Phoenix Residential Outlook for 2008.  This is a report based on notes taken at the IREM / CCIM 2008 Economic Outlook Meeting.   This was a meeting of professional who work directly in the field of real estate in the Greater Phoenix market.  

Although there were discussions of the office, retail and industrial markets I will focus on the other two topics,  residential real estate in Phoenix and the multifamily market outlook which was discussed in an earlier post. 

There is a lot of doom and gloom, but it’s all good.   This is a part of the normal real estate cycle with some unique twists, but in every real estate market there is an opportunity. 

2007 can be separated in two.  The first 2 quarters were good.  The real estate market, nationally and locally in Phoenix was still good and it looked like just a slight dip or a minor slow down.  By the third quarter is was evident that the real estate market was on a clear decline with a quick rise in mortgage defaults and an almost sudden cliff dive in transactions.  The fourth quarter was a bruiser.  The market was laying conquered in the dirt.  We should be getting the final numbers for 2007 in the next few week, which we will post here.  Take a look at the latest numbers and median home price charts for Greater Phoenix. 

The next two months in Phoenix metro will be vibrant, exciting and fast moving with all the activity like the Super Bowl the car auction;  Phoenix will be on the national stage with huge numbers of people watching.  Some 40,000,000 million people visited Arizona last year, and even more will want to visit after seeing it on their big colorful plasmas or LCD's with its green winter golf courses and people lounging in the sun in shorts with cups of coffee.

But after that excitement wanes down it will get ugly again.  In 2008 more loans are set to reset, more homes will hit the market, vacancy of apartments and rental homes will rise. 

In 2008 real estate will be on sale to paraphrase Stanley Cook.  
But what is wrong with a sale after such huge price hikes.  If you bought at the right point of the curve then a 10%,15% discount is almost justified.  It will only hurt, and bad, in many cases, if you bought at the wrong time and you have to sell.  Many people bought at the tip of the curve.  If you don’t have to sell or if you are selling and moving up then there is not great loss.  If you don't sell, you don't lose.  If you sell at a discount, you get to buy at a discount as well.  You may even sell and take a hit to reinvest elsewhere, in other investment vehicles or even in Central Europe where the supply is still not catching up to demand. 

We will need to go through about 20K new home a year to get to a more balanced market.  Even rate cuts will not help much.  Prices, especially on the outskirts of the Phoenix valley will suffer, this is where most of the oversupply of homes is.  This is where many of the remaining home builders are discounting heavily to push inventory, selling for much less then the other hundreds of resale homes competing for the same buyers.

 
When will the Phoenix real estate market return to equilibrium and when will the real estate prices go back up?  Don’t ask the experts, their guess is almost as good as yours.  There are just too many factors to contend with to pick a decisive quarter, but expect it to be later then sooner, sooner meaning 2008 and later meaning late 2009. 

It looks like 2008 will be the dip.  In this dip there is a silver lining.  It is in the dip that you should buy real estate.   If you are thinking of investing in real estate or buying a home, 2008 should be the year for you to do it in.  Greater Phoenix is set and ready for more growth when the market turns. 

Buying real estate in Phoenix in 2008 will be just like buying those holiday decorations after the holidays, ready for the next season with more lights and more cash in your bank account.  Buy real estate but do it carefully.