Phoenix: Can A Desert Town Dependent On Cheap Oil Survive $100+ Barrel Oil?

03-04-2011 • MyBudget360.com

The Phoenix real estate market is a fascinating case examination of an area guided by FHA loans for first time buyers and all cash investors purchasing 50 percent of properties. In January of 2011, the latest month of stunning data, 1 out of every 2 homes sold went to an all cash buyer. We are seeing many investors moving off the picket fence and purchasing homes in these desert cities. Cash is being put into action. The price has fallen dramatically and home prices are cheaper today than they were over a decade ago. But is this a good deal? Are eager investors making a good move out in Phoenix? The median price for a home sale was $119,000 which is down y-o-y by 9 percent and the median condo price was $72,000 down 24 percent y-o-y. When we look at the statistics we see that many eager investors are moving cash off the sideline and purchasing homes with all cash. The above chart clearly shows that last month was the largest percentage of all cash buyers in the Phoenix market, ever. Half of all home sales came from all cash investors. Since prices have clearly fallen and there is little reason to believe prices will go up anytime soon given the economy in the Southwest, many of these investors must be betting that they will cash flow on their purchases. This is an interesting development. Of course if you purchase a home with all cash that you are going to cash flow simply because you put so much money in. But what is the vacancy rate out in Phoenix? Are tenants stable? Will they take care of the property? I think many investors are simply examining the short term attractiveness of a cheap price and forgetting that they are buying in a desert community that relies heavily on cheap oil. Cheap oil is now a thing of the past. We have yet to see how these desert communities respond to $100+ oil for many years.