so low that commissions for people in the business are no longer worth the work; and poor folks, who need help the most, are voting for tax breaks for the wealthiest Americans and doing nothing to help the blue collar worker buy his or her first home.

Don't say you haven't been warned.

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Don Wixom

RE/MAX Executives Nampa, ID - Nampa, ID

"Looking out for your next move..."tm

I think you're right! We have a hard row ahead of us! Sell while we can & can all we sell!

Feb 28, 2010 12:26 PM

Dan Sanley

La Mesa, CA

Michael, you have nailed it. A very, very slippery ride ahead. Stagnation is going to be the word we will eventually become more and more used to. It won't be limited to housing.

Feb 28, 2010 12:50 PM

Howard and Susan Meyers

The Hudson Company Winnetka and North Shore - Winnetka, IL

The only flaw in your argument is the presumption that lower prices are bad for our industry. Yes, in the short term, continued lower prices will be an anchor on the volume of transactions. In the longer term, prices need to get to whatever level is necessary to reach an equilibrium where the supply and demand are in balance. When that occurs, the level of transactions will return to a more "normal" level. The last thing we need is for a new series of under-capitalized buyers to be under water next year in the event that prices drop another 10%.

This is not to say that lenders are not a part of the very complicated circumstances which we are experiencing today. They are a LARGE part.

Feb 28, 2010 12:51 PM

SEO Expert: Michael George

Phoenix, AZ

Real Estate and Law Firm SEO

I understand exactly what you are saying Howard and Susan.

"The last thing we need is for a new series of under-capitalized buyers to be under water next year in the event that prices drop another 10%."

You are so correct. But again, there is another side to that argument.

I say that if they loosen lending guidelines, instead of continually tightening them, we won't see buyers in the under-capitalized situation. In theory, home prices should go up if we can put a lot more pre-qual letters in people's hands. Of course, this is only theory.

Your argument almost makes it sound like EVERYBODY is going to default. We know that's not true. So wouldn't it be better to take a chance on borrowers and promote higher values than to do the sure-thing loser: Create many fewer buyers?

It just seems like the risk/return factor would push us towards doing things that would make our houses worth me. Because, I can tell you, my house is WAY undervalued.

I would rather gamble on the theory that more buyers will equal better home prices, than take the sure thing and suffer for sure. (Again, especially if you are in this biz.)

Feb 28, 2010 01:07 PM

Sharon Alters

Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL

Realtor - Homes for Sale Fleming Island FL

Michael, what happens if we have inflation? Will home prices still stagnate or will they rise with inflation? I can't seem to get a straight answer from anyone about this. Maybe you have some thoughts.

Feb 28, 2010 02:13 PM

Norma Toering Broker for Palos Verdes and Beach Cities

Charlemagne International Properties - Rancho Palos Verdes, CA

Palos Verdes Luxury Homes in L.A.

BoA declined a loan last week because a foreign bank would not sign the gift letter from my client's parents. We had documentation of withdrawals from Asian bank and deposits dates in US bank but the fully executed gift letter and accompanying documentation was not enough for BoA.

Feb 28, 2010 02:22 PM

Fran Gatti

RE/MAX Integrity - Medford, OR

Managing Principal Broker - RE/MAX Integrity

Michael,

My market is continuing to decline and I expect that to continue. I see rough times ahead for Californian's and housing will continue to reflect our ailing economy. I have several people close to me who are in fear of losing their jobs. This is becoming more common all the time. Although I don't fear losing my job (REALTOR), a drop in income would be tough. I'm trying to be like a squirrel and pack it away for a rainy day (it's been difficult).

This is a well written post with sound reasoning. It would be a shame for your clients to lose you as their mortgage broker if you decide to swith your profession.

Feb 28, 2010 02:25 PM

SEO Expert: Michael George

Phoenix, AZ

Real Estate and Law Firm SEO

Hmmm... That's a tough one-- Sharon? I figure that's who's in the picture.

I don't think you can be given a straight answer, because that's one of those things that...well. I'll tell you what I think anyway.

Inflation is simply the increase of prices over some time period. Another way to look at this is to say that money becomes less valuable, which is also a perfect explanation.

If our money becomes less valuable economically, EVEN THOUGH WE ARE MAKING THE SAME DOLLAR AMOUNT, it would seem that home prices would also go down-- in my opinion-- just because we don't have the buying power anymore. Let's say the average home had an economic price of $200K, and you wouldn't settle for anything less than a house in that average ECONOMIC price range. But inflation means that what used to be $200K to you, is now, economically speaking, only worth $150K, or whatever.

