Short Sales vs. Bank Owned?
June 20, 2010 by admin · Leave a Comment
My, what a difference a year makes. In late 2008 lenders, as well as industry giants Fannie Mae and Freddie Mac dominated both the active listings and sales statistics with their foreclosure inventory. Rumors abounded about an additional looming “shadow inventory” of foreclosures which would further destroy our already decimated marketplace. The oncoming “foreclosure tsunami” was spoken of as a certainty. Fast forward to 2010 and one is met with a very different scenario than predicted. Thanks to the in-depth research done by Mike Orr at the Cromford Report we know all those industry “visionaries” were mistaken. In reality, the foreclosure (REO) market appears to have peaked in the first half of 2009. Since then the tide has steadily continued to turn from a foreclosure dominated market to a short sale market. Why?
Lenders have finally determined that an effective short sale process usually reduces their investor’s losses compared with foreclosure. In fact, one bank’s study showed an average savings of $38,000 on a short sale vs. a foreclosure. Additionally, new government incentives are now in place for lenders which reward short sales over trustee sales. For these and other reasons, many lenders are refining their short sale processes and making faster and better decisions.
Buyers have increased their willingness to buy short sales. Benefits to buyers include the reduced competition for short sales vs. REOs – as well as the ability to purchase with financing instead of the cash which REOs so often demand. Despite the patience required to wait out the months long short sale process, buyers can obtain homes generally in far superior condition to REOs and usually within 1-2% of the cost of an REO. In short, buyers have wisened to the value proposition short sales offer.
Sellers. A large proportion of homes in the valley have negative equity as most sellers either purchased after 2002 or have refinanced. Owners wishing to sell in this circumstance either need to bring extra money to the close of escrow or must attempt a short sale. The latter option is by far the most popular with sellers for obvious reasons. Therefore, short sales comprise an increasing share of the active listings while lender-owned homes are on a downward trend. While the total number of active listings has fallen by 23% since January 2009, the number of short sales offered for sale has grown by 50%.
Sellers have finally accepted that a short sale’s impact on credit ratings will usually be less than in a foreclosure. Additionally a new government program released on April 5th HAFA (Housing Made Affordable Foreclosure Alternatives) offers qualifying sellers cash incentives of up to $3000 to participate in a short sale.
We can see that short sale listings are most dominant in certain low to medium priced areas with a high proportion of new homes – particularly in the west valley. They are least prevalent in high priced areas and in those targeted at the over-55 market, where normal sales are still the majority. It is not the outlying location that is important, since we see that Rio Verde, Gold Canyon and Wickenburg are all near the bottom of the short sale league. It is not necessarily the cheapest areas either, since some of the lowest priced areas of the valley, such as parts of west and south Phoenix, show pretty ordinary rates of short sale listings (e.g. 85009 -34%, 85033 -39%). Homes in these areas are more likely to be foreclosed without an attempt at a short sale.
Conclusions
The end of the REO market is certainly not here yet but in the last few months we have seen a significant drop in the flow of new Notices of Trustee Sales suggesting that REO inventory will fall back to more normal levels over the next two to three years.
However the situation that creates short sales (negative equity will not be a quick fix. It seems very unlikely that Phoenix real estate will more than double in price anytime soon, which it would have to do to match the peak price levels seen in mid 2006 and eliminate all the negative equity created by the subsequent collapse. It also seems unlikely that sellers bringing cash to the closing table is going to ever become a popular option. So for now, and for the foreseeable future, short sales are here to stay.
Thanks to Mike Orr for what is really the heart and soul of this article.
Wendy & Russell Shaw
Market Stats Update
August 30, 2009 by admin · Leave a Comment
For the past five or six years (very much unlike my first 20 – 25 years in the real estate business) the price of Phoenix residential real estate has been front page news and sometimes even national news. What you will see here aren’t the glaring headlines – that all sound so much better than my title for this post – but actual stats. Hopefully, seeing them will help you to have a more accurate idea of what is happening.
1. July residential resale properties were over 9,000 for the 3rd month in a row. You would have to go clear back to 2005 to find sales success like that.
2. The trend for the median sales price (the middle point, half of all sales are below this number and half of all sales are above it) is overall, rising. It is currently at 125k. Last April it was 116k.
3. The average (or mean) sales price is up to 175k. March of 2009 it was 159k.
You can see charts that illustrate all three of the above statements here.
Stage Your Home for Under $50
July 7, 2009 by admin · Leave a Comment
Thanks to Lani at AgentGenius for passing this little gem along.
How’s The Market? An Interesting Update
I am often asked the question, "How’s the market?" by home sellers, home buyers and various local and national reporters. Answers like, "Good" or "Not very good" – which are the type of sound bite answers TV and radio interviewers seem to thrive on – don’t really honestly answer the question. Our market varies by city and it also varies by price range.
The short answer to the question above is: really good (as in ON FIRE) if we are talking about any home under 350k and a bit sluggish above 350k (the current maximum loan amount for an FHA loan is $346,250) gradiently getting worse, the higher the price range. In the upper, luxury market, inventory is so bloated that prices are indeed falling, even though homes in the one million plus market range are being sold, there are just so darn many of them.
