Tucson Housing Market 05 06 Run-away Auction
May 13, 2007
Post Tags: a-run-away-auction , frantic-market , jetsam , ohio-auction , sellers-market , speculators , tucson-real-estate-investors , would-be-investors
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The Tucson housing market in 05 and 06 was like a run-away auction.
An Old Fashioned Ohio Auction
I grew up in the Midwest, Ohio, specifically Ontario, Ohio. In that part of Ohio on almost any given Saturday you could find an auction or two going on somewhere in the area. There were quite a few of them held on weekday afternoons as well.
Here is the process in a nutshell:
- show up at the auction (with cash)
- go to the auctioneer table or both and get a number card
- follow the auctioneer and his helpers
- when they call something you want you bid
- if you win the bid you hold up your number they write it down
- when you are done you pay for the amounts next to your number
- you take your stuff home
Right after I was just married and poor we would go to auctions not just for stuff but for stuff we needed. Like a hoe, or a watering can, or some lumber, maybe a five legged oak dining room table, yeah I bought one of those once for $20, my son and his wife still have it.
The Auction Crowd
When you attend a lot of auctions you begin to recognize the regulars.
- antique hunters
- antique dealers
- glorified garage salers
- people that need stuff
- collectors (books, watches, letters, etc.)
- and pack rats
Pack rats are people that don’t need stuff, they don’t sell stuff, they aren’t looking for anything in particular, they buy stuff and feel better taking home something, maybe something they don’t even like, but the had the winning bid and more stuff. : )
The Run-away Auction
Every once in awhile you would attend an auction and there would be a bunch of “townies” or “newbies” or relatives of the people selling the stuff. The point is they weren’t people that often attended auctions. This kind in the crowd would sometimes lead to a run-away.
I have to stop here for those that have never attended an auction. Many when they get there have no idea what they are doing. After a while they get the idea and go get a number. They bid a couple of times, they might not win, but they bid and their palms begin to sweat and the adrenalin begins to flow and suddenly they are someone they don’t even recognize. After a few auctions you get used to the process and the sweaty palms and adrenalin rush goes away, unless it is something you really want.
Now you get bunch of these “auction newbies” together and they get going and you have a run-away auction. When that happens you would see a lot of the regulars watch for a few minutes and if it didn’t stop they turned in their cards, payed for their stuff and left.
I remember one in particular. I saw a sprinkling can I wanted. I knew it sold new for about $4 at the time. It was metal and in good shape. Something like that would go for .25 cents up to $2 depending on if anyone wanted a sprinkling can in the crowd.
The bidding started and the bids were climbing. I had set a limit of $2. You always want to set a limit and make sure you never bid above it. It got to $2 and I dropped out. It got to $3 it got to $4 I started shaking my head, it got to $5, then $6, finally it sold somewhere around $6.75
On this particular day it didn’t stop there, things were going so high neighbors were showing up with stuff they wanted auctioned off to this crowd. Newbie would bid against Newbie just because they lost the last item to them. It was a feeding frenzy on used stuff that sold for more than you could go to the store and buy new.
These bidders went home with used stuff that cost them more than new. What do you think happened if they tried to sell it at a “profit” to them. I saw it happen at more than one auction. I’ll tell you it is something to see.
The veteran attenders pulled out after a few minutes, turned in their cards and headed down the road to another auction hoping the newbies, townies, and relatives were all at the one they just left.
The Tucson Housing Market Run-away Auction
What I’ve just described is what the Tucson Real Estate Market was like for much of 2005 and part of 2006. It was crazy, people would put their house on the market and in 2 hours they would have 5 offers, some were more than $10,000 over the asking price.
It wasn’t just a seller’s market it was a frantic market. It was a great time if you had a listing as a real estate agent. But if you were representing a buyer it was a nightmare.