Is that confusing? When I say "economic prices"-- I don't mean at all what the houses will sell for, but if home prices are where they are at now, I would say $200K is a good economic example, but we could attach any figure to the example figures.

Inflation should make home prices go up.

This is only my opinion. Somebody could easily come on here and give the other perspective, and they are welcome to do so, but it's getting near my bedtime and too tired to give the opposing argument...

Feb 28, 2010 02:29 PM

Ruthmarie Hicks

Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Technically, inflation should make prices go UP! But if wages are stagnant in an inflationary environment, the opposite could happen.

Feb 28, 2010 02:42 PM

Fernando Herboso - Broker for Maxus Realty Group

Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

Talk about over-correcting the problem. We should settle down soon enough. We need loans that makes sense.

Feb 28, 2010 10:45 PM

J. Philip Faranda

J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY

Broker-Owner

True, Fewer borrowers will mean a weak market. The banks have swung the pendulum the other way in an absurd fashion. First they were to lax (created the problem) then they were to strict (exacerbated the problem).

Feb 28, 2010 11:47 PM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

Unfortunately, I have to agree. And the continued borrowing of the government isn't going to help either, because at some point, rates will rise... affecting affordability. When rates go up, the pressure is to push prices down.

Mar 01, 2010 01:43 PM

John Hersey

Berkshire Hathaway HomeServices Homesale Realty - York, PA

e-PRO Realtor

Nice post. Don't forget those who are out there watching and know to buy when prices are down. There are still buyers out there but MUCh less than before and this will affect things for sure.

Mar 02, 2010 03:39 AM

Lea Deo, REALTOR® - KW Legacy Partners

Keller Williams Legacy Partners, Inc. - Shawnee, KS

Johnson County REALTOR®| Shawnee KS Homes for Sale

Hi Michael, my crystal ball is having technological problems predicting the future and I don't know if we've hit bottom. However, when I am asked if someone should wait to sell, I always ask them what makes them think that the market will be better in six months, citing rising interest rates, tight credit standards, the effect of "borrowing future buyers now" due to the tax credit all of which result in decreased demand. If someone wants to sell, there is plenty of reason to move ahead in our Kansas City real estate market. If someone is positioned to buy now, it's a great time to get in and take advantage of opportunities out there. Hope you're doing ok. Know you've had a lot of stress and it's hard to take care of yourself when you're under that kind of stress.

Mar 03, 2010 11:25 PM

Marchel Peterson

Results Realty - Spring, TX

Spring TX Real Estate E-Pro

Michael, I don't see it getting any easier. The lender I use works twice as hard to make half as much. My sister is a manufacturer's rep covering CO, AZ, NM, and UT and she is also working twice as hard for half as much. This administration is NOT GOOD for our country!

Mar 05, 2010 01:43 PM

Mitchell J Hall

Manhattan, NY

Lic Associate RE Broker - Manhattan & Brooklyn

I'm more optimistic because I believe real estate is local. The only reason our market declined was the economic down turn primarily caused by the financial melt-down particularly the demise of Lehman Brothers. We never had a sub-prime mortgage problem or many foreclosures.

IMO our market bottomed during the last quarter of 09. Buyers were out buying homes during Christmas. The holidays are traditionally a slow period. 2010 has started off stronger than many previous years. I've had buyers putting more than 50% down lose out to ALL Cash buyers and higher bidders. Many sellers are asking for no mortgage contingencies. Our inventory is low. While I believe a rise in interest rates may put pressure on prices (perhaps why so many people are out buying now) I beleive lenders are starting to loosen up their criteria. Just this week I heard about a lender in NJ offering NO Doc No Income verification loans for qualified buyers.

Mar 06, 2010 02:31 AM

Tim Maitski

Atlanta Communities Real Estate Brokerage - Atlanta, GA

Truth, Excellence and a Good Deal

Rising home prices are great if you are already a homeowner but they're not good if you aren't.

Wouldn't it be great if prices of homes were cheap enough so that the average person could actually own their home free and clear in 15 years. Instead, as prices go higher, the average person has to try to get a loan that will probably make him a debt slave for the rest of his life.

Many of those exotic loans many people in California used weren't about getting people to actually end up owning a home. They were a way to help them speculate on home prices that were going higher. They lost the bet on home prices.

Would it be a good thing to try to get car prices to rise?

Mar 23, 2010 11:58 PM