Prices jumped 3.6% since April which we judge represents a major and long term alteration of direction.
There has been much debate of a “tsunami” of foreclosure inventory just over the horizon which we believe has been over stated. We think that the vast amount of lofts that are expected to come to the market as foreclosures are already on the market as short sales. Properties currently for sale have been counted. Once they go into foreclosure they should not be counted a second time. “Authentic new “supply” (housing starts) currently hitting the market is actually quite low. In fact, it hasn’t been this low since at least 1959 (and probably a lot longer, but we don’t have data prior to then). This year, builders will begin construction on somewhere around 620,000 units, a number that’s about 32% below the old record low of 906,000 set–you guessed it–last year” (Home Prices: Sustainable Bottom or Dead Cat Bounce? By: Morningstar Monday, October 12, 2009 7:38 PM).
Nearly all of the metropolitan condos built near the beginning in the boom already “busted” meaning they sold as short sales or foreclosures. As soon as prices dropped from all the short sales and foreclosures the project is enjoying price stabilization or gains. In some urban condo communities sales prices are low enough for buyers to buy and rent the property out and net a positive cash flow. Competition is searing for the right high rise condominium in the hottest building.
We expect interest rates to increase and soon for two reasons. First, it is very likely that the US will experience high inflation in the not too far-off future. Where there is inflation there are higher interest rates. Secondly, interest rates are now synthetically low due to US government influence. Investors (other than the US government) are not securing mortgage backed securities because the rate doesn’t support the gamble. In other words would you yourself loan money today for someone to buy real estate if you were only going to earn 4.5 or 5% for the next 30 years? Perhaps not. But the rate is what the rate is.|But that’s the going rate for mortgages today.} Would I feel better about loaning cash if I was going to garner 8 or 9 or 10%? Almost certainly. The predicament is that mortgage interest rates are half that. So “investors” like me aren’t loaning money for such purchases. There is a point where the government can no longer keep rates so low. When the US stops loaning money, mortgage interest rates will have to rise enough to draw other investors. Count on interest rates to climb for either one (or both) of the above reasons.We believe that there is pent up demand for homes. In many instances folks stopped purchasing in 2005 or so. Those folks have been sitting on the sidelines waiting for the dust to settle before they will buy. But you can bet that the day is coming when people will stop waiting and begin buying.
There is solid evidence to suggest that things are getting there. In downtown Phoenix loft condominium sales considerably surpass the supply. In 2008 there were so many condos for sale and so few buyers that prices free fell. This began to change in late 2008 as more and more buyers purchased downtown Phoenix condos and inventory dropped. In early 2009 the quantity of each, buyers and sellers, were about the same. Since then, considerably more people are buying than people are selling.
We could absolutely be wrong. But we, and thousands of others who are buying, believe that “the bottom” may be around the corner. If interest rates do increase, and I truly deem they will, then you should desire to take advantage of today’s low rates, take advantage of the many sellers who really do need to sell (at lower prices), and get yourself a fantastic urban loft condominium right now rather than later. Don’t be one of those people who years from now say “darn I really wish I had bought when I had the option.”
About the Author:
By: Will Daly
We Know Urban specializes in the marketing and sales of high rise condos and lofts in Phoenix, Scottsdale and Tempe Arizona.