Arizona Real Estate Notebook

I’ve had this graph for a while and was planning to do something fancy with it with video but I’ve been too busy with clients. My schedule is super charged the next week so I’m just going to do it the old fashioned way.

Price (green line)

The median home price fell to $210,000 in March from $213,400 February. This during a time of year when prices often strengthen so draw your own conclusion.

It is certainly looking like the median home price may make most if not the entire correction by the end of 2008.

Sales (blue line)

March sales were blah which foreshadows blah sales for all of 2008. It looks, however, like April will be relatively strong which is a silver lining.

Listings (red line)

The lower median home price has not yet affected sales as buyers’ expectations are that prices will decline further.

On the other hand, the lower median home price is starting to have an effect on the inventory of homes for sale as potential home sellers are a lot less enthusiastic about selling their homes when the median home price is $210,000 rather than when the median home price is $250,000.

The number of listings available for sale fell 0.5% from mid-March to mid-April. Last year listings increased 7% over the same month.

And so the supply correction begins.

Conclusion

The lower median home price is not increasing the number of homes sold yet but it is decreasing the number of homes for sale.

“MLS Listings” are measured at one point in time, usually the 15th day of the current month. “Median Price” of homes sold and the total number of home “MLS Sales” are for the entire preceding month.

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I have a theory that areas that are the most over-priced will “correct” more quickly than other areas.

Below is a post I had published about 3 weeks ago in an U.S. housing stocks blog called “Seeking Alpha.”

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The Reverse Ripple Theory of Metropolitan Home Price Corrections

You drop a rock in water. The ripple is largest at the center and becomes weaker as it spreads out.

In the Reverse Ripple Theory of Metropolitan Home Price Corrections (you got a better name?), home prices in the outlying areas with a lot of new construction will tend to fall most and first (the splash), as it moves toward the center of the metro area, the ripple weakens and the fall in home prices is progressively less and later.

The “less” part is probably conventional wisdom among real estate geeks. The “later” part is probably not.

Will the Periphery Bottom Out First?

Buried in Appendix C of Global Insight/NationalCity’s September 2007 issue of “Home Prices in America,” I noticed an intriguing little table barely mentioned in the text, called “Past Price Corrections.” The table is now included in recent issues, as well.

The appendix showed 79 metro area home price corrections completed since 1985. Its great stuff for real estate geeks.

Don’t miss the last two notes in Appendix C.

• The more severe the overvaluation, the greater the subsequent declines tended to be: correlation = +0.25
• The more severe the overvaluation, the shorter the duration tended to be: correlation = -0.31

That last note surprised me. The more a market is overvalued, the faster home prices tended to correct! That seemed counter-intuitive to me. Why would a more overvalued market correct sooner than a less overvalued market?

Anyway, let’s run with it. What if that effect occurred within a single overvalued metropolitan area as well within the history of U.S. home price corrections?

What if home prices in the most overvalued areas of metro Phoenix Arizona, my home, fell most and bottomed out first?

Most Overvalued Areas

So, where were the most overvalued areas in metro Phoenix during the recent boom?

The conventional wisdom is that areas on the periphery with lots of new homes were more overvalued, at the peak, than other areas.

The periphery became more overvalued, in my opinion, because there was a bit of a pricing oligarchy in the new home areas. The homebuilders were the oligarchy.

As the market tightened during the boom, homebuilders had the market power to increase prices in their areas more quickly than was possible in older areas where each home seller made an independent pricing decision.

When a homebuilder increased its list prices by say, $10,000, he increased the value of all the resale homes in the subdivision at the same time.

If, however, Joe Homeseller in the same subdivision increased his list price $10,000 - and the builder did not - it would have essentially no affect on the market.

In my view, prices in new home areas increased more than in other metro Phoenix areas with similarly tight markets because of the market power of the homebuilders to raise prices.

Since the peak, we have certainly seen median home prices on the periphery fall faster than in the interior of metro Phoenix.

The future will show us if these peripheral sub-markets will also tend to be the first areas to see median home prices bottom out and whether the interior sub-markets of metro Phoenix will tend to have less severe but slower home price corrections.

Hey, it’s just a theory.

The charts below compare 85086 in far north Phoenix, which includes Anthem, a newish master planned community of Del Webb (Pulte Homes), and 85051 in Phoenix, an area of homes built in the 1960s and 1970s. Charts show monthly medians for resale (not new), single family detached homes.

