Six Reasons Why Our Current Phoenix Market Isn't Like Last Time...

Saturday, March 13, 2021   /   by Bryan Staley

Six Reasons Why Our Current Phoenix Market Isn't Like Last Time...

Many in our industry are concerned that our Phoenix market is shaping up to be like "last time". However, there are many reasons this real estate market is nothing like 2008. Here are six visuals to show the dramatic differences.

1. The mortgage standards for loans today are nothing like they were last time.

Back in 2007-2008, it was to easy to get a mortgage. Today, it could be argued that it's tough than ever to qualify. Recently, the Urban Institute released their latest Housing Credit Availability Index (HCAI) which “measures the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.

The index shows that lenders were comfortable taking on high levels of risk during the housing boom of 2004-2006. It also reveals that today, the HCAI is under 5 percent, which is the lowest it’s been since the introduction of the index. The report explains:

Default Risk Graph.png

2. Prices aren’t soaring out of control.

The graph below is showing the annual home price appreciation  This appreciation over the past four years, compared to the four years leading up to the height of the 2008 housing bubble,  was quite strong last year.  This shows that it's  nowhere near the rise in prices that preceded the crash.  Normal appreciation is roughly 3.8% annually.  So, while current appreciation is certainly higher than historic norms, it’s  not out of control as it was in the early 2000s. 

Annual Appreciation.png

3. We don’t have a surplus of homes on the market. We have a shortage.

The supply of inventory needed to sustain a normal market is approximately three to six months. We would consider this a healthy market. Anything more than that supply timeframe would be an overabundance and cause prices to depreciate. Anything less than that is considered a shortage and will lead to market appreciation. As the graph below shows, there were too many homes for sale in 2007, and that caused prices to drastically fall.  There is a shortage today of overall inventory which is causing an acceleration in home values.

SFH Inventory.png

4. New construction isn’t making up the difference in inventory needed.

Many believe that new construction is filling the lack of overall inventory.  However, if we compare our market today to that of right before the housing crash, it shows there is an overabundance of newly built homes and this was a major challenge then, but isn’t today.

New Construction.png

5. Houses aren’t becoming too expensive to buy.

There are three components to the affordability formula:  price of the home, wages earned by the buyers, and the mortgage rate available at the time of purchase. Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages have increased and the mortgage rate is about 3%. That means the average homeowner pays less of their monthly income toward their mortgage payment than they did back then. Here’s a chart showing that difference:

Income Needed to Purchase.png

6. People are equity rich, not tapped out.

Homeowners in 2008 were using their homes as personal ATM machines. Many immediately took out their equity once it built up, and they learned a hard lesson in the process. Prices have risen over the last few years, leading to over 50% of homes in the country having greater than 50% equity – and owners have not been tapping into it like the last time.  The table below compares the equity withdrawal over the last three years compared to 2005, 2006, and 2007. In comparasin, homeowners have cashed out almost $500 billion dollars less than the time before:


Home Equity.png
During the 2008 crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owed was greater than the value of their home).  Some decided to walk away from their homes, and that led to the short-sale and ultimate foreclosure boom.  Those homes sold at huge discounts, thus lowering the value of other homes in the area. With the average home equity now standing at over $190,000, this won’t happen today.  This is nothing like the last time.

Bottom Line

If you’re concerned that we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.  Give me a call and let's discuss your options. Bryan at 480-731-4663.

Bryan Staley
The Phoenix Homes Team
10601 N Hayden Rd
Scottsdale, AZ 85260

© 2021 Arizona Regional Multiple Listing Service, All rights reserved. The data relating to real estate for sale on this website comes in part from the Arizona Regional Multiple Listing Service. Real estate listings held by brokerage firms other than Bryan Staley - HomeSmart are marked with the Arizona Regional Multiple Listing Service logo and detailed information about them includes the name of the listing brokers. All information deemed reliable but not guaranteed and should be independently verified. All properties are subject to prior sale, change or withdrawal. Neither listing broker(s) nor Arizona Regional Multiple Listing Service shall be responsible for any typographical errors, misinformation, misprints and shall be held totally harmless. June 13, 2021
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