Our Housing Peril: The Next Recession

Posted: February 2, 2011 in AZ, The Economy

In 2009, an analysis by The NY Times suggested it was still better to buy than to rent in Phoenix.  As of 2010, that remains true particularly in places like Mesa, AZ.    “There were 18.4 million vacant homes in the U.S…11 percent of all housing units vacant all year round…”*   Meanwhile, rental demand has increased in Arizona, and across the U.S.

So if you want to buy a house the options are good, right?  Well, not so fast…….

Sources say that younger people aren’t jumping into the housing market because they’ve seen what the loss of a home has done to their friends and families.  Add to that reticence the fact that credit is still hard to come by.    So what does that leave us with?  It means fewer people are willing to buy and fewer people are capable of buying homes.  Some would say that’s a good thing for the US and for AZ.

I think it’s a bad thing and here is why.   Fewer and fewer people are capable of investing in homes and commercial real estate, which limits one of the surest historical methods of social mobility in the U.S.–investment in real estate and land.  Many famous wealthy people actually earned most of their money that way and not because of their celebrity status.   Arnold Schwarzenegger is a great example.  He became famous for his body building and movies but he made his real money by investing those first earnings in real estate.

In addition, vacant homes are a lure for vandals and squatters like poop attracts flies.  Arizona is littered with vacant and half-built neighborhoods.

Some 5.73% of properties in the state have been foreclosed upon, the second highest rate in the country, and 17.3% of homes are vacant, the fifth greatest rate in the country. Also, Mesa, Phoenix and Tucson, the state’s three largest cities, are all among the top five American cities with the greatest percentage of price reductions for homes in 2010, along with Minneapolis and Baltimore. As of December 2010, these cities had 43%, 42% and 38% of their listings with price reductions, respectively.

Banks are sitting too many foreclosed homes and no one has any idea as to when they are going to dump them on the market.  Furthermore, housing prices in Arizona have continued to decline. ***

Essentially we’re running out of home-buyers in Arizona.  So what will the market’s reaction to this?

Well, the Construction Industry expects a turn around at the end of 2011 and several articles online regarding market predictions are pretty sunny.  If they’re gearing up to build more new homes, what the hell is going to happen to all these empty ones?  What’s going to happen when the banks dump all the foreclosed houses onto the market?

Surely something can be done to avert a second major recession because that is what will happen if 1) banks dump those properties, 2) the construction industry ignores the current state of the market and keeps building new ones, 3) credit remains difficult to get, 4) American wages remain stagnant in relation to inflation (if you haven’t noticed, everything is starting to increase in price, most notably gas), and 5) the unemployment rate remains over 9%.









***I personally am wondering how low I should let mine go before I simply walk away.  I bought my house for $191,000.  Should I wait until it is only worth less than 50%….oh wait, we already passed that mark.  How about 25%?  Aren’t the numbers getting ridiculous and what is going to make it stop?  I’d always assumed that eventually the value would return if I was patient enough but this news doesn’t make me feel confident I can wait long enough.


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