Obviously, the periphery (85086) started to fall first. The question is will it fall further and bottom out first?

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Here is the original article.

Later the theory was referred to in an article in the San Jose Mercury News.

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While running an MLS listings report for Anthem last weekend, I was stunned by the high number of homes under contract in Anthem.

ARIZONA 85086 - INCLUDES ANTHEM

MLS Resale, Single Family Homes Under Contract to Buyers on April 26, 2008: 165

Not all of those homes under contract are going to close and not all of the ones that will close will close in May.

Nevertheless, for 85086 which includes Anthem it looks like May 2008 could very well have the highest number of sales for a single month since 2005.

3 reasons for the increase in homes sales in Anthem;

1) Spring is the strongest season for home sales.

2) Canadians are buying a lot of homes in Arizona and many Canadians look for newer, inexpensive homes on the outskirts of metro Phoenix in places like Anthem. In addition, it’s looking like Canadians may buy later in the season than most - that they tend to buy during their spring not ours. (This is really just a semi-educated guess.)

3) Look at what has happened to home prices in 85086 (Anthem).

The median home price in 85086 is now similar to mid-2004!

It looks like lower home prices are finally starting to cause resale home sales to increase in Anthem and in 85086 overall.

Is this happening elsewhere?

I don’t have charts for Pinal county zip codes so I looked in the MLS and found that Johnson Ranch currently has a 6 month inventory of homes. Six months is in the range of a normal amount of inventory of homes for sale.

In Johnson Ranch, the average sold price in the last three months (since January 26) was $151,675 and the average sold home had 2,133 square feet.

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In this article about jingle mail, one quote really got the commenters agitated.

“We paid $585,000. It was the peak of the market, but no one told us,” said Shaffer, a real-estate agent from Colorado.

Yeah, it’s hard for a real estate agent to play dumb about real estate transactions without being called on it.

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The conversion has been rocky for some, but once you get the hang of the new neighborhood-based, map-based Phoenix MLS system, you’ll like it, maybe love it.

A huge number of people have signed up to use the new system for free.

Got this great email this evening about the new Phoenix MLS system.

Hi John,

It works great now. Not sure what you did but it loaded perfectly. At first I wasn’t sure what to do but, once you get into it, it’s really an awesome tool. The only problem will be me spending too much time looking at the detail by listing when you do the mouse over. I really like how it breaks down the zone by neighborhood so you can look just where you want to look instead of having to see stuff in places you know you are not interested in.

I’m not a buyer anytime soon (as far as I know) but I sure like knowing what’s going on near my home.

Thanks again for sharing this awesome tool with “the rest of us”. It’s great to have access to see the market.

Best,

Kathleen Wattle
www.captivespirit.com

Kathleen, Thanks for taking the time to write me and for letting me put your email online. I really appreciate it. You made my day!

If anyone out there is having trouble getting the hang of the new Phoenix MLS system, please hang in there and feel free to email me with your questions.

John Wake

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I recently added a super cool tool to this website that I’ve been using in-house for a few months, “Compare two zip codes.” You can find the link to the new tool in the right-hand column.

This unique tool, found nowhere else, is invaluable for learning the current differences between the real estate sub-markets of metro Phoenix, Arizona.

If you think the real estate market in your zip code is bad, try comparing it to 85086 Anthem, 85326 Buckeye or 85242 Town of Queen Creek. (I don’t have data for Pinal County - Town of Maricopa, Johnson Ranch/Queen Creek - where prices have likely fallen even lower.)

This tool is free to use… but it may be temporary.

Vote to keep this tool online and free by linking to the “Compare two zip codes” tool from your blog, web site, MySpace, etc.

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I love this negotiating tip for home sellers from Bernice Ross in Inman News (subscription required).

2. Put pressure on buyers who are negotiating by doing a simultaneous price reduction. Whenever you issue a counteroffer with a lower price, ask the seller to reduce the list price. When the buyers realize that the seller is lowering the price, it places additional pressure on the buyers to take action.

This tip exposes something strange, but super common, about home seller psychology.

How Home Sellers Think

In a counter offer, a seller may offer to accept a price lower than his list price. Let’s assume the negotiations then fail and agreement couldn’t be reached with that buyer.

You would think that since the seller told one person he would accept a lower price that he would want to tell the whole world about his new lower price to generate more offers.

