The residential market in Phoenix is ugly. This is the first time in decades that closings are higher than permits. Trustee sales are high, 90 day warnings are reaching foreclosure.
Forelosures will go up, not down, as the economy slows.
Every time 2.5 people show up in town, a housing unit is needed. But the buyer pool has shrunk 20% because of credit tightening, and another 20% because population flows have slowed.
Bottom may occur in 2008-9. but full recovery will probably take 3-5 years. Two unimpressive years are coming. Housing prices have already gone down 12% last year, and then down 10% next year. By 2010 prices will be back to where they should be.
We aren’t done in terms of the credit crunch, either. Mortgage backed bonds are still difficult to value, because the value of the underlying asset is going down. Until housing prices stabilize the credit crunch continues.
But the credit crunch could get worse. Banks are still lending to businesses, and consumers are still getting credit cards. But banks are reporting tougher loan standards in the small business sector, so the credit crunch might be leaking into the larger economy.
Uncertainly about the collateral of assets is the real issue. The Fed can’t really control this.
Every mania ends with a decline and then a plunge. Continued downturn in prices will occur. And apartment vacancies are down because renters are renting houses instead of apartments.
But the prospects for long term growth in Arizona are great. In five years we will grow our way out of this.
