Insider Information – The State of the Phoenix Arizona Real Estate Market

Walking down Squaw Peak I chatted a bit with a person who does sales of foreclosed private home properties.  The important points he made were

• 1/2 of the sales of foreclosed properties are being bought with cash
• there are 60,000 homes held on bank books – the banks do not want to admit these need to be marked down so they hold them as shadow inventory
• the chinese are recycling the money we have shipped them.  They are buying up alot of foreclosed properties
• Alot of the people buying using borrowed money are not being put through a rigorous process to qualify – there will be another wave of defaults on loans 3 years from now.

Observations and Conclusions

The smart money is still around and still has bullets.  They are attempting to protect their capital from corrosion due to excess money printing.  Thus they are buying assets that are not likely to go up in real terms.  Thus they are very pessimistic about the dollar.   They know Obama wants to inflate his way out. 

The government and the banks are prolonging the crisis by not using "mark to market" values of homes. 

The Chinese do not have any more faith in the dollar than the smart money or they would not be buying houses.   In addition investment decisions are probably made by a select few in the Chinese government.  They do not have the "wisdom of the crowd" on their side.  Situations are likely to swivel rapidly and they will be caught the same way the Japanese were at the end of the 80's when they were buying real estate.

There is a panicked mentality because if they were not panicked they would have tough qualifications for loans.  Isn't this what caused the problem in the first place?