I've been wondering recently if the Phoenix Area Housing Market has finally reached the Tipping Point. I've noticed some interesting signs that it has.
It seems that since the first of the year, Banks, Financial Institutions and even the Government Agencies, have gotten very aggressive on the prices of REO (Real Estate Owned) Properties. So much so, that we are often seeing multiple offers above asking price. There are two positive indicators here. One, there is some pent up demand for bargain priced homes in the Valley, and second, unsuccessful buyers in a multiple offer situation usually become more motivated to make a successful offer on the next property they find. Both of these elements will be necessary to chop away at our large inventory of properties for sale.
The other interesting sign that we may have reached the tipping point is the price/rent ratio. The prices on existing homes in many suburbs like, Goodyear, Avondale, Tolleson, Buckeye, Surprise and even Peoria and Glendale have corrected to the point that an investor can purchase the property with a small downpayment and expect to rent it for enough to break even. This is the type of favorable ratio investors look for. If they can start at break even, then normal inflation will gradually increase the rent while the mortgage payment remains stable. This will result in positive cash flow a few years down the line. Secondly, normal appreciation will increase the value of the investment over time as well, and remember that leverage has allowed the investor to control a large value asset with a small amount of his/her own money.
So are these signs enough to say the end is in sight? Not yet. But maybe they are indicators of the beginning of the end.