Veteran Real Estate Investors
When veteran Real Estate Investors, I’m talking about investors that know what they are doing and understand real estate markets, saw this coming, they did two things:
- They put their investment properties on the market and took their profits
- They got out of Tucson and left it to the Would be Investors and Speculators
Would be Investors
These are the first time investors, they read articles that it was a good time to invest in Tucson Real Estate (OF COURSE MOST OF WHAT YOU READ IS OUT OF DATE BY THE TIME YOU READ IT BY AT LEAST 6 MONTHS) so they took some of their savings and bought a place to rent or fix-up and sell at a profit. If they did this early in 05 they probably made a few thousand dollars on their investment and padded their nest egg.
If they bought another one and another one selling each first before buying the next they still should have come out of the process with a profit.
Speculators
I never refer to them as investors, they are for the most part anathema to a real investor. They are looking for a fast buck, get rich scheme. They bought between 2 and 6 properties sometimes all on the same day or within a couple of weeks of each other.
They thought they could slap down some cheap carpet, fill some holes and cracks with caulk or toothpaste, and a quick paint job and “flip” the house in a couple of months.
Some did early on, speculators selling to speculators. Like a giant pyramid scheme. When suddenly there were no more speculators, just buying crap houses from other speculators thinking they could make a fast buck.
Now those homes are on the market, some of them were rented for awhile and were left in worse shape than when they were purchased. The speculators are loosing money and need to get rid of these homes, but no one is buying them in the shape they are in at the price being asked.
I call this part of the current Tucson housing market the Jetsam. These speculators aren’t making money they are loosing it and in some cases a lot of it. They have to get rid of these homes, and they don’t have money to put into them in true marketable condition. They sit on the market, inflating the number of available houses in the Tucson housing market inventory. They are jetsam, because they are being thrown overboard in an effort to keep their financial ship afloat.
For some it has already sunk, for others it is going down.
It is still a little early for the veteran real estate investors to come back into the market, but they will, when the time is right. I think it will be soon, probably before the year is out.
May 14th, 2007 at 8:39 am
The term “investor” implies someone that is looking to make money by spending money, that is a given. With over 10K homes on the market in the Tucson area, how would an investor make any money selling or renting a house that very few people can afford to rent or buy?
How many “investors” would it take to bring the housing inventory down to normal levels? Where are these “investors” going to get their money when the MEW is tapped out and the Banks have “more rules”?
Why don’t you focus on the real issues of Tucson Housing? Over priced homes that very few in the Tucson area can afford. I think you will have plenty of time to think in the coming months, and thats not a slam on you. Its a realization of the “actual market.”
Most people with a very basic understanding of economics can see that the economy is headed in the wrong direction in “macro” terms. As the value of the dollar erodes and as inflation of life’s necessities creeps in (gas, food, walmart prices), the picture becomes more bleak for the short term.
Then we look at credit. The majority of Americans are leveraged to the hilt right now. They tapped the MEW for all it was worth and are barely surviving on credit cards. The credit well is running low and many are barely holding on. A slight change in the interest rate will be catastrophic for them, lets not talk about inflation.
The investors are not going to be around by the end of the year. It would be a financial folly to think that the avg. person in Tucson could afford a home in the next seven months. Why?
The wages in Tucson area would need to raise “at least” 30% in the next 7 months to make a sound price to wage curve. look here: Leading Indicators show pockets of softening . . Take a look at the date of the article. Many have been postulating this downturn for sometime.
From investor to basic home dweller; The basic economics of home ownership do NOT make sense right now, and until we revert to the mean in home prices they won’t.
May 14th, 2007 at 9:14 am
bobby joe,
This post isn’t about investors, it is about what happened to the market in 05 and 06. Investors never made the market and they will never rescue the market. When they do return it won’t be even a blip on the screen.
There are more posts to follow this one on the condition of the market. Credit is a huge issue as well.
The majority of the people buying homes in Tucson aren’t from here. They are coming from California or the east coast where housing prices are way over what they are in Tucson. They look at our market and see our property taxes and think our prices and taxes are low. These are the people buying homes in Tucson.
