Much thanks to Doug Willis for sending along this link. Doug and his wife Deanna live in Pasadena, CA. You can find them at Pasadena Real Estate on the web. Doug and I share updates on our markets when we find them. This is one he didn’t need to send along, but . . .
America’s Sickest Housing Markets
These are America’s ten sickest housing markets.
1. Tucson, AZ
Homeowner vacancy rates: 6.8% (1st)
Rental vacancy rates: 15.9% (6th)
Total housing units: 440,909
Unemployment: 7.8%Tucson’s homeowner vacancy rate was 3.2% one year ago. It is now over double that. The city had a booming residential housing market before the crash. Since then, demand is so low that median home prices have dropped 18% in the past year and 33% since 2008. In addition, the city has among the highest rate of foreclosures in the country.
Well, doesn’t that just make our day. As a follow-up to this morning, The DOW is now down 397.
But there is still time in the trading day. Higher or Lower?
(Update at the close down 512)
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I sold my house back East and moved to Tucson last year, fully intending to buy. Everyone told me I was nuts for not jumping on buying a house right away, but I wasn’t convinced the market had bottomed out yet. Looks like it hasn’t. I’m glad I’ve left my options open. And it looks like it will be a “renter’s market” when its time to renew my lease.
Deane,
Since the down grading the the US credit rating by Standard and Poors, no one knows what the effect will be, some have speculated all along that it would cause an interest rate increase for home borrowers.
An increase of a single point in interest rate will more than offset the couple of thousand that might be seen in sales prices. I’m not saying you made a bad decision. I would say trying to wait till “Bottom” is near impossible to time. And bottom of the sale price with an increase in interest rates mean buyers will end up paying more in the long run.
If I had been in the market for a home and could sow up a 30 year fixed rate mortgage for 4.5%. I would have jumped at it even if the market as a whole might have seen a small decline yet to follow.
The problem with “Bottom” is you don’t know your there till it is gone and prices are rising.
Dave
Dave,
First I’d like to thank you for putting up such a great website. It is very balanced and informative. I have been disappointed to see that since you’ve implemented the star system, there have been a couple of people who have rated some of your articles with one star.
Second, I think that with the markets tanking and the downgrade, this will likely translate into poor home sales numbers for several months into the future and a lot of contract cancellations. All the best to you; we all know you get your income from selling homes. But you’re a smart guy and it sounds like you’re able to weather some more stormy weather.
Third, interest rates. I posted this on another forum, but the talking heads that say that our interest rates are going to rise don’t know what they’re talking about. All things being equal, the credit downgrade might cost an additional 25 basis points or so – anyone trying to paint a much bigger number than that aren’t familiar with the credit markets.
For a real world example. Japan got downgraded from AAA to AA in January. Their interest rates have gone DOWN.
Too many talking airheads on TV (and yes, that includes Obama) who have very little understanding of how complex the financial markets are have been talking about interest rates rising. They go for sensationalism and so many people in this world accept this garbage at face value rather than try to understand the complexities behind interest rate fluctuations. A MUCH bigger influence on mortgage rates is the relative health of the economy – while the economy is moribund, rates will remain low. As the economy becomes more robust, rates will move higher.
If you look at today’s US Treasury rates, the interest rates have actually dropped from Friday. So we may actually see mortgage rates go down further (although there are a lot of moving parts).
Finally, as far as calling a bottom in housing, I am afraid that we’re nowhere close to the bottom here in Tucson. The high vacancy rates and high percentage of short sales/REOs will likely continue to drag prices down for the next several years. There are other negative issues for housing but I won’t go into those for now.
Once housing does bottom, it has historically remained flat for a significant timeframe before starting to appreciate. So while you can’t time the bottom, I personally don’t feel comfortable with buying a house until home prices have stabilized for a year or so.
All the best to you.
iflyjetzzz,
I put the star system on as it is tied to the suggested other posts at the bottom of each post and I wanted to see what people thought of those posts. I see a lot of star systems but they usually have more to do with the social popularity of the author than they do with the content.
My view is if it get’s one star they probably don’t like the content, they don’t like Chicago, LOL (which now has 3 stars) or they are just having a bad hair day.
