Arizona Real Estate Notebook

Elliott Pollack & Co weekly newsletter had some good news and some scary news.

Good News

On a local level, Arizona retail sales (September data) continue to grow at a reasonable pace. Retail sales were up 8.8% over year earlier levels. Strong growth was reported for automotive and building material categories. Car and truck sales had a good month in September. Existing home prices in the Greater Phoenix area continue to remain stable. While still below year earlier levels, September home prices were the highest since November 2010. Prices since December 2010 have been very stable. An upturn in prices is likely not far away. All of this, combined with gains recently reported in employment and a lower rate of unemployment bode well for continued modest gains in the State and Greater Phoenix area.

Scary News

The most disconcerting data was related to money supply. M1 now stands at more than 20% above year earlier levels and M2 at 10.1% above year earlier levels. The rate of growth has accelerated over the last few months.

Real estate has traditionally been an inflation hedge and I think one of the Arizona real estate booms in the 1970′s was largely caused by people switching their investments into real estate and away from assets that were losing their real inflation-adjusted value rapidly.

I certainly hope that doesn’t happen again. That high inflation caused a ton of economic pain.

When we finally get through this current real estate bust (and I can see the end of it from here), I sure hope it isn’t followed by another major economic shock like runaway inflation.

I ran into a friend and former client in the gym yesterday and he mentioned that he had just read that it would take New York more than 50 years to go through all of their foreclosures. That was cool because I was in the middle of researching that exact information before I went to the gym so I was pretty psyched about getting back to researching that Arizona foreclosure inventory situation.

One recent study by LPS created a measure I’ll call “Months Inventory of Foreclosures.” They compared 1) the number of homes being foreclosed on and added the number of homes 90+ days delinquent (and therefore extremely likely to be eventually be foreclosed on) and divided that number by 2) the average foreclosures completed per month over the last 6 months. The LPS report didn’t call it this but I will, it’s the “Months Inventory of Foreclosures.”

New York has a HUGE overhang of homes in the foreclosure process. At their current rate, it will take New York over 50 years to get through their backlog of foreclosures.

New York is the worst state. Arizona is the best state.

Arizona has only a 16-month foreclosure inventory, the smallest of any state. In a way, that shows the Arizona has the smallest shadow inventory of any state.

Below is an email I received today on condo financing rules.

Rules for Financing Condos

Lending rules have become stricter in the past few years when financing condos with FHA, VA and even Conventional loans. You can go on the FHA website https://entp.hud.gov/idapp/html/condlook.cfm to search for FHA approved condos in a particular zipcode. You can do the same for VA approved condos at https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch. Even if the complex is FHA or VA approved on the websites, lenders still need to verify that less than 50% of owners are investors and the tougher requirement is that no more than 15% of the HOA dues can be more than 30 days delinquent. The investor % and HOA delinquency % requirements apply to FHA, VA, and Conventional loans and can keep even highly qualified buyers from obtaining a loan on a condo.

Ryan Halldorson
Smart Financial Mortgage
Senior Mortgage Consultant
3131 E Camelback #224
Phoenix, AZ 85016
Phone: 602.793.7204
E-Fax: 602.889.2258
ryan@hsmove.com

Crunching some numbers while writing an article for McCormick Ranch Lifestyle magazine, I just put 2 and 2 together.

Underwater Phoenix homeowners lower the potential supply of Phoenix homes for sale. (And lower supply tends to mean higher prices.)

These underwater homeowners I’m thinking of don’t want to do a short sale because they aren’t that far under water but they don’t want to have to pay tens of thousands of dollars to their mortgage company if they were to sell their home. So they stay put even though they would sell if they had equity.

Sure, obviously, absolutely, the increased supply of foreclosures and short sales have dwarfed the reduced supply due to underwater-and-can’t-sell homes but what happens as foreclosures and short sales decline?

As the number of Phoenix foreclosures and short sales declines, the supply of Phoenix homes could tighten up more quickly than I was expecting.

We may not need to get back to a “normal” (2000, 2001, 2002) level of home sales each month to have a balanced market.

In a recent post I looked at Phoenix bank-owned MLS listings (check it out) (only one-third as many as last November!) and the Phoenix shadow inventory of homes but I didn’t look at mortgage delinquencies.

Phoenix Shadow Inventory Trends

For Phoenix shadow inventory trends I looked at;

1. Phoenix homes the banks have already foreclosed on but which the banks haven’t yet put in the MLS (the number of homes in this category has been generally flat for most of the last 12 months), and
2. Phoenix homes that are in the process of being foreclosed on but which haven’t yet gone to the foreclosure auction (the number of Phoenix homes in this category has fallen by about 40% since last November).

