With 2013 well underway, we continue to observe the clear signs of recovery. Like most transitions, this one is not without its challenges, but the upward trajectory seems clear to anyone observing facts rather than emotions. However, there is a lag from the time facts become available until public sentiment broadly accepts those facts. Remember that the next time you see an article explaining how the valley’s market is worsening or that loan defaults are on the rise. It simply isn’t true. Since 2004, an ongoing challenge has been to separate market fact from fiction. With that in mind, we return to the subject of market statistics. As always, our numbers come from the incomparable Michael Orr of the Cromford Report.
Supply of homes for sale The supply of new resale listings coming on the market remains constrained. The total current supply of homes for sale is 8.7% lower than last year. The primary cause for the reduction in inventory is due to the rapidly disappearing distress product. The traditional seller is simply not coming to the market in sufficient volume to replace this loss. The yearly change in mix of the type of homes for sale is dramatic. Lender owned listings (REOs) are down 15.3%, but short sales show the most dramatic shift – down 46.4%. While the traditional seller is up from a year ago with an increase of 19.1%, you can quickly see it is not enough to fill the large loss of the distressed properties.
Certain areas and prices are showing a scarcity of supply more than others. In particular the areas that have lost inventory of homes for sale from last year and are showing the tightest supply – are Tempe, Glendale, Chandler, Peoria, Avondale, and Gilbert. Conversely, supply is still adequate in luxury home areas such as Carefree, Rio Verde, Paradise Valley and Gold Canyon.
As to price ranges that are constricting, supply is very tight below $225,000. Between $225,000 and $500,000 supply is low but stable. Above $500,000, supply is recovering and in the top ranges over $2,000,000 supply is plentiful and now increasing.
Sales Sales remain weaker than last year, largely due to the small supply of bank owned and short sale homes available. The number of short sales and lender owned properties were both down by 47% from last year. Investor purchases are at the lowest number since September 2011 and now comprise only 25.3% of the sales in Maricopa County (compare that to at one point hovering in the range of 50%).
Before one grabs the Kleenex box though, it would be wise to remember that while 2013 sales are down from 2012 and 2011, they are higher than any year from 2006-2010. So it is far from a dire situation as they remain “above normal”. With pricing still below replacement cost and interest rates hovering at record low levels – this market has a lot to offer buyers.
Prices While price per square foot is typically our best indicator of short-term pricing trends, it is quite interesting to note long-term trends through median pricing (the point where half the sales fall above the price, half below). Currently our median pricing is up from a year ago by 31%. The median price is now $160,000 vs. $122,000 last year. We expect to see strong upward pressure on prices through the summer.
New Homes For buyers frustrated with finding a home, new homes offer only a small respite. While production has increased, they are not even at a third of the production levels they were at 15 years ago! Increasing labor costs and the time needed to put that labor team in place, combined with the fear of repeating the drubbing they took back in 2006, production remains too low to fill the demand for needed homes.
As we have mentioned so many times, supply and demand ultimately provide a tug of war on prices. While supply continues to remain lower than demand, we expect prices to rise accordingly. Rising prices bring out the sidelined sellers who have been waiting to sell. In short, this too shall pass. In the meantime, we will do our best to share with you the results of this battle. As always, we appreciate the loyalty of our clients. We are here to serve you.
Russell & Wendy Shaw
As we reported in last month’s issue, the market shifted (again) and January began with the lowest supply of listings coming on to the market. This understandably has been putting pressure on pricing as supply is not abundant. This has prompted a new rumor (I guess the persistent “shadow inventory” rumor eventually had to be abandoned) to surface. Let’s call the new rumor “Housing Bubble 2.0” as one pundit referred to our market. The theory goes that as prices move up we are re-experiencing a bubble such as 2005 which is doomed to be followed by a crash similar to 2007. Before that rumor causes anyone too much heartburn, let’s go to the facts. For facts on Real Estate in the greater Phoenix market, there is no one who documents the numbers like Michael Orr of the Cromford Report:
“Most housing analysts use data to support their observations. Those analysts tend to agree that housing is becoming a bright spot in a broader though slow economic recovery. This is particularly true in the Phoenix area, where our economy is improving a little faster than most and the housing market has been improving much faster than any other in the country. However there are also large numbers of commentators who are not data driven but tend to rely heavily on their personal theories, largely based on sentiment or political viewpoints. They tend to take one aspect of the market and amplify it out of proportion to derive their conclusions. One example of this is an article by Lauren Lyster based on the views of David Stockman, who describes the current situation as “Housing Bubble 2.0″. This is a ridiculous description of a market in which the median home price is lower than the median replacement construction cost, even excluding land values.
