Sunday, July 30, 2006

Bubble Behavior

by Osman Parvez



Things aren't so bad in Boulder, but drive about 900 miles south to Phoenix, AZ and you'll find a real estate market imploding. It's also creating some very strong emotions in buyers and sellers. We work with emotional clients too, but nothing like what's being reported in Phoenix.

From the Arizona Republic, comes an article.

Real estate agent Neil Brooks was getting the feeling that his client was about to completely lose it. He'd seen it before.

He had just broken some bad news about her house deal, and she wasn't taking it well. She was pacing, yelling and swearing at him, tossing a cellphone from hand to hand.

"I was thinking, 'OK, here we go,' " said Brooks, who's with Century 21 Arizona Foothills. "Something's going to happen. Something's going to blow."

He was right. The client whirled suddenly and whipped the phone at him. But he was ready. He ducked, and the phone shattered against the wall behind him. The client stormed out of the house.

Brooks wasn't mad, and he wasn't offended. The business of buying and selling houses provokes extreme emotional outbursts. The stress, the financial worries, the personal feelings people have about their homes - sometimes it's too much to take. People yell, they lose sleep, they cry, they're stricken with buyer's and seller's remorse.

That's especially true these days in metropolitan Phoenix's post-boom housing market, where nearly everything has reversed since last year's frenzy. The number of homes for sale on the Arizona Regional Multiple Listing Service increased nearly four times from June 2005 to last month, when it hit a level nearly double what experts consider healthy. Last year, homes sold in about three weeks. Now, it's about triple that
If you want to see how a true bubble market compares to our local real estate, take a look at the statistics mentioned in the article and compare it to our local market.

Hat Tip: Keith
Image: April Mitts



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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

8 comments:

  1. Careful Osman. Did you know that by suggesting that the Phoenix market is "imploding" that makes you a Browshirt Nazi and/or flying monkey? S'truth. I know you must be a brownshirt because fellow Realtor@ Greg Swann, (ABR, CBR, CRS, E-Pro, GRI) says so in his blog:

    http://www.bloodhoundrealty.com/BloodhoundBlog/?p=114

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  2. At least she wasn't packing heat. Yikes, this could turn nasty.

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  3. At least she wasn't packing a LAWYER. Yikes this could get nastier.

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  4. Well... he's got an interesting blog, but I'm a little concerned that he pushes an investment analysis with obvious errors. Hopefully he'll fix that.

    In any case, controversy is good for business.

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  5. I don't know about imploding, not yet. There certainly has been a sudden imbalance and it's not 2005 anymore... but that's a good thing.

    Yeah, I'm in a tiny town in Arizona and things have slowed up. In fact I'd say we are in line with what's happening in ARMLS country, but it only reminds me of the days before 2004 and 2005.

    I had clients that were emotional during the best of the best times, and I think anytime you're dealing with 6 figure transactions there is going to be some level emotions on display.

    Sellers have to be conditioned right now to the CURRENT market. If a would be client can't get his/her arms around what is happening now, they won't be my client. If a would be client still thinks its July of 2005 and their home should sell for 20% more than what their neighbor sold for a year ago, they won't be my client.

    It still comes down to what the seller will sell for and what the buyer will buy. I was falling for the bubble panic for a bit but not so much anymore. Oh I still think the folks that are going to get a haircut will, but they probably won't even realize it. I mean most, that's right MOST sellers did not buy last year. When they actually sell they will still make a positive proceed on the sale.

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  6. Todd,

    Is the market in Phoenix returning to "normal or is it "imploding"? I think you're right, buyers and sellers tend to be conditioned to recent history. Thus a return to normal might look an implosion.

    There's an organic level for real estate in every market. However in places driven by speculation in recent years, it was eclipsed. Easy lending also had it's hand, witness the foreclosures in Colorado.

    So now there's a mountain of inventory on the market as those holding investment (speculative) properties seek the exit. It's going to take a while for these homes to be absorbed by the organic demand for housing. And unlike the stock market, real estate is not liquid.

    Ultimately, I think the best way to report on the market isn't hyperbole (imploding) but by analyzing it on a month to month basis in charts that show the previous few years. That's why I take the time to do my updates (see side menu).

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  7. And you do a great job with your updates, I might add. Your point on easy financing is correct as well.

    I've recently started to record the sales data from my local area as well, but the bitch of it is that my good historical data is reliable to the beginning of 2004. Of course 2004 and 2005 were incredible years locally. However I remember 2003 and before, but I have a hard time putting my memories on charts.

    My gut says that we had an imbalanced market during the hottest part of the market (many buyers -- too few listings), and that we now have an imbalanced market (too many sellers -- with demand lacking). But I'm pretty sure that was the story to some degree in previous years to 2004.

    My listings were on the market for darn near 6 months (like they are now), I had to advertise those listings (like I am now), and I was still making sales (like I am now).

    It was easy to get complacent over the last two calendar years. Sales were just happening, now though, they're happening but at a much different rate.

    I have no illusions that there is no chance there isn't a hard price to pay for the overheated market. Prices could easily fall more than a few points (and really I don't think that is so bad). But the faster they may fall the better off I think the market rebounds (good deals on property and rising rents).

    Still, I'd prefer slow and steady. Let the other market factors catch up or equalize.

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  8. Watch LA. I've seen this market rise much longer than I thought possible. The end is near and many are not prepared. The same crazy financing and speculation created an unhealthy market. For all the people who made stupid money, someone is going to pay.

    Eric

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