The snake in paradise holding back what seems to be the beginning of a classic Real Estate recovery is a constrained creditmarked amidst the double whammy of an unfolding recession. A sizeable portion of "yesterdays" buyers can no longer qualify for a mortgage.
Foreclosures, although not the heavy hitter in the* Tucson market will continue to put some upward pressure on inventory levels and vice versa on prices. The majority of Adjustable Rate Mortgages were issued during 2004 and 2005, with rates typically locked for 3-5 years (including an option to pay interest only), - as the ARM's come due during '08 and '09 we will continue to be impacted. Keep in mind that Real Estate is local - even within city limits - areas like the southwest and some areas in the northwest along I-10 experienced more boom than the rest of Tucson. It was here land was available and builders poured out homes to the eager consumption of speculators - many now headed for foreclosure.
* The Tucson foreclosure rate is down as number 46th when compared to the 100 largest real estate markest in the nation:
http://money.cnn.com/2008/02/12/real_estate/realtytrac/index.htm?postversion=2008021306
By the end of 2008 we should have had the worst of the foreclosure wave pass. The credit markeds will not be fully recovered but much of the panic and uncertainty will be flushed out of the system. By the end of 2008 we will also know more about the recession and the extent of it, as the american people will know who the next president will be. All in all there will be more certainty and confidence paving the way for a slow recovery.
Expect home prices in Tucson to continue a controlled descent to the tune of an additional 5-10%, hitting the bottom late 2008 or early 2009, from then on a slow motion recovery not fully engaged until 2010.
For a sobering take on the housing market I highly recommend John Mauldins newsletter on the housing market: http://www.frontlinethoughts.com/gateway.asp
All the best, Tom Nielsen
