Will boom, bust be next?
Metro Phoenix’s housing market looks like 2004
Rising home prices and bidding wars over affordable houses stir painful memories of the boom that led to the bust in 2008, writes Catherine Reagor.
Rising home prices and bidding wars over affordable houses in metro Phoenix are stirring painful memories of the housing boom that led to the area’s biggest real estate crash beginning in 2008.
For those who weren’t here or are still trying to forget the years from 2009 to 2011, a 50% jump in Valley home prices from 2005 to 2006 — fueled by bad loans and speculators — led to record foreclosures and home prices plummeting twice as fast as they had jumped.
Many Phoenix-area homeowners are now leery of a repeat, though some prospective home buyers are secretly hoping for it so prices fall.
Arizona housing expert Tina Tamboer is comparing the Valley’s current housing status to the market of 2004, the preboom year. But she said it’s not a bad spot to be in.
There are similarities between 2004 and today, but there also are big differences, said Tamboer, a senior residential housing analyst with the Cromford Report who recently analyzed the market then and now for the Arizona Regional Multiple Listing Service.
Déjà vu
❚ Strong seller’s market – During the past five months, metro Phoenix’s market has become the strongest for sellers since 2005.
❚ Supply – The number of houses for sale in the Valley hasn’t been this low since 2005.
❚ Record sales - Home sales in May hit a new high, and sales have beat 2004’s levels five of the last seven months.
❚ Bidding wars – About 19% of metro Phoenix houses sold for above the asking price during July and August. That’s the highest level since 2013, when bargain foreclosure homes drew multiple cash offers.
Not a set up for housing bust
❚ Home buyers — Demand from people wanting to buy is about 6% above normal. In 2004, speculators wanting to buy and flip fast in the Valley, pushed up demand by 24%, but it was considered fake demand.
❚ Investors — In early 2005, investors were behind more than 30% of all home sales. Now, it’s about 8%.
New homes — Spurred by investors, home builders constructed a record 50,000 to 60,000 homes during both the 2005-06 boom years. Many sat empty during the crash. Forecasts call for only about 21,000 new homes to go up in the Valley this year.
❚ Home prices — Appreciation per square foot for metro Phoenix homes is now 5.9% versus 11.3% in 2004. Breaking down prices by square foot helps to take into account a home’s size and can give a more precise price for an area.
❚ Skepticism — “This is one thing we did not have a lot of in 2004 and 2005,” Tamboer said. “In fact, people were mostly euphoric about the market back then and felt it would accelerate forever and ever.”
She said the skepticism and fear of a housing bubble many now have will help make sure it doesn’t happen again.
What’s ahead for housing
Prices are expected to remain flat this month, at the $280,000 record reached in May.
Home sales dipped about 1% during July and August.
During all of 2004, prices and home sales were climbing, but they didn’t start to skyrocket until 2005.
“We are not doomed to repeat the bubble,” said Tamboer. “The reality is that we’re not afraid to repeat 2004, it’s the rapid 45% appreciation rate of 2005 that sparks fear and hesitance.”
The predatory and subprime loans of the boom went away during the crash, and hopefully lenders stick to that move. More regulation of lenders and appraisers is in place now to help ensure history doesn’t repeat itself.
Fingers crossed.
Reach the reporter at Catherine.Reagor@arizonarepublic.com or 602-444-8040. Follow her on Twitter @Catherinereagor. Support local journalism. Subscribe to azcentral today.