Scottsdale Economy

The Scottsdale economic market has been battling the notion for some time now that the U.S. is headed for another housing bubble. A repeat of the recession and housing crisis from less than a decade ago is unlikely at best. Yet, there are those that have warned of another housing meltdown like the one that occurred back in 2008. Before you buy into the double-talk, let’s examine a few important comparisons to then and now – and you can draw your own conclusions as to where housing is headed – especially if you’re a real estate investor.

First, it should be noted that individual, select real estate markets certainly aren’t immune to the bubble phenomenon. Each micro-market, as it were, stands somewhat on its own. However, there are few signs on a national level that are serious enough to adversely affect the entire housing industry.

Subprime Mortgages

One of the key ingredients in the housing meltdown recipe back in 2008 was the abundant availability of mortgage money – loaned to just about anybody that wanted some. Experts in the Scottsdale economic market say for another housing collapse to occur, the entire housing market would have to be comprised of these ill-advised – and ill-fated – mortgage loans. While that possibility could certainly arise at some future date “down the road,” today it doesn’t exist. Let’s look at a “then and now” comparison.

Then:  The original loan volume of all subprime loans in 2005 was estimated at nearly $625 billion. Subprime loans are called that because the borrowers have low credit scores or other qualification issues, but were granted the mortgage financing anyway – amplifying their credit risk to the lending institutions.

Now:  There was approximately $56 billion in new subprime loan originations in 2015 – just ten short years later. That’s a reduction of more than 90% in the volume of subprime lending. In 2005, subprime loans accounted for over 20% of the entire mortgage market. Today, they comprise roughly 5%.

New Home Craze

Looking at the Scottsdale economic market.

During the time preceding the housing crisis, the rate of homeownership rose dramatically, fueled in part by easy credit and subprime mortgage lending. Most people weren’t renting, as buying was easier, cheaper and made better long-term financial sense. As a result, housing production reached a peak as supply struggle to keep up with home demand. Here’s another “then and now.”

Then: Sales of new single-family homes reached nearly 1.28 million in 2005. According to the U.S. Census Bureau that’s the highest level in the more than 52-year history that particular statistic has been tracked. A great deal of the growth in sales was the result of investors and other real estate speculators taking advantage of, once again, readily available and easy-to-get credit.

Now:  The number of new single-family homes sold in 2015 was 500,000. That represented a 61% decrease from the highest level. In addition, it was 30% less than the previous 51-year average of Census Bureau data. To further put the number in perspective, there were only 490,000 new home sales way back in 1968! By the way, the American population increased during that 47-year period by more than 120 million people.

After the housing crash, the following occurred:  There was a market surplus of single-family properties, and once-plentiful mortgage availability changed drastically. The result was a severe drop in buyer demand. Naturally, real estate investors in the Scottsdale economic market exhibited the same lackluster interest.

Local Bubbles

Some real estate markets, including the Scottsdale economic market, rebounded well following the recession and housing crisis. Economists point to natural demand created by employment and population growth. Other real estate markets fared even better – at least until the bubble burst. One case in point is the phenomenon that occurred few years ago in the downtown Miami condominium market. Investor demand – primarily from Latin America – caused a spike in condo prices and growth in construction. Experts say the supply of condos in downtown Miami increased by 8,000 units. With a stronger U.S. dollar forcing less investor interest, the last year or so has seen a glut of condos available for sale – experts say roughly 3,500 units – representing nearly 2.5 years of inventory. Sluggish sales created by the oversupply has caused sale prices to fall 6% during the spring and summer of this year.

Higher Interest Rates

While interest rate increases are still part of the bubble talk double-talk in the Scottsdale economic market, so far the Federal Reserve has only slightly increased rates – by less than .25%. These economic facts remain:  The economy is relatively soft as a result of slower-than-expected GDP growth, low personal savings rates, low homeownership rates and only a slightly improved jobs market. And while raising interest rates could stifle or stagnate what growth the economy has enjoyed, it's pretty safe to assume, the Fed will raise rates at some point in the not-too-distant future.

How will rising rates affect you? As an investor, it can affect both your homeownership and your rental property portfolio. While an increase in the Fed funds rate doesn’t immediately equate to a comparable increase in mortgage rates, fewer people will buy or borrow. For landlords, an interest rate increase may actually be a good thing since it would likely drive more potential tenants to the rental market, keeping them on the home buying sidelines a little while longer.

