This is my column for this week from the Arizona Republic (permanent link).
Looking for the bottom? Real estate speculators are establishing the bottom-dollar price for lender-owned homes in Phoenix
If you’re looking for the bottom of the real estate market in Phoenix, chances are it’s right up the block. It’s that house with the jungle of overgrown weeds in front.
It used to be for sale. Then it was a short sale. By now it’s lender-owned. A year ago it might have been listed for $250,000. Now the price has been slashed to $120,000 — maybe less.
That’s a sad story, particularly if you knew the owners. And now, as you watch the parade of investors checking it out, you might feel a certain anger toward them.
If so, your anger is misdirected. Between syrupy books and movies and high-strung high-school-teachers, we have been indoctrinated to despise speculators. But the truth is, speculators are the garbage collectors of capitalism. They come in and clean up messes they did not create, returning productive value to underperforming assets.
It you’re looking for a villain in these stories, look to the borrower, to the lender or just to the vicissitudes of life. But it is the speculators who are going to bring the real estate market back to a viable state.
How? By establishing the bottom-dollar price.
What is your home really worth right now? It’s worth as much as the lowest-price lender-owned comparable plus the cost of returning that home to turn-key condition plus a small convenience premium. In other words, if the lender-owned house sells for $120,000, and if it will take $10,000 to make it as nice as your home, then your home is worth $135,000 — $140,000 at most.
And if you’re not willing to sell you home for that price? Get it off the market right now. It will not sell for more, but the surplus of over-priced inventory is a false signal to buyers that the market has not found its bottom.
If you must sell into this market, you’ll sell at the market price. If you can afford to wait, you will almost certainly do better after the market has turned.
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