The Phoenix market has made an abrupt U turn, or perhaps a a V turn, and prices are on the rise, at least for now, with a vengeance… Full disclosure, I began buying properties 18 months ago, when price/rent ratios hit such ridiculous levels it seemed crazy not to… 3/2 condos for under $40K that rented for $800 immediately. I bought these for cashflow, with no belief that they could ever be sold for a profit.
Then, I noticed the complete drop in inventory over the winter, coupled with strong demand. I didn’t expect this in any way, like most analysts, I truly expected the phoenix housing market to stay flat for years, and then to only slowly appreciate. However, these data propelled me to change course, and I began trying to get all the good deal investment homes under contract that I could, and right away, like yesterday.
You see, I believe in the law of Supply and Demand, and everything I could measure: Inventory, foreclosures, notice of trust deed sales ALL headed in the wrong direction. Price is a lagging indicator, it will change later.
Here are just a couple of data points:
Houses built since 1985, with at least one car garage in 85040,85041,85042: dropped from the 100’s to 60 this winter, dropped to 20 by the end of July. In June, 60 such homes sold…. 10 days supply??? WTF? a normal market has 3 or 4 months supply at least.
Thankfully, I was able to get several homes under contract, purchased, remodeled and rented. Why sell now, when all of the indicators are saying prices will go up? (Plus, as an investor, if rather than flipping a home which gets you fully taxed at your marginal tax rate, in my case at least 40 percent federal and state, you keep the home over a year, it becomes a long term capital gains tax when you sell it, which though I’m no accountant I think is only 15% federal rate)
I see no data to stop price increases in Phoenix over the next six months. Supply is still very low, Demand remains robust, The pipeline of homes in foreclosure continues to shrink… I don’t want to guess an appreciation, and obviously the world can change with a European meltdown, or bad economic policy after the election, but for the next six months at least, I think 10% is baked into the numbers we see today, with ease…