“Wake Up and Call John!” - John Wake, Associate Broker, HomeSmart Real Estate

Flat. Up. Down. Quite the mixed bag for home prices in Phoenix, Los Angeles, San Diego and Las Vegas!

We already know the number of homes sold in July was WAY down. It’ll be interesting to see what happened to home price appreciation in July (or depreciation in Vegas’ case) as the $8,000 first-time home buyer tax credit ended.

It won’t be good for homeowners. I bet we see depreciation in Phoenix home prices in July and August and maybe September.

Phoenix Home Prices Flat from May to June

Phoenix home prices overall are now where they were in October 2001, according to my analysis of the Case-Shiller data.

Looking at the median home price charts in the right-hand column, we can see that many zip codes are looking at 2004 prices and many are probably looking at prices from the 1990’s, although the charts don’t go that far back.

It’s an interesting factoid to know that Phoenix home prices are overall where they were in 2001.

Just remember that that does NOT account for inflation. The inflation calculator app on my phone estimates inflation from 2001 to 2010 to be 24% in total. So, in real dollars prices are about 24% cheaper today in metro Phoenix than in 2001.

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Inspiration was Banks’ Self-Dealing Super-Charged Financial Crisis.

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I think government policies were a top cause of the real estate boom, bust and the family tragedies that followed.

[T]he political response to rising inequality—whether carefully planned or the path of least resistance—was to expand lending to households, especially low-income households. The benefits—growing consumption and more jobs—were immediate, whereas paying the inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly.

Politicians, however, prefer to couch the objective in more uplifting and persuasive terms than that of crassly increasing consumption. In the US, the expansion of home ownership—a key element of the American dream—to low- and middle-income households was the defensible linchpin for the broader aims of expanding credit and consumption.

“… this is a story about how policies intended to reduce inequality had the unintended consequence of precipitating America’s worst economic slump since the Depression.”

Via The Economist.

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Wall Street Journal.

… an investment fund managed by veteran mortgage-bond trader Lewis Ranieri, acquired the loan at a deep discount and renegotiated the terms with the Reynolds. The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. That reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds’ income as a real-estate agent. “It was a miracle,” says Ms. Reynolds.

51% of Arizona Mortgages Under Water

Hmmm. In the comments of another post, Peter Fork pointed out that about 50% of Arizona mortgage holders are underwater. My ballpark guess is that at the current rate that the percentage is falling, it would take at least 5 years to get the percentage of underwater mortgages under 10%.

This article from the Wall Street Journal may point out a quicker way for Arizona overall to reduce its mortgage debt - have Fannie and Freddie sell off a lot of their mortgages. (BTW, did the Fannie and Freddie investors ever lose any money or just the stock holders?) After paying the current market rate for these mortgages (which means paying a lot less than the face value), the new owners of the mortgages could renegotiate with homeowners, foreclose or whatever they want to the delinquent loans they bought from Fannie and Freddie, and still make a buck.

Speed Up American Deleveraging

That would certainly speed up the “deleveraging” of America and bring the next recovery closer but the debt reduction would be politically controversial and Fannie and Freddie are political animals. There would be fairness issues as well.

Kick Back More Fraudulent Mortages

An in-between measure would be for Fannie and Freddie to reinforce their already increasing efforts to force banks to buyback mortgages the banks misrepresented when they originally sold them to Fannie and Freddie.

Delay and Pray

But, of course, selling the bad loans would start to exactly quantify the losses at Fannie and Freddie. The goal of all financial institutions, including Fannie and Freddie, seems to be to “extend and pretend.”

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After you get that house under contract, don’t go out and buy a lot of furniture.

Big purchases done on credit could push your total borrowings so high that you no longer qualify to get that previously approved home loan! Yep, your mortgage company will check your credit again right before closing.

Next, try not to inquire about, shop for or take on new credit obligations during the period between your application and the scheduled closing. If you seriously want that new loan, keep your credit picture simple — no significant changes, no additions — until you settle on the mortgage.

Washington Post

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This article is so true, Can We Please Be Honest About Fannie And Freddie? They Now Exist To Make Houses More Expensive.

