April 28, 2018 by Amy Gerrish
As a real estate agent in the valley for over 10 years I have seen a lot happen. I was newly licensed as the housing market imploded onto itself as a result of the failing mortgage backed securities. I jumped right into helping many home owners sell a home that had almost no value left.
I learned that you can in fact sell a home that is just about worthless even though you owe the bank arm and leg for it. My clients were so extremely grateful that I was able to help them out of a financially stressful situation. So many of my past clients have rebuilt their credit, gained solid financial security and have been able to purchase a home again. They were smarter the second time around, they didn’t fall for adjustable rates or the zeal of purchasing a McMansion. They purchased what they could afford and have been able to savor their quality of life without a giant housing payment.
Life has been grand, the economy has been good, junior is about to go off to college, but something is looming. Something dark and ominous is looming in the housing industry. Many of my REALTOR colleagues can feel it. So many of the home buyer’s definitely feel it. It starts with “I can’t afford that”. My new home buyer clients have been coming out in droves, they get approved for a sound mortgage. They tell me what they need out of a home and I tell them what’s available. It’s inevitable, the words flow out like Kanye on Twitter….”I can’t afford that, what else do you have?”
NOTHING. I have nothing else for you to see. They get mad and call 3 other REALTORS that all tell them the same thing. See, the crux of the matter is if you look at the actual inventory of homes for sale, you will see that your options are limited. As I type this, the amount of single family homes currently for sale in the Phoenix Metro 13,938. If you want a condo/town home or mobile home you have 3,004 to choose from. But once you add in your budget, bedroom requirements and location you will probably only have 6 to choose from. Yep, that’s it. We have over 5 million people in the metro and we are all fighting for the same 6 properties because the majority have the same budget and median income.
WHERE IS ALL THE INVENTORY?
Straight up, people are not moving. If people don’t move, homes don’t become available. Here are some of the reasons why people are not moving:
- They bought when the market crashed, they bought a home for $100,000 with 3.4% interest rate. They are happy little clams with a low housing payment. They look at homes prices and interest rates now and say, “No thanks, I’m good right here.”
- Interest rates are rising. As interest rates start the to rise, they can afford less home , so why bother?
- The Phoenix Metro economy is pretty great now. People have jobs, big tech has quietly been coming into town and people are getting better paying jobs. Life is good, why move?
- Phoenix is still affordable compared to other Metros. Why move? Where are they going to go? Seattle? Can’t afford it. San Francisco? (or any part of Cali for that matter) Can’t afford it. Austin? Can’t afford it. Vegas? Nah, we can just drive there for the weekend. Connecticut is broke and it snows. Florida is, well humid and they have all those taxes and hurricanes. Chicago is, well guns. I heard Ohio is affordable, might have something to do with lack of jobs. Meh, why leave? It’s pretty good here comparatively to other options.
WHY IS IT TURNING INTO A CRISIS IF EVERYTHING IS SO GOOD?
For all the reasons I listing above on why people aren’t moving out of Arizona are the same reasons people are moving in. Maricopa County is the fastest growing county in the entire nation. Thousands of people move into the metro every month, but barely anyone is leaving. Our current supply of homes & apartments can’t keep up with the population boom. Rents are going up & home values are going up at a staggering rate. There is no doubt that all this growth will break us if we don’t address this issue now. Look at the teachers and the schools. Their funding was gutted as a result of the housing crisis we fell into in 2008. Teacher’s can barely afford housing as it is, home ownership for many teachers is simply unattainable. Incomes in Arizona job markets have NOT been rising as fast as housing prices.
Arizona isn’t the only state with a housing shortage. Just google housing crisis and you will see it has turned into a nationwide phenomenon. Nearly 1/4 of the population spend 50% or more of their paychecks on housing. It’s only bound to get worse. People will WANT to leave, but will have no place to go. San Francisco’s median housing price is $1.3 million. If you don’t have a roommate in San Francisco you are considered bougie. Seattle’s median home price is nearly $820,000. Phoenix is still at $227,000 for the median home price, just 5 years ago is was around $140,000. Expect that to continue to rise at staggering rates as Maricopa County continues to be the fastest growing county in the nation.
WHAT WILL COOL DOWN THIS MARKET?
- Eventually growth will cap and our metro will be left with affordability & congestion problems brought on by unbridled growth. But, how long will that take?
- The United States as a whole is feeling the effects of housing shortages. Until it’s addressed on a national level we are going to have to fight this on a state level. The local and national governments needs to address the housing shortage so that people can relocate and move for job opportunities. The opportunities are out there, but why move if your quality of life is going to be compromised by spending more than 1/2 your paycheck on rent?
Realtor & Staff Data Scientist