Phoenix Mortgage Delinquency Trends

What I didn’t look at in that post was the earlier phase in the foreclosure pipeline — Phoenix homes that are behind on their mortgage payments and in jeopardy of being foreclosed on.

Not all of the homes that are delinquent in their mortgage payments will be foreclosed on but all foreclosures will have been delinquent. So mortgage delinquency trends tend to become foreclosure trends, and foreclosure trends tend to become bank-owned MLS listings trends.

Ultimately, the idea here is that as the number of bank-owned MLS listings decline, Phoenix home prices are more likely to rise.

I couldn’t find a time-series of the mortgage delinquency rates in Phoenix (yet) but I did find a press release from TransUnion that shows that for Arizona as a whole the number of mortgage delinquencies fell 27% from the 2nd Quarter (April – June) of 2010 to the 2nd Quarter (April – June) of 2011.

Phoenix Foreclosure Pipeline Shrinking

I reformatted the TransUnion press release below to highlight Arizona. Click the table below to see a larger version.

This shows that the number of Arizona homes likely to enter the far end of the foreclosure pipeline is falling significantly, down 27% in one year.

That means the number of metro Phoenix homes that reach the other end of the foreclosure pipeline — Phoenix bank-owned MLS listings — is likely to continue to fall in the future as well.

My Conclusion

Phoenix bank-owned MLS listings will continue to trend lower and, eventually, a tipping point will be reached where Phoenix home prices will start to trend upward again. (Not all Phoenix zip codes will turn upward at the same time but that’s another story.)

If the government doesn’t muck it up with their housing rescue programs, I expect we would then see many years of generally upward Phoenix home prices.

If you were considering buying a home in metro Phoenix, sooner is probably better than later in most zip codes.

Here’s a very important reason why the Arizona real estate market will be one of the first to recover. (I expect prices to start recovering next year in most parts of metro Phoenix.)

The time from last payment made to foreclosure sale in judicial states is 761 days, which is six months longer than in non-judicial states.

Consequently, the company’s study shows foreclosure sales in judicial foreclosure states remain very low, with only 1.6 percent of their foreclosure inventories moving to sale. The slow pace of liquidation has caused the foreclosure pipeline to balloon, with nearly seven percent of the entire active loan count in judicial states in foreclosure.

Source: dsnews.com (emphasis added)

Arizona is digesting it’s foreclosures much more quickly than the judicial foreclosure states. That means Arizona will get through this real estate mess much more quickly as well.

This also explains the urban myth that banks have a huge shadow inventory of homes in Arizona that they will foreclose on soon. The banks do indeed have a huge shadow inventory but it’s in judicial foreclosure states, not in Arizona. Arizona’s foreclosure pipeline is large but deflating rapidly according to the data I’ve seen.

Arizona Not in Top 10

Ranked by the percentage of loans that are non-current, seven of the top 10 states are judicial foreclosure states: Florida, New Jersey, Illinois, Ohio, Indiana, Louisiana, and Maryland. Non-judicial states making LPS’ top-10 list include Mississippi, Nevada, and Georgia.

Whew!

Arizona isn’t in the Top 10. That’s good. I’m sure we were at some point.

This article in Forbes on the beginnings of a real estate bust in China used an expression I hadn’t heard in a while, “soft landing.”

Back in the day, I believed the Arizona real estate market would have a soft (but extremely long) landing.

After the 2008 housing price crash, however, the term “soft landing” was abandoned in the United States, kinda like “bitchin’” and “retirement.”

It was fun to see it dusted off and used again.

BTW, the Chinese economy is toast. The real estate bust in Japan in the early 1990′s spelled the end of the Japanese economic boom and the coming Chinese real estate bust might signal the same thing for China.

For the Arizona economy, on the other hand, real estate booms and busts are a local tradition, kinda like chimichangas.

But prices of Phoenix homes haven’t increased… yet.

Source: The Cromford Report

ADDED: Even though Phoenix home sales in 2011 are similar to home sales in 2005, home prices haven’t increase in 2011 because of supply. The supply of homes for sale is much higher in 2011 than in 2005. My previous post on Phoenix foreclosures listed for sale and the Phoenix shadow inventory of future foreclosure/REO/bank-owned listings, however, shows that the supply of foreclosures (REOs/bank-owned homes), at least, has fallen fast in 2011.

