Is The Phoenix Housing Market Peaking?

I am not actually active in the residential home market, so I can (without losing any money) call market tops and bottoms from semi-random variables.  In 2005, I wrote here about a possible housing top when I overheard a dentist tell a doctor about all he money he was making flipping raw land  (I will apologize to dentists here, but when I studied investing at HBS 30 years ago I had a professor who would ask the class, for a bad investment, "who do we sell this to?"  Answer:  Doctors!   And if it is a really, really bad investment, who do we sell this to? Dentists!)

Anyway, I was out on my super-dorky but easy-on-the-knees and fun to ride elliptical scooter the other day and stopped to take a picture of a quiet intersection near my home:

I only got seven of the signs in my picture, but there were eight different open house notices for homes all within an easy walk of this location.  Reminded me of 2009.

Postscript:  By the way, I always feel bad about joking at the expense of doctors and dentists and their investments, so I will share one of my personal great moments in investment savvy.  In 1984 I graduated as a mechanical engineer that had a lot of background in programming and micro-computers (my specialty was control theory and something awkwardly called interfacing microprocessors with mechanical devices, which we just call "robotics" today).  I had lots of good job offers, and most were for about the same amount of money except one outlier that did not pay nearly as much but instead paid in all these crappy pieces of paper called options.  Hah!  I wasn't falling for that, and I turned them down and worked for real money.  That company I turned down was Microsoft and just the options they offered in the offer letter, I remember calculating once, would be worth more today than all my cumulative lifetime earnings to date.

  • Artemis

    I wouldn't feel too bad on the M$ deal. It's like folding an inside straight and then after the river fills the straight, going "if only...". There's really, no reliable way to gauge externally, as a prospective employee, which options will be the right combination to hit the jackpot. If there was, every angel investor would make bank every time and angel's can see a LOT more than a prospective employee.

  • Roy Greenwell

    I hate it when that happens.
    Back in 1978 when I was in the Navy, I used to work for a guy that played the stock market like most folks play the horses. Sometimes he made money, sometimes not, but he said he always had a good time doing it.
    One day he came to me and said: "I have the perfect stock for you if you want to invest a thousand dollars or so. It's a small startup company in Memphis Tennessee that ships packages around the country like the USPS, but does it overnight."
    Of course, the company was called Federal Express, and of course, I didn't invest.
    What do you suppose a thousand dollars of FedEx stock purchased in 1978 would be worth today?

  • me

    ROTFL - you and me both. I had an early offer to join a little known startup called google due to some random personal connections. Didn't even think long about it, clearly there was no money in internet search.

  • Dan Wendlick

    And anytime I discuss NFL personnel moves, I have to remind myself about the time I said "What, a first-round pick for a second-year, second-string quarterback?" You may have heard of him - some guy named Brett Farve

  • John Moore

    I sold a bunch of optioned stock in my employer (was a co-founder) in 1984, and moved into the burg you now live in, SW of that intersection about 2 miles.

    As for the housing market... I suspect it is getting bubbly here. When random strangers send you emails or call wanting to buy your home... well, shades of 2006 for me. Also, at some point, interest rates *have* to go up, and on mortgaged homes, the home value is inversely proportional to the interest rate - since that is what determines affordability for most people.

  • iowa_bill

    As a doc, there's a reason for such truth regarding investments. Part easy come-easy go, part not our educational forte, part pride going before the fall, thinking we're smart people.
    And yes, I've been That Guy.
    That's OK.
    At least I'm not triggered, but if I were, for your micro-offense, I would accept your most micro-apology.

  • J Crain

    The RE market is getting way hot, so it could easily be near a peak. My wife and I have been residential investors for 30+ years (midwest) and over the last year or two we've seen a lot of people bidding up residential RE prices. They've realized the upside to equity markets *will* have a limit, so they're buying RE as an alternative investment and bidding up prices.

    As for options in a start-up, I took a gig with a start-up in Minneapolis in 2000 when they offered me a pile of options. They had a really nice message-integration system (e-mail, voice, fax, etc.) that was state-of-the-art at the time and was making money and getting a little recognition. Plus, I would've made bank with only a $10 strike price. 🙂

    Within 9 months the dot-com bubble popped, though, and that was their death knell. Doors closed shortly after the start of 2001. Luckily, the salary was good - due to the same bubble - so all I lost was the future value (and a little time).

  • sean2829

    When looking for a real estate bubble, I like the notion of figuring out what the market can afford to pay by simply looking at the ave home price vs the average household income in a region. If it’s 3-6 it’s healthy and likely safe to buy. However, when the ratio approaches 10, it’s best to stay on the sidelines.

  • Mike McDonald

    We have purchased a number of Northwest Florida beach rental properties over the last 10 years. Prices have started moving up sharply over the last 18-24 months. The inventory has fallen to the lowest level since we started buying. I think there is still a little more run up in that market but I'm beginning to get that bubble feeling.

  • marque2

    It will peek this year in most of the country as interest rates go up. The housing boom is due to easy money.

  • Bram

    Here in New Jersey our outrageous property taxes have kept the market from getting hot. Prices have crept up a bit as the last of the foreclosures from the last bust have finally cleared out of the market but things are nowhere near overheated outside the immediate NYC area.

  • cc

    there is a great scene in "the big short" where the guys go down to Florida and a stripper tells them yeah she if flipping a bunch of houses, and the real estate guys say oh we don't ask for proof of income. Hopefully not to that point in Phoenix, but it was a great example of absurd speculation back in 07.

  • Heresiarch

    That's in Vegas.

  • Heresiarch

    It's an ill wind that blows nobody any good.

  • Heresiarch

    I don't think the options were the main thing. They only offer a slightly nicer price buying from the company than you can get in the open market, and over such a long time frame a relatively small difference in price paid doesn't affect your returns nearly as much as the quality of the company you buy-- and whether you know enough to ignore your emotions and hold the entire time. That is, if you'd simply bought on the open market and held you'd have had something like 99.9% of the profit you'd have had buying those same shares from the company and holding. (Don't quote me on the numbers. I just mean it'd be pretty close.)