Real estate investors should be aware of the downsides of a rising interest rate market. If your properties are mortgaged – especially with a short-term loan or adjustable rate mortgage – consider refinancing or paying off the loan. Investors should be cautious of what exit strategies they employ in a rising rate environment. Should you sell to another investor who may need financing, you may need to adjust your asking price. Simply put, the reason you’re selling is that you may not be able to make the numbers as attractive as they once were – and the new investor may feel the same way. If at all possible, investors selling properties during a rising rate market should find a cash buyer.

You can find more articles pertaining to the Scottsdale economic market in the "Economy" section of articles just below Scottsdale Real Estate Categories in the column to your right.

Remember to also check us out by finding us on Facebook and following us on Twitter.

Hardly a day goes by without Scottsdale's economy being adversely affected by financial fraud. The reported fraudulent activity ranges from hackers being able to access a business’ computer network to various types of identity theft. Despite new chip-enabled credit cards and the general heightened awareness of phishing scams, hackers are becoming much more sophisticated and consumers are at greater risk than ever. However, there are some proactive steps we can all take that are relatively simple. Let’s take a closer look at how to combat fraud and reduce the frequency of it occurring in Scottsdale's economy.

Scottsdale's Economy: 5 Tips to Fight Fraud 

Experts say taking precautionary steps isn't difficult. The problem, they say, is that consumers are literally bombarded with information overload, making it easy to become overwhelmed. Follow these five tips to better protect your financial assets.

When dealing with Scottsdale's economy, here are 5 tips to help you prevent being a victim of fraud

Whenever possible, use a chip-enabled credit card. Chip-enabled cards have an added layer of protection built in. They generate a unique consumer code designed solely for one purchase. That prevents a crook from using that information. The only drawback is that not all retailers accept the chip-enabled cards, but they soon will. Analysts say the lag time in card acceptance is primarily the result of the sheer number of banks, credit cards and checkout counters/card readers. A recent survey published by the National Retail Federation showed 86% of retailers expect to have their card readers operational by the end of the year – a number that some detractors claim is overly optimistic. Many retailers continue to await arrival of their terminals, while others have received the terminals, but are waiting for the credit card networks to certify the systems as operationally ready.

Don’t send sensitive information via public wifi or email. Many people make the mistake of assuming that public wifi is safe and secure. It’s not – hence the name, public. Never divulge information such as credit or debit card numbers or other personal or financial information over public wifi. If you must use public wifi, make sure that the site on which you’re conducting business has the “https” designation at the beginning of its url address. The “s” at the end is the optimum level of internet security available. In addition, remember that financial institutions will never request passwords, ATM pin numbers, or other sensitive financial data via email.

Make the switch to electronic delivery of account documents and check online banking and credit accounts often. Another tip to help fight fraudulent activity in Scottsdale's economy is to reduce the chance that paper documents or account statements could be intercepted in the mail or in other ways. Participating in online account access removes that risk. In addition, users can monitor their accounts more often in an effort to see and react to any suspicious activity or transactions. Security experts suggest monitoring your credit card and bank accounts once a week. Be sure to take advantage of free opportunities to sign up for fraud alerts from your financial institution or bank card company. The alerts can be set to notify users if purchases which exceed a certain prescribed amount, or if a purchase is made without the credit card being physically presented. One additional tip for these sensitive financial sites:  Make sure your password is more complex than usual, and that you change it frequently. Experts recommend you not use the same password for multiple accounts.

Beware of card skimming. Thieves perform the illegal information gathering act of skimming by putting a device over the credit or debit card slot, allowing them to get information when the card is swiped. If you use a credit or debit card at a gas station, for example, look closely to make sure there’s nothing unusual on or near the card slot. Experts suggest physically touching the ATM or gas pump card slot and slightly jiggle it back and forth. If it moves a little too much, it could be a sign that a crook has attached a skimming device. In addition, cover your hands and fingers as you punch in your pin number. Thieves often install portable cameras nearby or watch through binoculars to try to steal your pin number.

Keep an eye on your mail. Despite having signed up for electronic banking, there are times where financial information must be sent through the mail. If you choose to receive paper documents instead of, or in addition to, electronic correspondence, be vigilant. Make sure what you’re being sent arrives as expected. We know of a situation where an apartment complex’s row of mailboxes was completely destroyed and a recipient of a new credit card was the victim of several thousand dollars in fraudulent charges – all because he wasn’t aware a new credit card was being mailed to him. The thieves only had to call a toll free number on the credit card to activate it and begin making purchases. The credit card company didn’t hold the cardholder liable for the fraudulent purchases, but he had to go through a inordinate amount of red tape in disputing the charges.