Sellers, however, often have this feeling; since their home was priced at $500,000 when the offer came in for $450,000, if they tell the whole world they would accept $475,000, the next offer will be for $425,000…

This is so true! Sellers really feel this way.

And it’s so wrong!

It is common to see that after a 4% to 5% price cut that a home getting no offers, except low-ball offers, will start getting realistic offers from serious buyers.

How Home Buyers Think

A seller should put himself in a buyer’s shoes.

The buyer has seen tons of good homes and is even having trouble deciding which home is best. He has a huge selection to choose from.

Let’s say the buyer ends up with 2 favorites. One is priced at market and the other is overpriced by 4% to 5%.

Mr. Seller, which home do you think Mr. Buyer will put an offer on?

1. The buyer can deal with a seller who has to be negotiated down in price $25,000 just to get the price into the right ballpark. Sure, the seller could have simply padded the price by $25,000 but odds are the seller is one of the many delusional sellers out there who is not ready to lower his price to market price. If that is the case, then all of the negotiations with the delusional seller will be a waste of time for the buyer - and in the meantime the buyer’s other favorite home could get bought by someone else, or;
2. The buyer can deal with a seller who has already priced his home near market price.

How Home Sellers Should Think

If a seller proposes a new price in a counter offer he should tell the world what his new price is.

Even better, the seller should lower the price in the MLS at the same time he proposes it in a counter offer.

If the seller is near market price - and the buyer is smart enough to know it - the lowered MLS price should give the buyer a little bit of fear about losing the home and a little bit of urgency about reaching an agreement.

In today’s market, the number one thing buyers lack is urgency.

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March is typically an indicator for the coming resale home season, and with 4,335 recorded sales it’s showing signs of a continuing weak market. Even though it is an improvement over the 3,750 sales of February, it is significantly below last year’s 5,385 sales and is the lowest March since 1996, with 3,270 sales.

Hmmm. I was thinking 2007 would be the low for the number of home sales. Now it’s looking more and more like it will be 2008.

Unfortunately, there is increasing data, such as job losses and layoffs, that the economy is now weakening and will add further stress for the housing markets

Jay has the median home price for Greater Phoenix at $220,000 for March 2008, the same as the month before. Last year it was $265,470 for March.

Click below to read full press release from ASU.
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How’d that Phoenix real estate auction last month do?

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Good!

The Arizona Department of Real Estate has ordered the founder of property-management company Gorenter.com to stop doing real-estate business in the state.

The cease-and-desist order released Thursday alleges Mark Bosworth engaged in a real-estate business without being licensed to do so. The state agency cites a January $17.4 million civil judgment against Bosworth and his wife, Lisa, filed in Maricopa County Superior Court. The judgment, on behalf of TEM Holdings, found that Bosworth and his company, Property Masters of America violated sales agreements, submitted fraudulent invoices on rental properties and stole appliances and deposits from rental properties. Included in the $17 million judgment, were punitive damages of more than $12 million.

The Department of Real Estate has 19 open investigations into Gorenter.com, which is licensed with the department.

“This action is specifically against Mark Bosworth,” said Sam Wercinski, commissioner of the Real Estate Department. “He can no longer do any form of real-estate work in Arizona.”

One of Mark Bosworth’s companies wrote the most exploitative lease-purchase agreement I’ve ever seen.

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This is a cool new neighborhood based, map based Phoenix MLS system that I just added.

It’s a great system for serious home buyers who have settled in on a specific area of town to buy an Arizona home.

It’s also excellent for home sellers who want to monitor the local competition.

In addition, I can include information that the Phoenix MLS does not allow me to put online, for example, the description of the home from the seller’s Realtor. The Realtor’s description is super valuable - you can see if it’s bank owned, a short sale, a fixer-upper, recently remodeled, or whatever special features the Realtor thought important to mention. I can’t put the listing Realtor’s description online… but I can send it to you in an email.

And it has this amazingly helpful video tutorial, if I do say so myself.

Check it out and tell me what you think.

Pick Your Neighborhood and Sign Up for Phoenix MLS Listings

P.S. If you don’t know what neighborhoods you are interested in, try my FastArizonaHomes.com. It’s just that, a fast and easy way to browse Arizona homes for sale on the Phoenix MLS.

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The Orange County (California) Register has an excellent real estate blog called Lansner on Real Estate.