The observations by David Stockman have only a tentative connection with reality. His logic is flawed because, unlike the real housing bubble in 2004-2006:
- investors in 2012-2013 are not borrowing money to buy homes – they are predominantly using cash
- investors are buying homes to rent out for several years, not to flip after a short term rise in prices
- we have a real housing shortage because new construction has been so low for the last 5 years while population continues to expand
- the pool of home buyers is being fueled by younger buyers leaving their parents’ homes at last
- people need these homes to live in, they are not just trading commodities like they were during 2005
It is also not true that first time buyers and move-up buyers are missing. On the contrary there is a strong presence of such buyers in the market. However they often find it difficult to qualify for loans and are frequently outbid by investors when trying to purchase homes.
In 2004 and 2005 the signs of a bubble were obvious but the vast majority of people chose to ignore them. In 2012 and 2013 the signs of a bubble are absent, but many people choose to invent them.
The key issue remains – where is the new supply coming from to keep pace with demand? January 2013 saw fewer new listings added to the ARMLS database than in any January since that database was first built in 2000. The weaker sales rate in January disguised this effect but sales will not be weak from now on. The peak buying season is just about to start and we simply have too few homes available.”
We simply cannot improve on what Mr. Orr has to say. We only add, that it is a very easy time to be a seller. For those sellers sidelined from selling, it may be time to jump back in while competition is fierce for your home. For buyer’s who missed the market low, they should take heart in the fact that homes are still below replacement cost. In short, there is something to smile about.
Russell & Wendy Shaw
Now that the holiday haze has cleared (and we hope you had a very happy season) our thoughts turn to the brand new year. Since 2007, it has seemed that the new year rarely promised any news better than the year before. Real estate became the slow march through a mine field where the best thing to report was that survival had been accomplished once again. We are happy to report we are more optimistic than in years past that whatever the year brings, one way or another the valley is faring better than most of the country in our recovery. That is very good news indeed.
As we previously reported, supply and demand are the name of the game and sometime in mid-summer of 2012 supply began to slowly build after a very busy buying frenzy in the first part of the year. Now as we begin 2013, supply has increased dramatically in some areas while simply building up in others. How quickly a market can turn. Some of the outlying communities (the drive until you qualify communities of 2005) have seen a very sharp rise in homes for sale accompanied by a very sharp drop in demand. For example, in the town of Maricopa – supply is about 4 times higher than mid-2012 and demand has dropped in half. In short – Maricopa is currently a strong buyer’s market. Other interior areas are seeing rises in inventory as well, although less dramatic ones, which means a balanced market has occurred or soon will through most areas. Builders are contributing to new supply after years of little to no building which is aiding in this shift as well. Demand is dropping largely due to investors losing their appetite. So while 2012 was a seller’s market, we expect to see 2013 be a balanced market tipping into a buyer’s market.
One interesting change to the market is that many sales are not occurring through MLS. Builder sales, trustee sales, pocket listings (non-MLS sales) and private sales are composing anywhere from 20-30% of the sales NOT reported in the MLS.
Short sales – a significant component of the market for the last few years, have dropped dramatically – in fact they are down at a level not seen since February 2011. REO’s are staying in low levels and we hope to see them down to such tiny levels by the end of 2013 that we feel no need to discuss them again. The repeated warnings of huge looming levels of “shadow inventory” has been proven to be a case of crying wolf.
The local real estate future still hinges, as all areas do, on the overall economy, consumer confidence and the national fiscal challenges. What impact that will have is anyone’s guess. No matter, we still feel reasonably optimistic that the first half of 2013 should be a healthy one. And for that, we are grateful.
As always, we will do our best to keep you informed on the market shifts and trends. Believe me, we find it just as mesmerizing as most of our readers do.
As the year comes to a close, some interesting facts have appeared. First, we now have had one solid year of positive appreciation in the monthly average sales price per square foot on homes sold through MLS. It turned negative in August of 2010 and then turned positive again on November 30th 2011 which continued through 2012. Now, one year later, we’ve seen appreciation of around 28% – with the bulk of the gains occurring in the first half of 2012.
