Arizona Real Estate Notebook

John Talbott at Seeking Alpha;

I have been waiting for more than five years to offer this advice. It is now time in most cities across the country to buy a new home or refinance your existing home with thirty-year fixed rate mortgage debt. And this from the author of The Coming Crash in the Housing Market published in 2003 and my 2006 book, Sell Now! The End of the Housing Bubble. Let me explain why.

And by my calculations, in most cities across the country, real prices adjusted for inflation have just about come into line with where prices were in 1997, before all this crazy bank lending started, so there should be little additional downside risk by buying today.

Talbott talks about home prices being 50% to 65% of new home construction costs in many areas and he looks at home prices compared to median family income and rents. He says if inflation returns as he expects and you have 30-year mortgage payments locked in, you will do very well.

I’m not saying Talbott is an oracle, he could be a crank for all I know, but given his past books it’s an interesting change in outlook.

To get a feel for Talbott’s natural bias, he seems to pride himself on predicting financial crises, see Talbott’s Wikipedia entry.

1) Economic Answer. The banks may slow down a bit on the speed of foreclosing because they expect/hope their Phoenix homes will be worth more later.

2) Organizational Answer. The banks have created and staffed, over several painful years, a bank foreclosure bureaucracy and that bureaucracy will not want to slow things down and become smaller.

Probably both factors will come into play once home prices start increasing in metro Phoenix.

Phoenix home prices weren’t going to keep falling forever. Someday, they’ll start increasing again.

I think the median Phoenix home price will start increasing in the first half of next year but I’m not sure when that fact will become conventional wisdom, possibly not until 2013.

Standard Disclaimer: Just because the metro Phoenix median home price may increase in 2012 doesn’t mean the median price will increase in your zip code or that your home will appreciate.

From Mike Orr at The Cromford Report;

For the monthly period ending December 15, we are currently recording a sales $/SF of $84.47 averaged for all areas and types across the ARMLS database…

The current price level is 1.4% higher than last year on December 15. I probably need to say that again to let it sink in. The average price per square foot is now 1.4% higher than it was 12 months ago. This is what used to be known as “appreciation”. Today it is known as “that can’t be right”.

But it is.

“This is what used to be known as ‘appreciation’. Today it is known as ‘that can’t be right’.”

Well said, Mike.

So, the average Phoenix home price is essentially flat compared to last year at this time but flat looks like up from where we’ve been.

Dr. Jay Butler of Realty Studies at Arizona State University came out with his Phoenix area residential real estate sales and median home price numbers for November 2011.

Greater Phoenix – Median Home Price

(Single-family resale homes. Excludes repossessions but includes sales by banks after they repossess. ASU calls these “Traditional Sales”)

November 2011: $130,000
November 2010: $134,000

The median price is up strongly, $5,000, from October 2011 despite a strong seasonal tendency for the median price to drift lower this time of year.

For the Phoenix median home price to go against the seasonal trend and actually increase $5,000 in November shows demand is unusually strong for this time of year and the median home price for Greater Phoenix is almost certain to increase in 2012. We saw a similar counter-seasonality trend in late 2004.

According to Dr. Butler’s dataset, the median home price in Maricopa County bottomed out in April 2009 at $125,000 and rose 15% to peak at $144,000 in April and May 2010 before falling again to $125,000 in December 2010, January, March, April, September and October 2011. It sure looks like the metro Phoenix median home price was bouncing along its bottom at $125,000.

Last August I wrote “I strongly doubt we’ll ever see $125,000 again” but we did see $125,000 again for September and October 2011. Nevertheless, I still think as I wrote in August that the median Phoenix home price could quickly pop up to $144,000+ again by June 2012. Time will tell. (I’m assuming, of course, that the European sovereign debt crisis doesn’t cascade out of control and cause the U.S. stock market to tank.)

Greater Phoenix – Number of Homes Sold

(Single-family resale homes. Excludes repossessions but includes sales by banks after they repossess. ASU calls these “Traditional Sales”)

November 2011: 5,030
November 2010: 4,750

Phoenix home sales were 6% above last November.

Conclusion

For most parts of Maricopa County, if you’re thinking of buying a home, I would strongly suggest buying sooner rather than later.

Call me at (480) 463-4475 if you’re looking for a knowledgeable real estate agent. I or a colleague would be honored to help you.

John Burns Real Estate Consulting points out the devastating fact that total student loan debt is now greater than all credit card debt combined! Yikes!