I agree that interest rates are probably not going to go up. And for vacancy rates, I never give them much credibility in Tucson. We have a major university which causes high vacancy rates around it during the summer, we have a ton of snow birds who often leave their homes vacant fo 9 months out of the year. I don’t remember when it was, but sometime around 05 or 06 a report came out showing that about 50% of Tucson homes were second homes and were vacant for a considerable part of the year.
Therefore, I’ve never given much weight to vacancy rates in our community.
If I’m buying a home to live in, and have no intentions of moving any time soon, I would buy, bottom or no bottom. I would be because I want to own, I want to know if something breaks I can fix it, if I want a new john, I can buy it, etc.
It is interesting to me that no one was trying to time the top. No one was thinking, “If we are near the top of the market and I buy now then when it goes down I’ll be upside down” And if I need/want a place now, and I found it, I wouldn’t NOT buy it because it might be worth 10K less in a year or even a few months. I’d buy it because it was a good price (compared to a couple of years ago especially) and my interest rate would be under 5% I’d buy it not as an investment, but because I wanted to live in it.
But that’s just me.
Yeah, the market’s going to be a few years in correction, but honestly, it was way over priced (it was never really over valued). Also, as a parent of gown adult children I was sick seeing my kids priced out of owning a home. I now think they can all own one if they choose. Is my home worth less than I have invested in it? YES!, but I’m not planning on selling it, and I’ve lived in a very nice home for the past 7 years, made many improvements to it, and am still fashioning the back yard, patio and some rooms the way I want.
Just last month we finished tiling the last two rooms of our house that had carpet in them. This spring I’ve made major improvements to the back yard and landscaping. All of these things add value to our home, but more important to us, when we come home in the evening instead of seeing a bare sun beaten yard (which we never went into) we now have a nice patio, Green grass, planters, Shade sails, and a swing where we watch the sun sets or enjoy the evening monsoon rains.
Dave
BTW, Thanks for all the value you add to discussions here. I too like the site.
“It is interesting to me that no one was trying to time the top. No one was thinking, “If we are near the top of the market and I buy now then when it goes down I’ll be upside down” And if I need/want a place now, and I found it, I wouldn’t NOT buy it because it might be worth 10K less in a year or even a few months. I’d buy it because it was a good price (compared to a couple of years ago especially) and my interest rate would be under 5% I’d buy it not as an investment, but because I wanted to live in it.”
I was living in LA in 2001 and was thinking about buying a multiplex as an investment/place to live (I was renting). Then I noticed what I considered exotic mortgages – 40 and 50 year loans with very little down. I had no idea that things would get absolutely nuts in exotic mortgages – SISA, NINA (s=stated, n=no, i=income, a=assets), negative amortization, subprime. Wow!
I’ve rented since 2000 and have no complaints; it’s allowed me the flexibility to move when I’ve needed to … somewhat rough career – laid off by United after 9/11 and had been working in the AF Reserves in different parts of the country over the last decade. I retired last fall and my wife (active duty) is on her last tour. We will buy eventually but we plan on waiting a few more years. I actually looked at buying here but no matter how hard I massaged the numbers, renting was always a better financial proposition.
But more to the point of why I quoted your paragraph. I knew that the real estate market was toast when I started seeing a few boutique mortgage companies go under in late 2006. I wasn’t the only one; the Wall Street journal had an article sometime in 2007 or 2008 of people who chose to sell their homes and rent because they expected home prices to decline. So a small number of people saw it coming, but most of us missed it.
Me? I was waaay early in thinking that there was a housing bubble.
iflyjetzzz,
In your life situation, I’d probably do what you did. It makes sense. I kept saying back in 06 “This is all going to come to a very rapid halt” I didn’t use the term bubble as such. I often referred to what I called “Fog a spoon, get a loan” was a horrible idea, and turning your home into an ATM machine was going to come back to haunt a lot of people.
It did and has. The only way I’d suggest buying is if you knew this was where you wanted to be for a protracted period of time (more than 5 year) But if you don’t have children in schools and your lifestyle (ex, love to travel) then there’s no reason to invest in a nest.
Dave