The projection is that in the next 10 years 33,000 baby boomers will be coming to the Tucson area each year. They will be buying second homes as winter visitors, or retirement homes.
The chink in your logic is thinking that people already living in Tucson will be buying Tucson homes. For the most part they won’t. It is the out of state buyers that have been and will continue to buy homes here.
As bad as it may seem the Tucson Real Estate Market is in much better shape than most of the real estate markets in the rest of the country.
May 14th, 2007 at 10:43 am
Hi Dave -
I seriously thought you would delete my post… cheers to you for a willingness to address a dissenting view… now back to your statement…
Who made the market in 05 and 06 if the investors/speculators didn’t play but a blip in the game? You say snowbirds and people moving here in lieu of cheap prices and taxes; comparatively. I say speculators and investors from San Diego to Santa Barbara.
Check this site out and this post specifically: http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1205179
There were a ton of CA home owners that tapped the HELOC for enough money to buy 3 or 4 homes here in Tucson. Guess what? A number of them actually bought 3 or 4 homes or made deposits on new homes here and are now walking away. They can see the writing on the wall.
Why? No one wants to buy these homes and the REIT market does not support the mortgage payment. I can rent a home for an avg. of a third of the mortgage payment; check craigslist.
Fundamental economics have to take over at some point. When you base the Tucson housing market on injections of capital from an outside SOURCE, you are making a very risky bet. As this model assumes the “opportunity cost” and “comparative advantage” of home buyers. This is like asking a 4 year old what they will study in college.
Every economy needs a base. While not everyone can own a home, those in the upper tiers should be able to afford one. The avg. Tucsonan makes $26K a year: http://www.tucsoncitizen.com/daily/business_edge/28147.php
A person that doubles that wage can barely afford a house right now. The percentage of Tucsonan’s that make $55k or more is tiny. Who is going to buy all these homes at these prices?
Our city is entirely too large to run off of snowbirds and retiree’s alone. While they certainly play a major role, they are only here for half a year. When you factor in the entire national housing market, you see that most areas are having a rough time. If the snowbirds home area has lost value (Think CA, Boston, New York), the money they had in “equity” suddenly becomes a lot smaller. Thus, not able to buy the second home. If they can’t sell their primary residence to move here, how can they support our housing market?
How about crime? Tucson consistently ranks in the top ten for property crime… you think snowbirds don’t notice? How long before they stop coming here for places like Rocky point Mexico which has almost more Americans than Mexicans living there?
There is plenty of anecdotal evidence that suggests snowbirds are leaving Tucson for Rocky point and other destinations in Mexico, even Costa Rica. Been down there lately? Giant towers of condos and new homes going up 30 to 60 minutes outside of Rocky Point proper in every direction. Tucson prices with an Ocean View.
May 14th, 2007 at 3:15 pm
Hi Dave -
I thought you would delete my post… cheers to you for a willingness to address a dissenting view… now back to your statement…
Who made the market in 05 and 06 if the investors/speculators didn’t play but a blip in the game? You say snowbirds and people moving here in lieu of cheap prices and taxes; comparatively. I say speculators and investors from San Diego to Santa Barbara.
Check this site out and this post specifically: http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1205179
There were a ton of CA home owners that tapped the HELOC for enough money to buy 3 or 4 homes here in Tucson. Guess what? A number of them actually bought 3 or 4 homes or made deposits on new homes here and are now walking away. They can see the writing on the wall.
Why? No one wants to buy these homes and the REIT market does not support the mortgage payment. I can rent a home for an avg. of a third of the mortgage payment; check craigslist.
Fundamental economics have to take over at some point. When you base the Tucson housing market on injections of capital from an outside SOURCE, you are making a very risky bet. As this model assumes the “opportunity cost” and “comparative advantage” of home buyers. This is like asking a 4 year old what they will study in college.