Conclusion

1. The number of foreclosures (REOs, bank-owned homes) listed for sale in Phoenix has crashed over the last 12 months and now there is only ONE-THIRD the number of homes listed for sale by banks as a year ago in metro Phoenix.
2. The Phoenix “shadow inventory” of homes (1. Homes that have already been foreclosed on by the banks (the banks now own these homes) but the banks haven’t yet listed these homes in the MLS for sale, and 2. Homes that are in the foreclosure process but haven’t yet gone to foreclosure auction (the banks don’t own these homes yet but the banks will end up owning most of them)) is also falling rapidly which means the number of foreclosures listed for sale by banks in Phoenix is likely to continue to fall. [Edited for clarity 11/5/2011.]
3. As the number of foreclosures listed for sale falls, the downward pressure foreclosures put on home prices will also weaken.
4. Therefore, I expect that the median home price in most zip codes in metro Phoenix will increase significantly next year.
5. If you were considering buying a home in most parts of metro Phoenix, I would encourage you to consider buying sooner rather than later. Call me for more information about buying a Phoenix area home at 480-463-4475.

Video

(When I said “property managers” in the video, I meant [bank] “asset managers.”)

To learn how the home buying process in Arizona works, go to HowToBuyArizonaRealEstate.com. That website of mine is intended for Canadian buyers of Arizona homes, however, its step-by-step explanation of the process will be valuable to any Arizona home buyer, whether Canadian or not.

Or give me a call at 480-463-4475 to learn more about buying a home in metro Phoenix.

Phoenix Business Journal, September 5, 2006.

Arizona held the No. 2 spot for job growth among states in July behind Nevada

Those kind of headlines will eventually return.

I was born and raised in Phoenix and have seen a lot of boom and bust cycles. This bust feels to me like Arizona in the late 1970′s. Arizona came back from that. Arizona came back from the RTC/Savings and Loan bust in the early 1990′s.

You will eventually see those kind of headlines again. Next year?

Yesterday I looked at several old posts of mine from 2006 and 2007 on this website looking for a “Best Of Arizona Real Estate Notebook” post. It was very revealing to me to read my old posts and see my opinions at the time.

I thought I was hard-nosed but I can see an optimistic bias in my 2006 and 2007 forecasts. I didn’t think prices would fall as much as they did, for example, and I’ve been forecasting a housing price bottom for years… well… like I am forecasting one for this year! (But this year I’m right, damn it!)

Having an old blog can be a revealing reality check on yourself.

On a personal level, I guess if I’m not going to be perfect, I’m glad I tend to error on the side of optimism versus pessimism.

Here’s an old post of mine from 5 years ago, September 2006.

In the last few days I heard someone on TV (don’t remember who or where) say something along the lines of, ‘When you see a TV show called “Flip This House” you know the boom is over.’

Very clever.

Is it true?

It turns out that “Flip This House” premiered on July 24, 2005.

Holy mackerel!

That’s right when the boom ended!

The median home price in metro Phoenix, Arizona in August 2005 was $255,5000. Last month, August 2006, the median price was pretty much the same at $254,900.

Does that mean when they cancel “Flip This House” it’s a signal to buy real estate?

Or, at least, if you ever see a show called “Foreclose It!” you’ll know the market’s already bottomed out and started rebounding.

STOP THE PRESSES!

I just remembered hearing that someone is filming a reality show right now about the foreclosure auctions in Phoenix!

Found it! It will be called “Betting the House” not “Foreclose It!”. “Reality TV taps Phoenix-area foreclosures”

That sounds like a huge flashing BUY signal.

From John Burns Real Estate Consulting.

I wonder what the equivalent graph for Arizona alone would look like. I assume it would show that most of the deleveraging in Arizona has already taken place and our debt is getting close to its historical relationship to our income.

As seen in the chart above, from 2000 through 2008, household debt surged 111%, rising from $6.9 trillion to $14.6 trillion. During this time, disposable personal income grew by less than half that rate, rising 54%, from $7.2 trillion to $11.1 trillion. Moreover, of the $7.7 trillion added to the household balance sheet from 2000 to 2008, $6.1 trillion, or 80%, was attributed to home mortgage debt.

The Fed is trying to engineer a scenario where the debt junkies in society slowly pay down their debts while they continue to spend just enough to prevent another recession. To do this, the Fed will have to keep interest rates low for a very long time to allow principal to be repaid.