One last tip for fighting fraudulent financial activity affecting Scottsdale's economy:  If you receive a change of address notice in the mail, call the financial institution or company it was sent from immediately. An address change could be a red flag that someone is trying to commit a fraud in your name. In a worst case situation, a crook could open accounts or purchase financial products in your name with the illegal intent of laundering money. So be vigilant, trust no-one and don’t just assume it couldn’t happen to you – it can and does happen to people every day – in Scottsdale's economy as well as others throughout the U.S.

You can find more articles pertaining to the Scottsdale Economy in the Economy section of articles just below Scottsdale Real Estate Categories in the column to your right.

Remember to also check us out by finding us on Facebook and following us on Twitter.

The Scottsdale economy saw only modest increases in the past year in the cost of food, transportation and clothing. No doubt, with similar numbers nationwide this has helped millions of Americans cope with what can often be dynamic consumer price changes. These and other slight increases have helped many households in the U.S. make ends meet.

However, this is not the case for tenants who are in the rental market. The cost of housing has definitely continued to have a huge impact on their disposable income. Let’s take a look at how rising rents are affecting a large segment of the population.

Scottsdale Economy: Rents Going Up

Scottsdale economy sees rents continuing to increase, but not as fast as previous years.

Recent statistics released in the Consumer Price Index clearly shows signs that rents have skyrocketed in the past few years. The Consumer Price Index reflects the differences from one month to the next in major spending categories. In May, 2016 – for the second consecutive month – the increase in rental income was nearly 4%, almost four times the total inflation rate of just 1% over the past year.

While the continuous rise in rental prices has subsided slightly in recent months, the factors causing rental increases haven’t gone away. According to a recent report by leading real estate market researchers at Trulia, home ownership for renters has become more difficult over the past four years. Ironically, this comes at a time when home ownership is a more attractive financial alternative to renting in many housing markets not only in the Scottsdale economy, but throughout the United States.

Trulia reports the supply of more expensive homes on the market has increased, while the number of starter homes decreased by nearly 44% over the past four years. When compared to the same period of time, the number of mid-range “trade-up” homes for sale dropped by 41%.

Ralph McLaughlin, chief economist at Trulia said, “Consumers are increasingly worried about tight inventory when finding a home, and rightly so. Low inventory has been, and will continue to be, a strong headwind for house hunters.”

Scottsdale Economy: Home Buying

Home buying has become unaffordable for first-timers, primarily due to an ever-shrinking home inventory and rising home prices. Prices have increased over 30% in the starter-home category over the past four years. Statistically, a median priced starter home comprises roughly 38% of a typical first-time homebuyer’s total income – an increase of 6% from four years ago – according to Trulia’s findings.

This information largely contributes to the continuing downward trend in the home ownership rate. Home ownership peaked during the spring of 2004, with 69.2% of Americans owning their own homes. That percentage has fallen gradually since the housing collapse in 2007, currently standing at only 63.5%.

While the low-inventory scenario varies across the country, the Scottsdale economy has experienced its share of an unusually meager supply of homes for sale. According to Trulia’s statistics, in some markets starter-home inventories have decreased by more than 77% in the last four years, while the median sales price for that type of home rose 78%.

Probably one of the most devastating effects of rising rents is the impact they have on lower-income households in the Scottsdale economy. According to Pew Charitable Trusts, during the last two decades, housing throughout America has consumed a larger share of the typical household budget – despite the amount of household income. However, though households in the lower third income tier spend less than those in the higher income tiers, they spend a larger share of their income when compared to renters.

Scottsdale Economy: Mortgages

In addition, rising rents have been blamed for many first-time home buyers being unable to break into the Scottsdale economy and become homeowners because they are unable to save enough money for a down payment. Despite rent increases slowing their pace in recent months, the down payment requirements along with other expenses such as closing costs, taxes, insurance and potential home improvement costs continue to appear insurmountable to an ever-increasing number of prospective American home buyers.

In the past several months, mortgage lenders throughout the country have offered additional lending products designed to assist prospective home owners in affording the required down payment. In addition, in order to increase the national home ownership percentage, it's likely that additional mortgage products and services will be devised to assist first time home buyers.

