I’m trying and figure out what the hell happened during The Great Real Estate Bust so I’m going back over my old posts here in this blog to see what I was thinking at the time and to find the clues about the future that I missed.

It’s sort of therapy for an economist.

September 2006

For the Arizona housing market it’s a race between housing inventory and economic growth. As long as the economy stays strong, the housing market can work it’s way through the huge overhang of unsold homes.

If the economy tanks before the inventory gets into line, then we would enter an economic slowdown with an already high inventory of homes to begin with.

My ballpark guess is that the economy will be fine for the next 12 months at least. If the economy can stay strong for 2 years, the housing market should be able to work it’s way through the excess inventory of homes from 2006.

The key to reducing the inventory is putting families (owner occupants) into homes that are currently owned by investors… and for home builders to get their act together regarding their own inventory. »

A lot of homes bought from 2005 to 2008 in Phoenix were so expensive with such large mortgages that they would never be cashflow positive as rentals. Later on we learned that some people lied and said their investment homes would be their primary residences in order to qualify for much better loans. I wonder, however, how often mortgage companies looked the other way.

Many rented out their investment houses to cover some of their expenses but only for a year or two while the homes appreciated. That was the plan anyway.

Those investors were betting 100% on appreciation and as it started to become apparent that appreciation had stopped, some got scared and started to put their investment houses back up for sale in hopes of breaking even, then in hopes of not losing too much money, and then later they gave up all hope and started to walk away.

The recent home price boom started in California, then spread to Las Vegas before arriving in Arizona. Hopefully, this article about “short sales” in the Sacramento Bee doesn’t foreshadow things to come in Arizona. »

In the autumn of 2006, I thought the market could, in time, absorb those homes that investors were trying to sell on the MLS. I wasn’t thinking much about short sales and foreclosures.

The number of homes entering the foreclosure process (Notice of Trustee Sales) was still within the normal range in the autumn of 2006. The tsunami was later.

Anderson Forecast of the University of California, Los Angeles, forecasts the market prices of homes to hold steady over the next five years. »

I thought it was pretty funny until I saw my comment, “Anderson Forecasts tend to be overly pessimistic.”

Americans are anti-pessimism. Pessimism is bad. Good people are optimistic.

I have a theory that optimists naturally do better in good economies because they expects things to turn out well and they do. They take more risks and it pays off during good times.

Pessimists naturally do better in bad economies because they expect to be disappointed and are. They’re more cautious, they focus on not losing money and it pays off in down markets.

I think of myself as a realist but I’m surprised to find out that sometimes I was too optimistic, way too optimistic.

In the last few days I heard someone on TV (don’t remember who or where) say something along the lines of, ‘When you see a TV show called “Flip This House” you know the boom is over.’

Very clever.

Is it true?

It turns out that “Flip This House” premiered on July 24, 2005.

Holy mackerel!

That’s right when the boom ended!

The median home price in metro Phoenix, Arizona in August 2005 was $255,5000. Last month, August 2006, the median price was pretty much the same at $254,900.

Does that mean when they cancel “Flip This House” it’s a signal to buy real estate?

Or, at least, if you ever see a show called “Foreclose It!” you’ll know the market’s already bottomed out and started rebounding. »

Strangely enough, that’s exactly what happened. A reality TV show called Betting the House started filming foreclosure auctions in Phoenix in September 2011.

The number of foreclosures at that time was about one-third less than during 2010, Peak Foreclosure. And September 2011 was almost the exact month Phoenix home prices bottomed out. They’ve been pretty much rising ever since.

The introduction of that reality TV show called the bottom of the Phoenix real estate market almost perfectly.