Student loans are going to be yet another hurdle for the housing market to overcome. Faced with mounting student loan debt, poor job prospects and stagnant wages, an increasing amount of 25 to 34 year olds (a prized demographic for the housing sector) have moved back in with their parents. Almost 6 million 25 to 34 year olds now live with mom and dad, up 26% from when the recession started in 2007…

The good news is that this pent-up demand will ultimately provide a much needed boost to the housing sector. The bad news is that the boost will be heavily skewed to the rental market as it will take longer than ever for young people to qualify for a mortgage, especially if more and more graduates are hit with credit blemishes from unpaid student debt.

Well, at least it’s bullish for residential real estate investors.

BTW, I think they should change the laws back to the way they used to be not so long ago and make student loans dischargeable during bankruptcy like most other debts (with a lag of 5 to 10 years so people don’t just graduate and immediately declare bankruptcy).

165 posts in one month? That’s a little scary, actually.

I guess I was new at blogging 5 years ago and trying out different strategies. 165 posts in one month was not a successful one.

It’s interesting to me to see how short many of my posts were back then, they were almost like Tweets.

You can see the posts here. This one, “Economist Jokes,” is one of my favorites.

Last December I made 12 posts here at Arizona Real Estate Notebook. That’s seems a lot more sustainable.

I got a call yesterday from a gentleman in Houston who had some questions about how to use a website of mine to find Arizona homes for sale (and, yes, you can find the actual property taxes paid on my websites).

I have dozens of websites where you can find homes for sale. Most of them are based around communities – cities, zip codes or master planned communities. (Most are listed at the bottom of this page.)

Arizona Homes Catalog

However, if you only want to look at homes for sale, my best website for you is probably Arizona Homes Catalog. That website only has homes for sale — no homes sold, no market analysis, no ads — just homes for sale.

To make it even easier to use for people like the gentleman from Houston, this morning I moved the video tutorial link to the very top of the home page where it’s much easier for everyone to see.

Click the link above or below to check it out.

If you know someone who is looking for an easy way to search for Phoenix area homes for sale, please let them know about ArizonaHomesCatalog.com. Thank you!

They’ll probably appreciate the tip because it can be very frustrating looking for Arizona homes for sale online.

Washington Examiner.

The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle class people.

But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay in, the middle class.

From Bloomberg’s look at state taxes.

Arizona

Income tax: 4.54%

Sales tax: 6.6%

Property tax per capita: $1,043

Inheritance tax: None

The tax burden in Arizona is small compared to that of other states because of its lower-than-average property taxes, so the decline in home prices has hit Arizona’s municipalities harder than those in many other states. The sales-tax battle between states and online retailers is raging in Arizona, where the sales tax is one of the few ways to close state and local budget gaps left by the decline in the real estate market and the slumping economy.

“The tax burden in Arizona is small compared to that of other states because of its lower-than-average property taxes”

Arizona Property Taxes vs. California vs. Florida vs. Texas

Which reminds me of an online comment I recently made to a Canadian asking about Arizona property taxes;

In ARIZONA, Canadians and other foreigners who own homes pay the same property tax rate as their Arizona neighbors next door. Canadians are treated the same as Arizonans for property tax purposes.

It is my understanding that CALIFORNIA on the other hand has a system where new California home owners pay tons more in property taxes than their California neighbors who bought years or decades earlier. Arizona doesn’t do that. Arizona doesn’t discriminate against new homeowners.

FLORIDA has a system which puts a ceiling on property tax increases for current owners, if I understand correctly. Their system has the effect of increasing property taxes on new homeowners. In addition, permanent Florida residents get a property tax exception ($25,000 of property value isn’t taxed for permanent residents (?)) that part-time residents don’t get which also has the effect of increasing property taxes for Canadians.

TEXAS property taxes are huge, roughly 3 times what they are in Arizona. Texas doesn’t have an income tax so it hits property taxes real hard.

The conclusion is to be sure and include property taxes when comparing home ownership costs in different states.

FYI, many online websites will show the actual property taxes paid in a recent year for Arizona homes listed for sale. That’s the best way to go versus using a rule of thumb to estimate property taxes.

(I am not a U.S. property tax expert so please let me know if I got any of that wrong.)

FYI, in the comment above about Texas, I was comparing property taxes rates not the property tax per capita.

