There was an interesting column in the Arizona Republic this morning. Misguided at times, confusing at others, but nevertheless interesting.
So begins Jon Talton's column:
Want to make a million bucks in real estate? Start with $5 million, or so the old joke goes.
Nobody's laughing now. Metropolitan Phoenix, more dependent on the housing industry than any other major city, is facing its greatest immediate economic challenge in at least 16 years as the real estate boom ends.
The refrain of the local experts is that the market will merely "return to normal." They lack credibility for two reasons. First, they're always boosterish, no matter the reality. For example, they completely missed calling the 2001 recession, even though its genesis began months before 9/11.
We start with real estate then merge into overall economics, unless he's chastising those in the real estate profession for not calling the 2001 recession. The column then returns to real estate where it seems to stay:
Winners
• Well-capitalized players, such as DMB, with the patience to wait for a market upturn that may not come before the end of 2007.
• Pre-leased or sold major projects that already are coming out of the ground, such as the high-rises in downtown Scottsdale and Tempe.
• Bottom-feeder speculators who can swoop in once prices fall to pick up property for a song. Fortunes were made doing this amid the ruins of the 1990 real estate crash here.
• Homeowners with savings and no need to immediately sell their properties.
"Bottom-feeder speculators" - slightly perjorative, wouldn't you say? What I believe he's attempting to describe are a larger class of investors who, whether you favor their approach or not, do serve some purpose in the market. Selling to avoid a foreclosure, even at a below-market price,is better from a total credit standpoint than allowing the bank to take a house.
Also, speculators are those who entered our market last year looking to flip properties - buy them and sell them quickly for large and easy profits. Investors tend to have longer time horizons - and there are few flips to be had in this market.
And finally, how is a homeowner with no immediate need to sell a winner if the market cools and/or begins to drop? If we agree paper losses are no more relevant than paper gains, then it seems they are neutral in the equation.
Continuing on ...
Losers
• The job market, which has been among the strongest in the nation, thanks to the housing boom.
Wachovia Senior Economist Mark Vitner said even with the housing deceleration in the second quarter, Arizona turned in some of the strongest numbers nationally in gross state product and job creation, almost all due to housing and population growth. But he expects a slowdown in the second half of the year.
How much? That's the region's critical question.
The logic is backward here. Housing booms don't drive the job market, it's the opposite. There are plenty of homes at extremely reasonable prices to be found in the Houston area. The only thing you're lacking (other than zoning regulations, non-biblical weather and a light rail system non-lethal to pedestrians) is a job market.
• Some very large corporations that have ridden the wave, and not just the big house builders. Home Depot warned that its sales for the year would fall at the low end of forecasts, joining a parade of appliancemakers, tool companies and others. Many will survive; consolidations may loom for others.
This last runs contrary to basic economic cycle theory. In a slow or slowing economy, business results for home improvement companies, auto parts companies, etc. improve. Why? Because the bulk of consumers are not purchasing new automobiles or houses - they are repairing or improving what they already own. Results weaken as the economy picks up because there's less demand for home repair supplies when people are buying new homes.
Now, having said all that, there are a few points Talton makes that are dead on - speculators who purchased second or investment homes with cash they can't afford to lose are in trouble. Some of the larger downtown projects also may be in some trouble. And in the long term, Pinal County and other outskirts also may see some softness.
But the bigger point is the role the local newspapers play in the real estate market. People tend to believe whatever they read, right or wrong. And the newspapers' agendas are formulated based on current sentiment. People read the newspapers for affirmation, not debate.
I'll add more on this at a time when I haven't already written a novela, but I'll conclude by saying I'm not one of the knee-jerk media bashers that exist in my industry and across the company. With a degree in journalism from ASU, I have some idea of what I speak.
(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes | 
