Arizona Real Estate Market - Research Paper Example

Arizona Real Estate Market 1. Abstract This paper gives the detailed causes of Arizona’s real estate market crash. Literature reveals that available mortgage that was beyond range of income and the high cost of housing contributed to the crash. The United States economy was going through a recess and the income of most investors was not increasing at the same rate as that of cost of housing or fluctuation rates. Fore closures became imminent and some investors made loses. The real estate market is recovering and investors are beginning to participate in the market. 2. Introduction Arizona’s real estate market was thriving and bringing revenue when it crashed. The crash was caused by several factors which had not been foreseen. This paper discusses Arizona’s real estate market crash. 3. Causes of Arizona’s real estate market Crash The economy of Arizona largely depended on the real estate market. The real estate market was at its peak when gradually the market collapsed. This did not happen abruptly, a number of factors can be identified as the cause of Arizona’s real estate market crash. One of the factors is that many people had taken mortgage to purchase homes. People were tempted to own homes either for personal use or to sell later. Some of them could not afford and decided that a mortgage would help them become home owners. In addition, obtaining loans was easy going. The loans were characterized by low interest at the initial years. Later, the loan interest would be adjusted according to fluctuation. Some of the people with loans whose income could not match with the loan repayment premiums discovered that the mortgage was a challenge when it came to paying. There were many houses available for selling. The economy was strained and people were not willing to purchase when the economy was not thriving. There was little selling activity when compared with the prevailing trends and previous years. The financial sector had been giving mortgage with security. The large institutions could be given larger mortgages backed with security so that they could enable employees purchase the homes. The real estate markets in Arizona represented their value using the property worth in mortgage. Consequently, the lenders had successfully invested in many buying homes. As a result, a lot of property ended up as fore closures. With the increase in fore closure, the securities were not worthy. The arrangement to offer many people homes instead become unsuccessful and led to more challenges. Crook (23) mentions that, mortgages enable people to own home. The challenge comes in when the interest rates are adjusted according to fluctuation. Most people are not aware of how the mortgage works. This makes them fall into traps and purchase homes that are beyond their income. When the Arizona’s real estate market became unfavorable, the financial institutions became hesitant to give loans. Investors took time before engaging in any meaningful business for fear of suffering losses. Many lenders began repossessing the homes when the owners could not pay the mortgage. The lenders went for fore closures. This meant that the value of homes was increasingly falling, and the fall was not favorable to the economy. The financial institutions did not obtain the value they had previously invested in real estate market. The American government rescued some of the financial institution by bailing them. The objective was to reinstate liquidation of the market. When the financial institutions were restored investors could confidently invest, considering that the cost of purchasing property had drastically decreased. Another major factor that led to the real estate market crash is that the financial institutions practice was unrealistic. The mortgage given to investors was several times higher than the annual income of the buyers. It was higher than the considerable value of around three times higher than the annual income of the buyer. This practice was unsafe and misled many people to think that they could own homes safely. Moreover, the financial institutions used terminologies that ordinary people could not comprehend. They also gave conditions that were complementing and failed to scrutinize the factors that could affect the mortgage. The availability of mortgages made the cash flow to increase which motivated the prices of the house to go up (Orr, 1). The collapse was also motivated by the United States recession. There were fewer investors willing to invest since the economy was not thriving. There were fewer jobs in the market and many wanted to own homes. The employment opportunities offered were not giving adequate remuneration that could enable people interested in buying to obtain homes without getting a loan. Additionally, well known investors of real estate market in various states including Arizona were pronounced bankrupt. Subsequently, the financial system had adverse effects since money invested could not be easily recovered. According to Rittenhouse (111), people failed to engage in an investigation when planning to invest or buy a house. Most people seemed to purchase the house by taking a mortgage. This was a practice that had gained prominence in the