ADDED: Reader Bob emails me, “Yes,it’s true about California new home owners paying more, but you need to factor a home in Ca. comparable to Az. is at least double, so the taxes are a lot more already.” That reader also says that in California they’ve added a lot of fees on top of property taxes to get around the legal limits on property taxes in California.

ADDED: I got an email from a different reader who disagreed with what I wrote, however, the only exception I could find was for low income widows, widowers and disabled people. The exception could reduce a person’s Maricopa County property taxes by about $350 per year. Here is what the Maricopa County Assessor’s website says.

Property Exemptions

Is the exemption for my house only? No, the exemption is applied to the real estate first, then to a mobile home or automobile.

What are the qualifications?:

• You must be a resident of Arizona.
• Total Assessed Valuation in Arizona for 2012 cannot exceed $23,991. (This property assessment usually equates to a $239,910 home value).
• Household income limit from all sources for widows, widowers and disabled persons with no children under age 18, excluding social security, cannot exceed $29,421 in 2012.
• If children under 18 years of age reside in the household, income cannot exceed $35,305 in 2012.
• Disability must be total and permanent and certified by an Arizona licensed physician on Arizona Department of Revenue form DOR 82514B.

If qualified how does one benefit? The Assessed Value of the property is reduced by no more than $3,530 for the 2012 tax year with a corresponding reduction in taxes.

How do I get more information? Call the Maricopa County Assessor’s Office at 602-506-3406

Elliot Pollack shows some emotion in his newsletter this week.

The Ugly

The inability of this Super Committee to come up with a solution that would entail bridging a 2.5% gap in Federal Government spending over the next decade ($1.2 trillion out of an expected $46 trillion in total Federal budgeted spending over the next decade) is akin to a family that made $75,000 per year having to cut A TOTAL of $1,950 out of their budget over the next decade. That’s $195 per year. Are you kidding me!!! What makes it especially shameful is that included in the $46 trillion is an implicit INCREASE in spending over the decade of $9 trillion. So, there is NO cut here. Even if they agreed, the increase in government spending would still exceed $7 trillion over the decade. There is not a family, who, if faced with the same issue, could not resolve it. Why should you expect less from your government?

(I added the bolding.)

The Good

Year to date, Arizona [retail] sales are up 11.4% over the prior year. This is a solid performance.

If you put 20% down, it’s cheaper to own a home in Phoenix than to rent, at least according to this Wall Street Journal graphic.

Who would have thought 5 years ago that we would ever see a graph like that!

Wall Street Journal video.

U.S. Mortgage Delinquencies

Mortgage delinquencies are, of course, the first stage in the foreclosure pipeline so fewer delinquencies now mean fewer foreclosures later.

Many states, however, have been very slow to foreclose and have huge backlogs of in-process foreclosures. That means fewer delinquencies now won’t lower their foreclosures for a long time — not until they get through their current backlog of in-process foreclosures.

Arizona Foreclosure Pipeline

Arizona has the shortest pipeline of foreclosures of any state which is a good thing and makes it likely Arizona will be one of the first, perhaps the first, state to rebound from the real estate bust.

I feel better.

According to measures used by The Economist, U.S. housing prices are UNDER-valued.

First, since American homes now look cheap, are prices set to rebound? Average house prices are 8% undervalued relative to rents, and 22% undervalued relative to income (see chart). Prices may have reached a floor, but this is no guarantee of an imminent bounce. In Britain and Sweden in the mid-1990s, prices undershot fair value by around 35%. Prices in Britain did not really start to rise for almost four years after they bottomed.

Canadian Home Prices

I am now worried about my Canadian friends, however, since the table shows Canadian housing to be very over-valued.

On the other hand, a huge difference between Americans and Canadians is that Canadians pay off their mortgages (because mortgage interest is not tax deductible in Canada and, I believe, the average Canadian is more financially conservative than the average American).

So even if prices started to fall in Canada, it probably wouldn’t trigger the same vicious downward cycle it did in the United States because lower prices in Canada wouldn’t lead to nearly as many foreclosures. Foreclosures are, of course, the main culprit causing the large price declines in the United States.

Nevertheless, I think the take-away from that graphic for my Canadian friends is that the odds of Canadian housing appreciating is probably slim for the next several years and that depreciation is a possibility. Perhaps a more likely scenario, and certainly a more benign scenario, is flat Canadian housing prices for several years.

This is Hard to Imagine

Another concern is that Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble.

That’s scary!