The goal of Fannie and Freddie was to make home ownership more affordable. Now their goal is to prevent homes from becoming more affordable.

It’s the perfect self-perpetuating government program!

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See the latest trends in actual home price appreciation - not median home prices - through May 2010 using data from Karl Guntermann of ASU.

It’s nice to see someone else think we won’t see a double dip in Phoenix home prices overall. I was feeling a little bit out on a limb there.

Highlights of ASU Repeat Sale Index Report

• “… it is likely that house prices throughout the metro area will remain essentially flat for the next twelve months.”
• “… there also is no evidence that house prices will resume a downward trend, contrary to some published reports.”
• “Lower priced houses… It appears that this segment of the housing market, which was hard hit during the downturn, will see price increases throughout the rest of 2010 but at gradually slower rates.”
• “… the higher priced segment of the market is likely to show small declines on an annual basis through the rest of 2010 with prices flat for the first part of 2011.”
• “Prices in the Central, Northwest and Southwest regions have increased from May 2009 to May 2010.”
• “In terms of total declines from the 2006 peak, the Southwest is down the most, 58 percent, but even in the Northeast prices have dropped 36 percent.”

About the Data. Carl Guntermann at ASU uses a modified Case-Shiller statistical technique to look at home price appreciation within metropolitan Phoenix. Case-Shiller only looks a home price appreciation in metropolitan Phoenix as a whole. I (John Wake) created the graph above based on Dr. Guntermann’s data.

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My Realtor friend Chris Butterworth has a nice and quick analysis of the U.S. mortgage loan delinquency trends on this blog, The Phoenix Real Estate Agents.

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Arizona Real Estate Notebook, December 2008

FWIW, I think it’s a very real possibility that by the time the government and/or banks hit upon a good program and then gear up to implement that program, that the housing bust will be long over.

That holds up pretty well nearly two years later.

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Whew! I was starting to wonder if I was too optimistic in this post discussing the Arizona Republic’s pessimistic front page article on Phoenix home prices.

In conclusion, the latest data from the local MLS shows prices are expected to be pretty similar to where they were last year at this time for metro Phoenix as a whole.

The expected short term bottom in September is the result, I think, of the $8,000 tax credit hangover I discussed in that post I linked to in the first paragraph, as well as the end to the August gotta-buy-a-home-before-school-starts rush.

All in all, I’m cool with the direction of home prices. Flat is the new up.

I would say we are more “bouncing along the bottom” than having a “double dip.”

On the Other Hand

Nevertheless, there are certainly clouds on the horizon. In the medium term, I’m worried about the increasing number of foreclosures. In the longer term, I’m worried about the affect of the eventual increase in mortgage interest rates. Heck, there’s all sorts of stuff to worry about.

[Corrected: When I first wrote this post I had the bottom in the median price in the graph as August.]

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They didn’t touch Fannie and Freddie reform during the Financial Regulatory Reform debate so why would they bring up this a hot potato right before the election?

In my opinion, this meeting is just political kabuki to show they are “working hard” and “making tough decisions” but they won’t actually do anything until the next Congress is sworn in.

My take is the meeting is intended to deflect charges that the Financial Regulatory Reform that was just passed didn’t address the root cause of the financial crisis, housing loans.

I don’t see how anything contentious is going to make any progress in Congress before the election. If they thought there was a political advantage to taking one position or another, they would have done that during the Financial Regulatory Reform debate.

This meeting is just a place marker to show the public that the politicos are “working hard” and “making tough decisions” (well, maybe next year, anyway).

That’s my expectation.

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I gotta go look at the raw data at The Cromford Report, but this looks worse than I expected. I thought Phoenix home prices would likely fall July through January but I didn’t think we would test the April 2009 lows.

From my July post;

I worry about two things; 1) the $8,000 first-time home buyer tax credit has ended, and 2) we are going into the weaker half of the year for home sales and prices.

So, if we were going to see any final home price declines in metro Phoenix in this cycle, I bet it would occur in the next six months. (As always, I’m not taking about all zip codes. Some high priced zip codes could continue falling into 2011.)