Statistically speaking, however, a leveling of home prices and an increase in home inventory will have the biggest impact on the Scottsdale economy and the U.S. housing market. We've seen in recent months how the law of supply and demand has adversely affected the real estate market. With fewer homes for sale in the supply chain, buyers are faced with a seller's market created by increased demand. As a result, home prices have continued to rise steadily. Economists say an increase in the number of homes for sale in the market will improve and increase the number of prospective purchasers – producing a better balance of supply and demand.

You can find more articles pertaining to the Scottsdale economy in the Scottsdale Economy section of our site below Scottsdale Real Estate Categories in the column to your right.

Remember to also check us out by finding us on Facebook and following us on Twitter.

The Scottsdale economy grew only slightly less than expected during the first quarter of 2016. This was due, in part, to a surge in home-building and a slow but steady increase in inventory investment by businesses. The U.S. Commerce Department had projected the gross domestic product (GDP) to grow at a rate of .9%. In actuality, the GDP grew slightly less than that, at .8%.

Scottsdale Economy: What to Expect

The Scottsdale economy grew less than expected in the first quarter of 2016,

The rise in GDP of .8% was higher than the .5% pace reported last month, the Commerce Department reported. It was at the weakest level since the first quarter of last year. The upward revision to the GDP growth estimates the result of improved trading than was previously anticipated. In addition, government reports included a slight rebound in post-tax corporate profits. Profits increased at a rate of .6% in the first quarter after suffering an 8.4% decline during the fourth quarter of 2015.

Looking at the income side of the equation, the U.S. economy grew at a 2.2% pace following an increase of 1.9% during the fourth quarter of 2015.

The Scottsdale economy – as is the case throughout the U.S. – has been damaged by a relatively strong dollar and stagnant-to-sluggish demand in global markets. That slowed demand has resulted in eroding growth in exports. The economy has also been hurt by lower oil prices, undercutting profits for major oil companies and causing them to curtail or suspend equipment spending.

Economists argue the government’s model to selectively dissect seasonal patterns from reporting data isn’t working. Government agencies including the Commerce Department spent considerable time in the past year trying to address the reporting problems.

First-quarter GDP data has suffered due to the residual seasonality inherent in the reports, with growth underperforming in five of the last six years. There are some signs that the economy gained traction in the second quarter in retail sales, industrial production, the export of goods, housing starts, and home sales increases in April.

While the Atlanta Federal Reserve is currently forecasting a second-quarter increase in the GDP of 2.9%, the continuing higher than expected inventory levels presents a risk to their estimate. In a recent poll of U.S. economists by Reuters, most had anticipated the first-quarter growth in GDP would be revised upward to .9%. The U.S. economy grew at a 1.4% rate during the fourth quarter of 2015.

Spending on residential construction in the Scottsdale economy increased 17.1% in the first quarter – representing the fastest growth rate in just over three years. The increase was previously reported to be 14.8%. Nationwide, businesses amassed over $69 billion worth of inventory, up from the $60.9 billion estimated a month ago. Inventory was reduced slightly by .2% from the first-quarter GDP growth projections of .33%.

Consumer spending levels, which account for over 66% of the activity in the U.S. economy, were not revised. Spending increased at a rate of nearly 2%, slightly lower than the fourth quarter’s 2.4% pace.

U. S. households were apparently more frugal in the first quarter. There was a noticeable cutback on the purchase of long-lasting manufactured goods like automobiles and home appliances. Disposable household income after taxes and inflation was revised upward to reflect a 4% growth rate during the first quarter compared to the previously reported 2.9%.

Savings in accounts were revised upward to nearly $783 billion from $712 billion. While exports were initially anticipated to be weak, first quarter results showed improvement, resulting in a smaller trade deficit.

Economists expect cheap gas and lower airfares will result in a spike in summer travel and an overall slight increase in the U.S. economy.

While building permits issued remain relatively high, the actual number of home starts concern some analysts insight of what has already been termed a "low inventory home market."

Furthermore, many U.S. economists are concerned that the Federal Reserve, in an effort to cling to the misguided belief that full employment causes inflation, will raise interest rates at their next meeting. Defining "full employment" as a maximum unemployment rate of 5-6%, the Fed is exhibiting signs leading to "stagflation" – the condition that largely plagued the U.S. economy during much of the 1970s and early 1980s. Stagflation was defined as rising inflation doubled with a high unemployment rate and low-to-negative economic growth.