Normal sales continue to replace distress sales – even in the last 30 days moving from 60.8% to 65.1%. Wow, we haven’t seen that level of “normal” sales in five years! REOs dropped slightly to 13%. Short sales dropped more significantly from 26% to 22%.
What will 2013 bring? Markets can shift quickly as the last few years have shown. At this time it would appear that the rising prices will continue to lure sellers back in to the market increasing supply, investors are likely to continue to diminish as higher prices curb their appetite decreasing demand further, and we may find ourselves back in a buyer’s market in 2013. Stay tuned!
Now that we are in the waning days of 2012, it is time once again to review where we are and prepare for what will no doubt be another interesting year in 2013. After a rather sluggish summer, the market regained some velocity in the fourth quarter. Supply continues to build, although it is still well below average. Below $200,000 demand remains strong and we are still seeing multiple offers. Prices in this range continue to edge up. Not surprisingly, the highest appreciation rates have been occurring in those places where prices crumbled the most in 2007-2009 – primarily the drive until you qualify communities. In contrast, higher priced homes have shown only a small amount of appreciation with just a few posting double-digit improvements such as – Carefree at 11.7%, Desert Hills at 13.9% and Tempe at 11.0%
The increasing prices are luring both sidelined sellers and even builders back into the marketplace. At some point, the increased prices will drive back the demand resulting in a balanced market. We do expect spring of 2013 to be a very healthy market for both buying and selling.
Probably the best summary of the 2012 market is stated most perfectly by Michael Orr of the Cromford Report:
“The change in price over the last 12 months is clearly impressive. There are very few occasions in which the average price per sq. ft. rises by 25%. The only previous time I know of is May 2005 to March 2006 and that was at the height of the bubble. A rise of 2.7% in the single month of September would also normally be startling, but we have got used to big numbers. When the market eventually gets back to normal we should expect to see 2.7% for a whole year, not a single month.
What we have seen is the “coiled spring theory” in action. Supply got extremely low last year but prices refused to react until the fourth quarter of last year. Now prices have moved substantially higher we are seeing signs of the market cooling. Supply is growing as sellers start to take advantage of the higher prices achievable. Some buyers have become discouraged by the amount of competition and higher prices and so left the market, resulting in some softening of demand. Sales volumes though ARMLS are well down. However, this is somewhat misleading because a large number of real estate transactions are happening outside of the MLS. Deals between investors, new homes sales, trustee sales, pocket listings and private sales add up to a significant volume which is missing from the MLS numbers but captured by the county records. “
For the 3rd Quarter, normal sales are now 59.5% of the market. The number of normal sales should continue to grow. Short sales have stabilized at 30.17% of the market (and we expect them to be a slowly declining part of our market for the next couple of years). Happily, REO/HUD are now down to only 13.95% and are becoming almost irrelevant. On that note, you may remember last month we commented on Bank of America suddenly shifting gears by taking back into their inventory REOs rather than selling them at auction to investors. After 5 weeks of this, it appears that they have stopped that program. Go figure. We expect to see a small bump in REO product as these homes go to market but it still will have a negligible effect. The number of Notices of Trustee Sale inMaricopaCounty was 2,690, the lowest total since July 2007 over 5 years ago. This is all good news. Our hope is that by the end of 2013 REOs will be back in the “normal” range.
No matter what the new year brings, we will keep you posted on our ever-changing market. In closing, we wish to thank all of our wonderful friends and clients for your trust and for allowing us to assist you with your real estate needs. It is an honor to know you and to serve you. We are truly grateful.
Russell & Wendy Shaw
Occasionally we write articles that don’t focus solely upon current real estate market conditions. This is not one of those times. The real estate market in the valley has been providing headlines since late 2004. Until the market fully returns to “normal” (it has been so long since a normal market we wonder if we will recognize it) we are no doubt destined to continue that focus. As always, our best source for market statistics remains the brilliant Michael Orr of the Cromford Report.
First, let’s begin with some numbers comparing September 2012 with September 2011:
*Active listings with no offers – 14,405 versus 19,216 last year – down 25% but up 7% from August.