But maybe all the commenters on this blog who’ve said we’re in for a double dip in Phoenix real estate will turn out to be right.

If we significantly break the April 2009 median home price, we will have a “double dip.” If, however, we only get close to the April 2009 lows, I would say we are “bouncing along the bottom.” I guess it depends on your definition of “double dip.”

Blurbs from, “Arizona real estate: Phoenix home prices down; Indicators forecasting housing ‘double dip’” the front page article in Sunday’s Arizona Republic

“The market is much weaker now than it was a few months ago, with demand down severely almost everywhere.”

The index shows metro Phoenix’s median home price falling from $128,000 in July to $125,000 this month to $120,000 in September. A slight recovery is expected for October, to $123,000.

Pre-foreclosures rose 34 percent in July.

“If you aren’t selling an inexpensive home, it can be tough to sell in this market.”

There are 43,000 homes listed for sale in the region, up from 41,500 in June and 37,000 a year ago.

“It’s just that there are now far fewer buyers and far more sellers than at this time last year,” Orr said. “It’s too early to say whether the current setback will be mild, moderate or severe, but there are no encouraging signs in the data from August so far.”

Epilogue

I just checked The Cromford Report and really the only thing that looks unusually bad in the Phoenix residential real estate market is the pending home sales and I think that is largely just a hangover from the $8,000 tax credit party.

When the original tax credit ended in November 2009, we only had a one month hangover but that’s because January is the start of the high season.

This time the party was bigger and the hangover worse. This time when the party ended (more or less June 30), we were headed into the slower part of the year for Phoenix area home sales so the hangover is lingering on. We didn’t have a January burst of activity to wake up the market.

And even if prices do test the April 2009 lows, I don’t know if it’s really a “double dip” or just “bouncing along the bottom.”

UPDATE: Graph showing home Phoenix median home price is expected to be pretty much flat after a dip following the end of the $8,000 tax credit.

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Economic geeks should watch it all. It’s the most cogent analysis I’ve heard of the current U.S. and global economic situation.

Just keep in mind that Roubini is a perma-bear and he was much too pessimistic in the spring and early summer of 2009. Nevertheless, he has been right about a lot of things too.

Talking Points

• U.S. Financial Regulatory Reform bill is, “… too little, too late. It’s going in the right direction but it doesn’t do enough in order to prevent the next financial crisis.”
• “The ‘too big to fail problem’ has not been resolved. The idea that you’re going to have an insolvency regime, you’re going to shut them down, is not going to work in my view. If they are too big to fail, they are just too big.“
• The monetary policy of near-zero interest rates doesn’t work well to spur economic growth when everyone is trying to de-lever, trying to reduce their debt.

This particular video is one of Roubini’s best, probably because the questioner is “The Economist.” They’re asking all the right questions.

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I’m surprised it took so long to repossess Ten Wine Lofts in Scottsdale.

Last I saw them they were on a Realtor tour in 2007 or 2008 but were still not quite finished (that’s a very bad sign for a luxury project) and seemed shockingly expensive even to us Realtors.

Here’s a quote from my December 2008 post mentioning Ten Wine Lofts.

Grace Communities is also the developer of the essentially completed 82 unit X Wine Lofts on Osborn Rd just west of Scottsdale Road. I’ve visited a couple of units and was not impressed with the value proposition of the X Wine Lofts. Apparently I wasn’t the only one. I just did some checking and I can’t find any evidence that any of the units have sold. Eight units that were in the MLS, had their listings canceled in late October. No units are currently listed in the MLS.

Surprisingly,Ten Wine Lofts still generates a lot of interest, not so much because people want to live there but because it’s a symbol of the real estate boom and bust.

The units were tremendously overpriced even for the boom. I guess the developers weren’t going to let themselves be taken advantage of by selling too cheap after all their hard work [sarcasm].

But on the other hand, if the developers had finished the project a couple of years earlier, they would have been golden.

More Background: August 2008 post on suicide of the CEO of Mortgages Ltd.

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