Short British Housing

The average deposit needed by a British first-time buyer is now equivalent to 90% of average annual earnings, according to Capital Economics, a consultancy. It was less than 20% in the late 1990s.

Wow! Can I short British housing prices?

Heck, can I short French, Spanish, Dutch and British housing prices?

Most of the article is behind a pay wall but you can see this.

The Phoenix housing market is defying conventional economic theory.

Inventories of homes for sale are low, falling 41% to 21,304 in October, compared to 35,732 at the same time a year ago for Greater Phoenix, according to the Cromford Report, a market research firm in Mesa, Ariz.

The number of home sales is rising—to 6,428 in October from 5,443 in same month a year ago, according to the Cromford Report. The city’s unemployment rate is inching down and is below the national average.

The laws of supply and demand suggest housing prices should be rising, or at least stop falling.

My bolding.

Articles like this are the beginning of a change in the conventional wisdom towards Phoenix real estate. In a year, or more likely two, from now, the conventional wisdom will be that Phoenix home prices are increasing and as that happens the entire real estate market dynamics will change.

People are going to have a hard time swallowing the Phoenix real estate recovery story no matter what the data say because most of the country will still be going through real estate pain.

The Phoenix real estate market was one of the first to tank and it will be one of the first to stop falling and start rebounding.

For Greater Phoenix, job gains were 43,200. That equates to gains of 1.8% for October, 2011 vs. October, 2010… While these gains are modest and weak… at least employment is growing.

In housing news, R. L. Brown reports that 543 permits were recorded in October compared to 485 in October, 2010. Year to date, there have been 5,817 permits for 2011 compared to 6,119 permits for the same period in 2010. Median new home prices were $218,504 in October while median resale prices were $110,000. According to the Cromford Report, the average number of listings on MLS is 27,354 homes so far in November compared to 45,836 listings in November, 2010.

As the median home price increases next year as I expect, that’s gotta help the home builders a bit.

The greed and stupidity of Arizona home builders, however, was a MAJOR factor in the huge size of the real estate boom and bust in Arizona so no love lost for the home builders here. But when Arizona home builders succeed, that means more employment in the Valley of the Sun which is good so I’m kinda routing for those jerks.

Phoenix Home Sales

Metro Phoenix single family home sales (blue line) in October (6,464) were the most sold in any October since October 2009 (7,034) when sales were pumped up by the $8,000 first-time home buyer tax credit.

Factoid: More than twice as many homes sold in metro Phoenix in October 2011 (6,464) than in October 2007 (3,194).

Phoenix Housing Inventory

The number of homes listed for sale in metro Phoenix (red line) stopped falling (more or less) in October and increased slightly in November.

Compare 2011 to 2009 when the inventory of homes leveled off in August (much more typical) instead of October.

Phoenix New MLS Listings

In October 2011, we only had 9,654 new listings hit the market which is a 20% decline in new listings compared to October 2010 when we had 12,054 new listings hit the market.

In fact, the number of new single family homes hitting the metro Phoenix market in October 2011 was lower than any October in more than 10 years.

Phoenix Home Prices

The Phoenix median home price (green line) declined a bit ($500) in October to $120,000 compared to September. The median price often weakens in the fall.

Chart Above Wins Award

I made Tableau’s “Top Vizzes of Q3 2011“!

The “viz” above was ranked as the #34 best Tableau Viz in the 3rd quarter. Looking at the other winners, I’m keeping pretty nice company!

I spend a ton of time trying to make the Phoenix real estate market as easy to understand as possible so it’s cool they noticed.

Thanks guys!

Looking for a Phoenix area Real Estate Agent?

If you’re looking for a Realtor to help you buy a Phoenix area home, fill out this form. If you’re not looking for a home in my area of expertise, I’ll refer you to a Realtor I trust in your area. Thanks, John.

Dr. Jay Butler of Realty Studies at Arizona State University came out with his Phoenix area residential real estate sales and median home price numbers for October 2011.

Greater Phoenix – Median Home Price

(Single-family resale homes. Excludes repossessions but includes sales by banks after they repossess. ASU calls these “Traditional Sales”)

October 2011: $125,000
October 2010: $135,000

No change from September 2011.

According to Dr. Butler’s dataset, the median home price in Maricopa County bottomed out in April 2009 at $125,000 and rose 15% to peak at $144,000 in April and May 2010 before falling again to $125,000 in December 2010, January, March, April and now September 2011. It sure looks like the Phoenix median home price is bouncing along its bottom, $125,000.