Economists fear the Fed doesn't fully understand that full employment and stable prices can co-exist. They argue that having more workers producing goods and services will never, on its own, contribute dramatically to an economy of soaring prices. The recent pace of hiring was the lowest since the fourth quarter of 2015. In addition, job creation has churned to a sluggish average of 200,000 net new jobs created for the past three months. Most concerning is the fact that this slowdown comes on the heels of a five-year high of 282,000 jobs per month during the fourth quarter of 2015.

It remains to be seen what the Federal Reserve will or won't do and how their decision will affect the Scottsdale economy. In the meantime, there are bright spots that can hopefully be expanded. As is usually the case, an election year may have anticipated changes and consequences.

Read more articles pertaining to the Scottsdale economy in the section of articles on the Scottsdale Economy just below Scottsdale Real Estate Categories in the column to your right. And remember, we also post tips daily on Facebook and Twitter. Check us out there, too.

The Scottsdale economy has some things in common with other housing markets throughout the country. Despite substantial improvements in home prices in 2015, there are still a large number of borrowers "underwater" on their mortgages. This article will look at the reasons why this dilemma is still true for many homeowners.

Scottsdale Economy Challenging for Some

As home prices rose in the last year, so also rose the hopes of more than 1.5 million borrowers who owed more on their homes than they were worth. Those homeowners were able to be rescued from the rising waters of negative equity.

The Scottsdale economy is still plaguing some homeowners who suffer from the rising waters of negative equity.

However, there are still twice as many homeowners – roughly 3.2 million – that are underwater, according to Black Knight Financial Services, a well-respected financial data reporting agency. What this means is that more than two thirds of borrowers who have been underwater still find themselves there.

The improvement brought the national average negative equity rate down to 6.5% – a considerable positive change in the aftermath of the housing crash of several years ago. However, the negative equity rate is still much higher than historical, acceptable norms. Of particular concern is that the negative equity is found predominantly near the lowest priced tier of the housing market. Experts say over 16% of borrowers in the lowest priced tier are underwater and are financially paralyzed – unable to sell their homes without losing money, and unable to purchase another home without selling their current home. Ironically, these are the very homes the housing market desperately needs. These starter homes and "fixer-uppers" often represent the only available avenue for young first-time buyers to escape rising rents by becoming homeowners.

Despite four consecutive years of improvement in the number of homeowners underwater, the Scottsdale economy – like many others – has not completely rebounded. Nationwide, statistics show that over half of the homes underwater are in the bottom 20% of the respective housing markets. This, experts say, represents the highest percentage since records have been kept. More startling is this fact: at the existing rate of improvement in home price levels, it would take over five years for the negative equity rate to match that of 2005. That's twice as long as homes in the top level of the housing market.

As is the case with all real estate issues – both good and bad – underwater properties and their statistical impact vary according to location. Some areas of the country are better than others, and some are worse.

Negative equity rates on the lower priced tier is having an ironic impact on price growth in other sectors of the housing market and the Scottsdale economy. Simply put, the reason is supply and demand. Underwater borrowers are less likely to be able to sell and move. Without those homes on the market the supply of affordable homes has diminished greatly. In addition, new construction is centered more on the mid-to-high range homes as builders simply can't afford to build lower priced houses because of higher land and labor costs. As a result, shrinking inventory or lowering supply, is causing higher prices or greater demand for those few homes available for sale on the lower tier.

Adding to the problem of the underwater homeowners not being able to sell and move is a change that experts say is taking place in consumer behavior. Those homeowners who could perhaps find a way to absorb the loss by selling are often unwilling to move as Americans are becoming less mobile and transient. They live in their homes longer than ever before. Economists say this is largely due to recent trends in the overall economy, but especially in the housing sector. U.S. homeowners have seen – and lived through – record numbers of foreclosures, short-sales and other failings of the recent housing crisis. Many have seen the effects of a prolonged recession. Many fear another one is coming. In addition, they're leery of the current employment market. Workers have seen and experienced companies downsizing or closing, and their comfort level with the job market makes them less likely to move.

While the negative equity dilemma continues to slowly improve, its recovery isn't coming quickly enough to positively impact a housing market in dire need of more affordable homes for sale. As if this reality isn't enough of a concern, real estate experts warn that if rising prices create buyer resistance, it will mean an even longer waiting time for underwater homeowners to escape negative equity.

You can find more articles pertaining to the Scottsdale economy in the Scottsdale Economy section of our site below Scottsdale Real Estate Categories in the column to your right.

Remember to also Find us on Facebook and Follow us on Twitter. We post tips there each day as well.