Aug. 4, 2006: Don't be chicken about the Phoenix area real estate market

If you follow the real estate news, sooner or later you have to ask yourself, "How many times can the sky fall in a given day?"

During our recent run-up in values, the Chicken Littles couldn't stop clucking about imminent doom. Since then the market has cooled, but the Chicken Little chatter is hotter than ever. The real estate market must collapse. It simply must.

This prediction will lay an egg. But don't hold your breath waiting for an admission of error. And if you yourself are waiting for the explosive report of the real estate bubble popping, you might just hear a pin drop instead.

Here's why:
  • Real estate and securities are both leveraged, but the real estate market is not the stock market. Stocks are instantly transferable. You can acquire or liquidate a portfolio in seconds. Moreover, while stocks are subject to margin calls, it would be insane for lenders to call their mortgages en masse.
  • More to the point, homes have intrinsic value. A stock is worth what someone will pay for it, right down to nothing. In any place where it rains, snows or gets really hot, homes will be worth something.
  • Which leads us to demand. Some locales have more houses than occupants. No bubbles will burst in those places, either, but their values will slowly deflate. In a market like metropolitan Phoenix, long-term demand exceeds supply. As long as it does, our long-term trend in values should be nothing but upward.
  • Finally, sellers in a buyer's market are a lot less time-sensitive than buyers in a seller's market. In the latter case, the longer that buyers delay acting, the greater their costs. Hence, the frenzy. But if sellers stand fast in a buyer's market, they might suffer a loss. But they might do better by waiting. Or the marginal cost of waiting may be less than taking a low-ball offer. Or they may elect simply to wait out the market.

The bottom line is, Chicken Little be fried, the real estate market will be fine.

Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.

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