August 21 - Another "bubble" scare story was published yesterday which took particular aim at Arizona. This time it appeared in the usually sensible Bloomberg News. The author seems to rely heavily on a quote from Karl Case (yes he of the famous Index) in which he said "They're [Nevada and Arizona] clearly in bubbles...What can go up can go down - real quick".
I would like to point out that Karl Case was also 100% wrong last year in September 2012 when he said "Housing Prices are Unlikely to Come Roaring Back." Last year his coauthor Robert Shiller also said he wasn't ready to call a bottom and believed that homes prices would stay essentially flat for the next five years. You can hear in the following recent audio interview how Karl Case is clearly astonished about the Californian house price action and doesn't really know what is going to happen next.
From a long term perspective, annual median home prices in Central Arizona have appreciated at an annual rate of just 2.05% over the last 13 years. This is less than inflation. Sorry, I cannot accept that prices going up slower than inflation is compatible with a housing bubble. If they were to continue to rise at the 2012 and 2013 rate for 2 more years then the suggestion would clearly make more sense, because by then we would have appreciated faster than inflation. Right now the chances of significant price decline from the current level is small. Bubbles cannot be correctly termed bubbles unless they pop. It is much more likely that prices will continue to increase but at a more moderate rate. This is what was suggested by Dennis Smith, CEO of Home Builders Research when interviewed for the original article. What he had to say made a lot of sense.
August 22 - A very common error in analyzing the market is a person deciding what they believe to be true and then cherry picking the statistics that support that belief and ignoring or dismissing any evidence to the contrary. So someone who is convinced that a "bubble" exists in Phoenix will cherry-pick a property that sells twice, the second time for a much higher value. The Bloomberg News article cherry picked a property that sold this month for $600,000 having previously sold for $273,000 less. This appears to be parcel 168-81-029-E which is 8618 N Tatum Blvd Phoenix 85028.
This was a short sale that closed in March 2013 for $377,000. I am astonished that the lender agreed to this price because the assessed value implies it was worth a lot more than that even at the bottom of the market in 2011. Congratulations to the fix and flip investor who bought it (Ray Jussila). Based on the MLS listing pictures (before and after) he did a nice job renovating and presenting the home which sold on August 1 for $600,000 in a normal transaction. The $600,000 seems a fair price, and still a lot less than the $735,000 that was paid in 2004 for the same property. That was not at the height of the last bubble and shows that prices still have a long way to go before they reclaim the heights of 2006. This just proves that it was still possible to find extreme bargains in March 2013 among the short sales, especially at price points well in excess of the levels that buy-to-rent investors are interested in.
This pair of transactions is unusual. For ZIP code 85028 single family homes in general we see the annual average $/SF has increased from $115.13 to $145.33, which is 26.3% over the last year. The increase since March 2013 is a more modest 8.4%. This represents a strong recovery, not the attainment of bubble price levels. This ZIP code reached $223.64 for an annual average in November 2007. We still have an increase of 54% required to get us back to the peak.
It appears that some writers and observers are losing their grip on reality in the search for an interesting and controversial story.
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