years before the collapse. The challenge is that as the prices were going up the regular income of the people was not increasing. The cost of housing was constantly increasing at a higher rate than the inflation and income rates. Because the cost of letting was also higher, people opted to buy than to let. Arizona being at its peak of real estate market attracted many investors. It is possible that the real estate crash could have prevented if investigations were done. Those employed in Arizona’s real estate market suffered loss of business and loss of employment. Those who stayed in the business as the primary source of income had to look for alternative source of income. Furthermore, the registered members of the real estate association were reduced. Gallinelli (23) notes that, the collapse of real estate affects other areas of the economy. Besides the banking industry, many employees were rendered unemployed. Moreover, agents and brokers who were actively involved in the business lost occupation and looked for other avenues of creating income. Investors risked losing business and incurring losses. The construction industry slowed down after the collapse of real estate business in Arizona. . After the preceding events in Arizona’s real estate markets, many people wishing to acquire property in the esteemed estate became hesitant. The cost of buying a home in Arizona has reduced yet people are cautious to purchase the homes. Purchasing property has been made possible by foreclose. It is an arrangement where a lender who had reposed property sells it at a prices that is lower than the current market rates. The lender sells it at a lower rate to compensate debts. The arrangement allows people to buy property at reduced price despite the fears of the recurrence of a market crash. Although foreclosure is an indicator of the market crash, the market has increased allowing more people to invest. Foreclosure homes or property is auctioned or sold in the public for a less price than the original cost. The economy is quickly recovering. There are more members registering in the real estate association. A number of agents have acquired and others renewed their licenses. The market is experiencing an increase of people interested in purchasing housing. Foreclosures have been expanding. This means that the value of homes will increase with more investors taking part in the business. Interest rates are low and this act as an encouragement for investors to begin business in Arizona’s real estate market. Reagor (1) reveals that the real estate market in Arizona is quickly going to be restored. Prices of some houses are being increased. The number of fore closure houses on sale is reducing and the real estate market will soon begin increasing the value of houses for sell. The number of people buying houses both new and used have increased meaning that investors and people are willing to purchase property. The number of homes for sale is also increasing. 4. Conclusion Arizona’s real estate market experienced a collapse after the mortgage plan offered by the financial institutions placed home buyers in a challenging position; where they could not repay. The mortgages had high interest rates, and were given way beyond the recommended three times of the annual income of a person. The cost of housing was very high and those who chose to buy purchased houses at a costly price. Eventually, investors and home owners could not repay their loans; hence, the lenders reposed the property. Fore closure proceeded where the value of the property was reduced. The real estate market in Arizona is on its way to recovery. The government bailed out the financial institution. Fore closure are almost ended and more investors are willing to invest. The interest rates have also been reduced and there is increasing activity in selling of used and new homes. 5. Recommendations It is recommended that investors conduct a research on the best practices when buying or selling in real estate market as Chavis (67) points out. Guidelines and standards required when giving mortgage should be maintained so as to enable home buyers purchase houses within their means. The financial institutions should consider giving affordable interest rates to facilitate growth in the real estate market. Works cited Chavis, Bryan M. Buy It, Rent It, Profit!: Make Money as a Landlord in ANY Real Estate Market. Touch Stone, 2009. Crook, David. Complete Real-Estate Investing Guidebook. Wiley, 2009. David Crook (Author) › Visit Amazon's David Crook PageFind all the books, read about the author, and more.See search results for this author Are you an author? Learn about Author Central Gallinelli, Frank. What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures. McGraw-Hill, 2008. Orr, Michael. “Subtle shift in Arizona Real Estate Market.” ( 2012)Web 03 December 2012 David Crook (Author) › Visit Amazon's David Crook Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central › Visit Amazon's Frank Gallinelli Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Rittenhouse, Karen. The Essential Handbook for Buying a Home. Southeastern Investments, LLC, 2011. Reagor, Catherine. “Upbeat findings for Arizona housing market.” ( 2012) Web 04 December 2012. Read More