*Pending listings – 10,125 versus 11,508 last year – down 12% – and down 3% from August
*Monthly sales – 7,573 versus 8,470 last year – down 11% – and up 3% from August
*Monthly Average Sale Price per square foot – $97.45 versus $79.64 last year – up 23% – and down .7% from August
Greater Phoenix foreclosures (REO) are once again below 14% of the monthly sales total. At their peak in February 2009, they constituted 71.1% (gasp) of the monthly sales. At this point, they are not a major factor in the market. To put this in perspective, there were 12 times as many foreclosed homes available for sale in January 2009 as there are today. Short sales however, comprised 30.4% of all sales in August. This figure seems to be now holding steady after an initial drop in the first quarter.
The only real shift in REOs is in regards to Bank of America, who suddenly appear to have shifted their policies and are now taking back homes rather than primarily selling them at auction to investors as they (and pretty much all lenders) did. We now expect to see them re-enter the market as listings – no doubt to encourage higher prices as well as owner occupant purchasers. Even with BofA composing 25% of the foreclosure pipeline, the numbers still will not hugely impact our market supply.
Normal (equity) sales continue to rise to 56.1% of sales. This is a clear signal that sidelined sellers are finally re-entering the market as prices are beginning to allow traditional sellers to sell once again. This number will continue to improve as the distress sales drop.
Supply continues to increase gently as is normal for this time of year – but we are seeing more significant increases particularly in Queen Creek and Maricopa – the epicenter of the price crash. The luxury market is seeing steady supply with some small areas decreasing in supply. The luxury market is weaker in the summer so this is not really news worthy to find supply steady with a little weaker pricing.
It should be interesting to see if builders can respond quickly to the lowered supply and begin adding to the supply through increased building. Their challenges remain finding lots at competitive prices and qualified workers who vacated our crashing job market.
What does this mean to the homeowner? The increased values should encourage sellers to begin to monitor values to see if they now can enter the marketplace again. Just a note on this point, we do NOT encourage homeowners to use their county assessor valuations or “Zestimates” for determining value. A supply/demand analysis for your neighborhood still gives the best accuracy in a marketplace that is shifting. As always, we are here to help.
Russell & Wendy Shaw
The rapid shifts of this year’s market has certainly kept the real estate community on its toes. As we enter the final quarter for the year the market still continues on its jerky recovery path. The adage that local markets shift quickly and national markets slowly, has never seemed more true than in 2012. We began the year much as we ended 2011 – with the prices finally edging up gently and the market bottom established. By March of 2012 the market acceleration went in to overdrive – supply dropped rapidly and demand escalated wildly upward. This brought long dreamed of price appreciation at a rather breathtaking rate and the market strongly swung to the seller’s side while handing buyers nothing but frustration. FHA buyers got pushed to the sidelines and cash became the only game in town with over 40% of the buyers purchasing with cash. Then the summer slowdown occurred and inventory began to creep up as some sidelined sellers came back into the market encouraged by pricing shifts just as some buyers exited thanks to these same shifts.
That brings us to the 3rd quarter of 2012. The market has quieted since the spring feeding frenzy – supply has crept upwards while demand has slowed. The drop off in demand is largely due to seasonal buying patterns, higher pricing, as well as the lowered supply (i.e. buyers can’t find a home – too few choices – or can’t compete against multiple offers – such as the FHA buyer). In essence, the market is balancing a bit. Does this mean that price appreciation is over? Or did we just form another “real estate bubble”? In short, no. While there is no magic crystal ball to consult on pricing, it is true that in most parts of the valley housing prices are still below the cost of the construction. Ultimately, at whatever pace, the pricing will still need to adjust above the hard costs of building. So we expect to see some additional upward price movement – the only question is at what pace.
However, there still seems to be little that the facts can do to stop the negative reporting or negative consumer sentiment that crops up periodically about the Valley’s housing market. We much prefer to place our belief in facts. In light of that, here are some facts from the Cromford Report that you may find of interest:
- The average cumulative days on market for monthly sales (all areas & types) is down to 70. The last time we were this low was July 27,2006 – over six years ago! The highest point was exactly twice this at 140 days on February 9, 2008.
- 8.8% of Arizona first home loans are either delinquent by 30 days or more or already in foreclosure. This is lower than the 11.2% reported for the country. However the annual changes were more significant. Arizona saw a 23.3% decline in non-current first home loans between June 2011 and June 2012. This is the fastest decline of any state in the nation.