Stephen Scarborough, abruptly “retired” as Standard Pacific’s CEO last week, received a severance deal of $1.25 million in cash, plus 42,000 shares of restricted stock and accelerated options on 280,000 shares.

The deal with the Irvine-based home builder also included a non-disclosure agreement that said: “Executive shall not disparage the Company, its officers, directors, employees, agents, subsidiaries or affiliates” or give away any trade secrets, although he is free to testify in court if called to do so.

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When you need more room, should you add an addition or just sell the home and buy a larger home. (Based on a question I received today.)

Here’s my take on the question. There is no right answer. It depends on your goals, your home, your finances, you occupation and even the strength of your marriage.

Changing the Floor Plan

I would have to see a home, of course, to see how an addition would fit into the home and the neighborhood.

Redoing the kitchen and baths is one thing but adding an addition is quite another.

I’ve seen a lot of bad additions that make the home difficult to sell.

Sometimes the front doesn’t fit the neighborhood anymore.

Make sure the “flow” of the home will work after the addition. Many homes have a funky floor plan after an addition and those homes don’t appreciate as well as the rest of the neighborhood anymore.

Fitting in with the neighborhood

In addition, if your home ends up being the largest home in the neighborhood, it won’t normally appreciate as well as the rest of the neighborhood.

Be sure that whoever designs the addition has a great track record.

Addition Costs

Make sure you have a good handle on the costs. Costs tend to run significantly more than originally estimated.

Putting your lives on hold

A major remodel is a huge disruption to the lives of everyone in the home. Many a client has total me that their marriage barely survived a remodeling project so this time around they were just going to buy what they wanted in a home.

Additions can work great

If you really love the neighborhood and home, and the costs pencil out, an addition can really make sense. To work well, however, you and your wife should consider remodeling your home a fun project you want to do together… because you will have to make a ton of decisions, large and small, together.

Do you carry a hammer?

If you are in construction, interior design, architecture or other housing related industry, that would also make me lean toward doing the addition. Being in the industry, you will know what works, who to trust (contractors, designers, etc.) and perhaps you will be able to do some of the work yourself to keep costs down.

Why to sell and buy

Personally, I would never do a major addition to my home unless I couldn’t afford to move.

When you buy, you know exactly what you are getting and the costs involved.

Moving is a lot quicker with a lot less disruption to your family.

You may also be able to move into a location you prefer or one with more appreciation potential.

And there is less potential for conflict with your significant other which, according to my clients, can be a big problem when adding an addition.

Moving up in a down market

In some areas the more expensive homes have come down in price more than the average home. In that case, you are better off moving up now.

The downside

The big downside to moving is the cost. On the selling side you have marketing costs of perhaps 6% plus title, escrow and other fees of perhaps 1% - 2%. And then when you buy you’ll have costs involved in your new loan plus title, escrow and other fees. Your total transaction costs in buying and selling could total as high as 8% to 9%. That’s a lot of money but that’s the cost of doing business, so to speak.

That’s a cost of moving up the “property ladder.”

Moving up the property ladder is a tried and true way of building wealth and living well.

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My brokerage, HomeSmart Real Estate, with 1,700 agents acquired Dan Schwartz Realty with 1,600 agents last week giving HomeSmart Real Estate 3,300 agents and making it by far the largest real estate brokerage in Arizona, the largest in the Southwest, and one of the largest in the United States.

HomeSmart Real Estate was created by Matt Widdows in 2000. Matt has always excelled at providing the latest technology to his agents and clients. That’s why I joined HomeSmart when I first got my real estate license 5 years ago.

Matt’s a good guy… and a tech geek.

Last spring while he was expanding the Scottsdale office I popped in to check the progress and Matt himself was up on a ladder with a hammer after everyone else had left for the day.

In 2005 and 2006 I would catch Matt himself fixing the printer in the Scottsdale HomeSmart office. I think he likes that stuff. It also shows how important it is to Matt to have technology that works. (Matt eventually hired a firm to take care of all that stuff.)

And the guy is young too as you can see in the video linked to above.

Congratulations Matt!

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Wandering through the Zip Code Real Estate Notebooks in the right-hand margin, I came to this conclusion;

• The worst zip codes have seen a $50 per square foot fall in median home price from the peak.
• The typical zip codes have seen a $40 per square foot fall in median home price from the peak.
• The best zip codes have seen a $30 per square foot fall in median home price from the peak.

Do you know the size of your home?

Do the math.

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