Let’s talk about the market. (I know, I know, all the people who read this blog for stories about my kids and how I regularly humiliate myself just left the room. It’s ok. I’ll get back to that tomorrow.)
It’s official. The Phoenix market is back on the upswing. We’ve been seeing the signs for months: stabilization of the job market, loosening of lending constraints, decreasing inventory. Finally, recovery is on the horizon.
Unfortunately, this is Arizona, and our housing market isn’t for the faint of heart. We’re not a cheerful drive down a gently rolling country road. No, kids, hold on to your hats, because the Metro-Phoenix housing market is a pee-your-pants Six Flags rollercoaster that you sometimes feel like you literally might not survive.
- Prices have gone up across the board.
- Average days on market for a correctly priced house are down at 2 or 3.
- It’s not unusual for a house to get 10 competing offers.
- It’s not unheard of for a really well-priced house to get 40 offers.
I had a client who offered 39% over list price on a house over the weekend. We were the highest offer, but my client was using conventional financing and a cash buyer came in at just a few thousand under what we were offering, so because a cash offer won’t present an appraisal problem, the seller went with that buyer. I wish I could say this was a crazy situation, but it was closer to what’s become the norm than I’m comfortable with.
It’s just not pretty out there. And it’s really starting to feel spookily like 2005. But listen, people, we have an advantage now. We know how this goes. We’ve seen it before. We can learn from the past. You don’t have to get burned by the market again.
9 Ways to Avoid Being Destined to Repeat the History of 2005
1. Don’t get caught up in the hype – Are you buying just because everyone else is buying? Did you hear on the local news that ‘the investors’ are back in the game hardcore and that made you feel like you’d be making a bad financial decision by not buying right now? Dude. No. You don’t want to be involved in this unless you need to be. Stay out.
2. Don’t push your price range up past where you’re comfortable – I know this is frustrating and you just want to be done with it all, but the purchase is something you’ll have to live with for a long time. If you can’t afford it, it’s going to be a problem sooner than later.
3. Don’t buy a house that isn’t what you want just because you can get your foot in the door – It’s easy to lower your expectations because there’s so much competition for the really good stuff, but again, remember that you’ll actually have to live with this house long past the feeding frenzy. Do you really want to be out in Maricopa or back to McQueen for the next 5-30 years?
4. Don’t buy a house because ‘it will be a good investment’ in 2 years or in 6 months or even next month – we don’t know what the market will be like at any point in the future. Historically, housing was a ‘good investment’ because its value increased slowly and steadily. We’ve seen this is just not always (or even ‘usually’ in Phoenix) the case. Just because prices are increasing rapidly right now, does not mean they will continue to for any length of time. Buy a house because it’s a good plan for you right now.
5. Understand your financing choices – I haven’t seen any super shady scams yet, but I can’t imagine they’re far behind. If it sounds too good to be true, it likely is too good to be true.
6. Be patient – Houses come on the market every day. I know you didn’t get the last one and you know prices are increasing and the whole thing is exhausting and stressful, but it won’t do you any good in the long run to let this work you up into a frenzy. Every day is a new day and every house is a new house.
7. Make your offers clean and strong in all possible ways – Don’t just top out your purchase price. If it’s really the right house for you, go in with high earnest, as short of a close of escrow as possible, write a letter about your family and how they will love living in the house. Your offer isn’t just about the purchase price.
8. Don’t ignore appraisal – I know, everyone’s doing it. Everyone says appraisal doesn’t matter right now because the buyers are willing to pay what they’re willing to pay. Appraisals are a check and balance of the system. It’s when we ignore them that things get ugly in the long run. Do you really want to be the buyer who’s bought at the very top right now?
9. Don’t let the pressure of making quick choices freak you out – If you’re an ‘I need to sleep on it’ kinda guy, this is going to be tough. You’ll have to know what you want probably faster than that. If you get your ducks in a row (financing, housing wants and needs, etc) before you start your search you’ll be ready to pull the trigger when you find the right house. And know that if you end up getting your offer accepted, you still have a 10 day inspection period to cancel if you change your mind. There’s plenty of time to make this decision in a well-researched manner.
Let’s be smart, people. If we allow prices to rocket up like they did in 2005 they will have no choice but to collapse back down again. Don’t be swayed by the chaos and the crazy. Make smart, well informed choices and we’ll all come out of this just fine.