- Greater Phoenix REO (foreclosures) sales dropped below 14% of the monthly total in August – the first time this has occurred since January 4, 2008. At their peak on February 11, 2009 they constituted 71.1% of monthly sales. Although it will take some time for them to disappear completely, REO’s are no longer a major factor in the market. Contrary to popular myth, there are not a lot of foreclosed homes in lenders’ possession, so we don’t expect this REO supply to increase.
- Here are the numbers for August 1, 2012 relative to August 1, 2011. For all areas and types in MLS reports the following:
Active listings – 20,085 vs. 27,787 last year (down 28%)
Pending listings – 10,412 vs. 11,491 last year (down 9%)
Monthly sales – 7112 vs. 8663 last year (down 18%)
Monthly average sales price per sq. ft. $98.54 vs. $79.86 (up 23%)
No financial market moves smoothly upward or downward, there are little fits and starts along the way. This market is no exception. We are in a recovery – how long and how high and how fast are the only unanswered questions. As always, we will strive to get you posted as our market continues its crawl out.
A select group of buyers are waiting longer than necessary to re-enter the housing market after a short sale or foreclosure. This is understandable as most loan programs require a minimum wait of 3 years after a foreclosure and some up to 5 years! The one exception has been if the borrower did a short sale and remained current at all times (some lenders will not allow this in a short sale in order to “punish the borrower”) they possibly could get an FHA loan more immediately.
That is now changing. The market place is responding to the times and there are new “portfolio” loans (loans made by a bank with their own money – gasp) that are now available to those who wish to return to the housing market sooner after a foreclosure or short sale. While these “Second Chance Loans” are not perfect for everyone, for some this new program can solve a problem – allowing the buyer to jump back in to the market place quickly while values still remain aggressive.
Here are the primary criteria:
Must have a minimum of 25% down
The housing payment must be under 50% of their income
Borrowers must demonstrate the ability to make the loan payment
Interest rate based on total circumstances (expect above market rates)
Your “troubles” must be behind you (financial troubles)
Think this might be a loan that you or someone you know needs? As always it is best to speak directly with the lender. Simply email us so that we can connect you at Russell@nohasslelisting.com
It may be a bit early to call, but the greatly constrained supply of homes in the valley has started to ease a bit. For those who follow the actual real estate trends in the valley (not the usually misstated national news) this year began with supply dropping precipitously. The effect of the constrained supply without an equally corresponding drop in demand contributed to a huge pricing push. But the third quarter typically brings seasonal adjustments in demand – and this year is no exception. The local news and real estate community has overall done a decent job on getting the word out that values are up and supply down. That has encouraged sellers to consider moving from bystanders to players again. So more traditional sellers have re-entered the market while demand has done the seasonal slowing. This is encouraging news for buyers who have been experiencing huge frustrations on trying to buy a home. Now, easing supply does not mean that it is a cake walk for buyers. It simply means that the tightened supply has eased a bit.
One last comment on pricing, while the price rise has momentarily slowed due to the supply and seasonal adjustments, it would still appear that prices are likely to rise next year. Particularly in new builds (the current solution for frustrated re-sale buyers) builders are anticipating next year’s pricing to be up close to 20%. So the mantra remains the same for the year – if you want to buy, do so now.
The two biggest and most tenacious rumors in the valley’s real estate market appear to be: foreclosures are rising and there is a “shadow inventory” of foreclosed homes the banks are waiting to release. These are false – despite all the news reports that tend to support such nonsense.
Foreclosures are down significantly in the valley and while we still get the occasional tiny blip up now and again, the trend has been consistently and dramatically down since the start of the year. Comparing the number of foreclosed homes for sale in January of 2012 to January of 2009 – the supply is down 92%. Yes there will always be foreclosures, as sadly the number never goes to zero. However, the numbers are consistently dropping and dramatically with nothing indicating that trend will not continue.
That leads us to the second rumor – shadow inventory. Shadow inventory is defined numerous ways, but the most common definition is homes that the banks have taken back and are holding off the marketplace. The banks in Arizona do not have some “secret stash” of houses they are holding back. Why can we state this as fact? The beautiful thing about real estate is that changes of ownership cannot occur in secret – they require a public recordation to transfer ownership. So this persistent rumor is more attributable to errors in counting and tracking foreclosures than anything factual.