Elliot Pollack reports some positive economic trends in his newsletter this week.

IHS Global Insight, a leading national economics firm, predicts that Arizona will be one of only five states that will grow at a rate of 2.0% or more annually, between now and 2017. Other states include Florida, Texas, Idaho and Utah.

In that regard, employment in Arizona continues to grow. Employment grew by 2.2% in the state September 2011 over September 2010 and 0.7% year-to-date through September. For Greater Phoenix, job growth for September over September was 2.3% or 38,700 jobs and year-to-date employment grew by 1.0% above year earlier levels. With the exception of government, construction, and professional services, all other sectors posted year to date employment growth. The unemployment rate declined to 9.1% from 9.8% a year ago.

The quintessential “data blogger” Seattle Bubble on the President’s new mortgage relief program.

The main reason I’m not a fan of this “help people refinance their underwater mortgage” program is what I said just above: It only “helps people to continue throwing good money after bad for decades to come.”

(Keep us in mind if you have a house to get sold, too.)

4 Bedrooms (2 are master bedrooms) + Office + Loft + 3.5 Baths + 2-Car Garage

This 3,904 square feet home in the wonderfully designed master planned community of Tramonto in North Phoenix has an upgraded kitchen and an enchanting spiral staircase. The home is listed by my colleague Francie Dennis of HomeSmart. Go to Tramonto-Home.com for the details.

See PRICE and PHOTOS at Tramonto-Home.com.

The charts in the zip code pages now have data through September 2011. See right sidebar of homepage for links to the zip code pages.

If you live in Scottsdale, Paradise Valley, Carefree, Cave Creek, Fountain Hills, Chandler, Gilbert, Tempe or Ahwatukee I have separate websites exclusively for those areas and you can subscribe to get weekly emails of homes sold in those communities.

Do you live in Scottsdale? Get real estate information specific to your Scottsdale community. Toward the bottom of this page you’ll see a list of the 30+ Scottsdale communities where I have exclusive real estate websites.

Click through to a Scottsdale community website and scroll down to where you can subscribe to get homes sold each week via email. It’s the easiest way to follow home prices in your community.

Knowledge is Power

Don’t pay too much.

Don’t sell too cheap.

Phoenix Home Sales

Metro Phoenix single family home sales (blue line) in September (6,747) were the most sold in any September since September 2009 (6,923) 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 September 2011 (6,747) than in September 2007 (3,169).

Phoenix Housing Inventory

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

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

The unusually high number of home sales has been pulling down the inventory of homes available for sale while at the same time new listings hitting the market have been unusually low. So, all the homes sold were not replaced by new listings and inventory fell.

Phoenix New MLS Listings

In September 2011, we only had 9,498 new listings hit the market which is a 25% decline from September 2010 when we had 12,601 new listings hit the market.

In fact, the number of new single family homes hitting the metro Phoenix market in September 2011 was lower than any September since September 2001.

Realtor Inside Baseball. Bank asset managers have been stringing along their Phoenix real estate agents for many months saying that they (the banks) had a lot of foreclosures in process that they soon would put on the market. Soon hasn’t come yet. Still no bump in new bank listings. I don’t think there will be. I think that was just the banks’ party line to string along real estate agents.

Phoenix Home Prices

The Phoenix median home price (green line) finally bumped up in September to $120,500, which was 4% above August. We haven’t seen a median that high since last November but, honestly, the median home price in metro Phoenix has been pretty much flat since last December.

That price increase – at a time of year when prices usually weaken – helps me feel more comfortable in my prediction last month that tight inventories will cause the median Phoenix home price to move sharply higher in 2012 to well above the highs of 2009 ($135,500) and 2010 ($137,900).

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 September 2011.

I really disagree with Dr. Butler’s spin that the crash in Trustee Sales (homes sold at foreclosure auctions) in September was somehow bad. I don’t understand his point of view at all.

The number of homes sold at Trustee Sales in Maricopa County fell 45% from 4,110 in September 2010 to 2,295 in September 2011. I don’t see any downside at all to that data point, at least for home owners. For future home buyers, on the other hand, it suggests future price increases.

The crash in the number of homes sold at foreclosure auctions in September is just another data point suggesting Phoenix metro home prices are going to see significant increases when the high season starts in January because Joe Homeseller will see significantly less competition from bank-owned homes than previously.

Greater Phoenix – Median Home Price

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

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

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 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”)

September 2011: 5,645
September 2010: 4,895

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, either myself or a colleague, to help you buy that home.