I should point out that last August I said “I strongly doubt we’ll ever see $125,000 again” but we did just see $125,000 again for September and October 2011.

Nevertheless, I still think the median Phoenix home price could quickly pop up to $144,000+ again by June 2012. Stay tuned.

Greater Phoenix – Number of Homes Sold

(Single-family resale homes. Excludes repossessions but includes sales by banks after they repossess. ASU calls these “Traditional Sales”)

October 2011: 5,315
October 2010: 4,695

So Phoenix home sales were 13% above last October.

Conclusion

For most parts of Maricopa County, if you’re thinking of buying a home, I would strongly suggest buying sooner rather than later.

Call me at (480) 463-4475 for details, if you’re looking for a knowledgeable real estate agent, I or a colleague, would be honored to help you.

Even most Arizona Realtors believe the urban myth that banks have held back tons of Phoenix homes from the market and eventually when the banks release those homes, home prices will fall again.

It is true that some markets (for example, NY, NJ, CT, MD, IL and FL) have a huge “shadow inventory” of homes most of which will eventually end up as bank-owned MLS listings (also known as foreclosures or REOs).

Does metro Phoenix have a huge shadow inventory?

The answer is, “No.”

How to Forecast Bank-Owned MLS Listings

To predict the number of future bank-owned listings in Phoenix we can look at the number of homes in the earlier stages in the process.

Four Stages of a Bank-owned MLS Listings

1. Behind on Mortgage Payments — House is delinquent
2. In Foreclosure — House is officially in the foreclosure process
3. Bank-Owned but Not Listed — The house was repossessed by the bank at the foreclosure auction, the bank owns it now, but it’s not listed yet
4. Bank-Owned MLS Listing — Bank puts house up for sale in MLS, this is the stage that puts downward pressure on home prices

Let’s look at recent trends in each of these four stages.

Phoenix Bank-Owned MLS Listings

Phoenix bank-owned listings have fallen dramatically, down TWO-THIRDS from 12 months ago.

Phoenix Bank-Owned Homes Not Listed (yet)

Myth: “Yes, REO listings have fallen but that’s because the banks have been holding back from the market a huge number of homes they own and I hear the banks will soon put those homes up for sale in the MLS.”

Fact: There is no increase at all in the last 12 months in the number of Phoenix homes the banks own but haven’t yet listed.

Phoenix Homes In Foreclosure

Myth: “The banks aren’t completing foreclosures because they don’t want to own more Arizona homes so there’s this huge backlog of Arizona homes in the foreclosure process.”

Fact: The number of Phoenix area homes in the foreclosure process has fallen dramatically, down almost HALF in the last 12 months.

Phoenix Homes Behind on Mortgage Payments

Myth: “The banks are avoiding starting the foreclosure process even on homes that haven’t made a payment in many months so there’s this huge backlog of Arizona homes that are delinquent but which eventually will have to be foreclosed on.”

Fact: The number of people who are behind on their mortgage payments in Arizona has fallen dramatically, down more than ONE-THIRD which is actually two-thirds of the way back to “normal.”

Summary — Metro Phoenix REO Listings Pipeline

1. Behind on payments — Down more than one-third (since early 2010)
2. In foreclosure process — Down almost half (last 12 months)
3. Bank-owned but not listed yet — No increase (last 12 months)
4. Bank-owned listings — Down two-thirds (last 12 months)

Conclusions

Phoenix bank-owned listings will continue to fall because the number of homes in the earlier stages is falling.

I think, therefore, that as the supply of bank-owned/REO/foreclosures continues to fall that we’ll reach a tipping point early next year and the median home price in most zip codes in metro Phoenix will start rising and be significantly higher by this time next year.

P.S.

I posted one of these charts on my Google+ account before I posted it here and got a comment from a reader who thought we could see a “flood of new foreclosures” because Arizona has a very high rate of foreclosure starts. My response was that the rate of foreclosure starts in Arizona is indeed high but the rate is down ONE-THIRD from August 2010 to September 2011. So it’s hard for me to imagine that we could see a “flood of new foreclosures” when foreclosure starts have fallen by one-third in such a short time. You can see the post and comments here.

Source: The top 3 graphs are from The Cromford Report. I created the “Phoenix Homes Behind on Mortgage Payments” graph from data gleaned from this website.

See also Dru Bloomfield’s post.