Every economy needs a base. While not everyone can own a home, those in the upper tiers should be able to afford one. The avg. Tucsonan makes $26K a year: http://www.tucsoncitizen.com/daily/business_edge/28147.php
A person that doubles the avg. Tucson wage can barely afford a house right now. The percentage of Tucsonan’s that make $55k or more is tiny. Who is going to buy all these homes at the median price?
Our city is entirely too large to run off of snowbirds and retiree’s alone. While they certainly play a major role, they are only here for half a year. When you factor in the entire national housing market, you see that most areas are having a rough time. If the snowbirds home area has lost value (Think CA, Boston, New York), the money they had in “equity” suddenly becomes a lot smaller. Thus, not able to buy the second home. If they can’t sell their primary residence to move here, how can they support our housing market?
May 14th, 2007 at 7:05 pm
bobby joe,
I’ve been out all day with a buyer, just got back and found your comments trapped in the spam filter otherwise they would have been up as soon as you posted since I’ve approved your first comments it is automatic after that unless, you have more than one link in a comment which triggers the spam filer. That is why both comments here are just now showing up.
First, I’m wondering if you shouldn’t re read the post. I’m saying that because you are saying exactly what I said about what happened to the market with further evidence it was speculators that came in and “ruined” the Tucson Real Estate Market. I agree with you that what happened was a bad thing. I’m saying real investors were out of here, would be investors and speculators caused the huge run up in sale prices.
Your link above to the speculator loosing his shirt in Tucson is exactly what I was pointing out and I quote “I call this part of the current Tucson housing market the Jetsam. These speculators aren’t making money they are loosing it and in some cases a lot of it. They have to get rid of these homes, and they don’t have money to put into them in true marketable condition. They sit on the market, inflating the number of available houses in the Tucson housing market inventory. They are jetsam, because they are being thrown overboard in an effort to keep their financial ship afloat.
For some it has already sunk, for others it is going down.”
What I write about about the buyers in the market is from first hand experience. These are the sources of our buyers.
second home buyers
retirement home buyers
college students
parents of college students
job transfers
military
For more than a decade now Tucson has been a retirement destination. Almost 50% of the homes in Tucson are owned by retired or snowbirds.
Ten years ago when silicon valley took off and housing prices went through the roof there were bus drivers making $70,000 a year living in their cars because they couldn’t afford to buy a home. It was a difficult time, but people are still living there. The asking prices are starting to come back to reality as sale prices continue to increase.
There are cities in California, Washington, and Oregon where the median sale price of homes is over $400,000. The median price in Tucson in March 2007 was 222,700 and that is with over 10,000 homes on the market, The median sale price in March of 2006 was $218,000 there were 7,577 active listings that month.
You as who is going to buy these homes. It sounds like you are making the assumption that everyone trying to buy a home has nothing to put down. They haven’t already saved anything they have never bought a home etc.
For some people they can’t afford to buy a home in tucson, my son was one of them two years ago when he bought a home in Arizona City and started commuting to Tucson everyday to work. He has made improvements to his home, he has some equity built up, he can sell it and have money to put down on another.
That’s how I bought my homes over the years going from a mobile home eating split pea soup over rice for a very long time to make the payments and own it outright.
It is true, there are some people that are priced out of our market. The market has to make adjustments and it will. However, I don’t believe or think it is a doom and gloom market. It has issues, but not like most markets in this country as you mentioned. We can play the “if” game all day long, it isn’t relivant. There will always be the “ifs” that no one can foresee. So we base projections for the future on what was and what is and take it a day at a time.
The figures continue to show sale prices increasing, as stated above about the median sale price March 07 over March 06.
There is more to say and I’ll be covering more in new posts yet this week.
I can say from personal experience, we have new clients coming to town all the time buying homes. We have helped almost a dozen families buy or sell homes since the first of the year. We are very busy in this market.