Sales to investors – which were less than 5% of the market are now higher than 20%. Correct, over 20% of all the homes being sold currently are being sold to investors. That is more than an interesting "market indicator". It is a loud shout that they believe today’s prices are a bargain and they are voting with their feet and their checkbooks, saying, "Yes". Take a look at those stats from 2003 to the present.
The most meaningful and useful stat (although, not perfect) for looking at short-term price movement is Average Sales Price Per Square Foot. Having been falling in our market for some time, that trend is now starting to reverse. Just slightly, and it isn’t true yet on a valley-wide basis. But it has happened. 
Seeing a visual representation of lender owned properties (percent of listings and then percent of sold) can be eye opening. Take a look, you might be surprised. If you are a buyer, this is the very best opportunity you have ever seen. Don’t miss it. If you are a seller, a shift for the better has already happened in the lower price ranges. As usual, I will keep you posted
Some Very Interesting Stats
February 25, 2009 by admin · Leave a Comment
Some very interesting stat comparisons courtesy of Mike Orr at the Cromford Report.
Next you can see the Average Annual Price Per Square Foot – based on area:
And finally a "market snapshot" that illustrates some interesting comparisons.
2008: What Really Happened to Phoenix Real Estate?
January 18, 2009 by admin · 3 Comments
Let me start this post by publicly acknowledging and thanking Jim Sexton, Designated Broker for John Hall & Associates, for his brilliant research (which you are about to see). I am going to comment on and link to several charts. In some cases I will show a small version of the chart in this post and in every instance I will provide a direct link to a full-size version of the chart.
What happened to the housing market in 2008 is quite unlike anything we have ever seen before. Starting in January of 2006, same month sales started coming in lower than the same month the year before. Our boom was over. Looking at number of homes sold, for 29 consecutive months we sold less and less and less. January of 2006 was less than 2007, January 2008 was even lower, etc. For 29 months this continued. Then in June of last year that trend started to reverse. From June 2008 onward we started selling more homes. For the last half of the year, sales each month were greater than that month the previous year. Here you can see Home Sales Per Month for past four years and here you can see Home Sales Per Quarter and Half. It is in this 2nd chart that what happened starts to become visible.
More houses were sold in 2008 than in 2007. But all of that upswing happened between June and December. Sales were actually much lower in the first half of 2008. But look what happened to prices!
Here is a larger version of the chart so you can look. From the 4th quarter of 2007 all the way through 2008 the median price declined every month. Every month.
Most analysts easily see the decline in the median price from 2006 – 2008. It is yip-yapped about in the media almost non-stop. But I don’t know of any (unless they just recently copied this research of Jim’s) who saw the decline throughout the year. The median price for the year was 190k. In January it stood at 220k but by December was 144k.
Please understand that – contrary to almost all economists “thinking” on this subject – median prices are not a reliable tool to track short-term price movement. That is not what I am reporting here. Median prices tell us what is selling (median price is the middle point, half of the sales are for more, half are for less). In this case, foreclosures and lender owned properties. Lots of them. Average Prices suffered a similar fate. Here is a look at how average prices breakdown and compare for the 1st and 2nd half of the year.
You can see a larger version of the Average Price Breakdown here. Like me, you may be seeing a trend here. Sales prices are sliding. Rapidly. Normally, in any market, sliding prices would be accompanied by falling sales. But here we have the exact opposite happening. Home sales are booming. Well …. some home sales are booming. Lender owned homes, or REO (Real Estate Owned) homes are selling and driving the prices for the entire marketplace. Here you can see the relationship (and the current trend) between REO, open market listings and short sales. The policy Arizona Regional Multiple Listing Service (ARMLS) had for indicating a Short Sale changed, so accurate data isn’t available for the entire year. But let’s take a few facts that we do know: 34% of all valley home sales in 2008 were owned by lenders. However, look at the trend: by December it was up to 52%.
See a larger version of that one here. 24% of all MLS listings are REO. But over half of all the sales are REO. The Pending Sales have an even higher percent of bank owned.
Why?
Short answer, price. Look at the difference in asking prices vs. pending prices vs. sold prices. Notice how the REO numbers are about the same in all three categories. Contrast that to asking price vs. sold prices for all the other listings.
What does this mean to you? If you are a buyer, affordability is back. This is the best news you have had in years. The very best. Interest rates are at historical lows and prices are way down. It has been a long long time since buyers have anything like this – if you are moving here from out of the area or buying your first home, welcome to Home Buying Heaven. Interestingly, if you are selling and buying a larger or more expensive home – I will say the very same thing to you. The extreme downward price pressure is not at all at the lower end – it is the higher priced homes that are taking the big price beating. If you have a higher priced home (right now that is probably anything much above 400k) nothing I am writing here is good news. It only works well for you if you are selling and moving up. If you are in the category of selling a high end home and not replacing it, right now isn’t a very good time for you to sell. Not trying to be negative here but wanting to treat you like I would personally like to be treated: give me all the relevant facts.
For everyone else, this isn’t simply good news, it is nothing short of fantastic. I hope you can take full advantage of this golden opportunity.
Sales this October are way up. Prices are way down.
December 12, 2008 by admin · Leave a Comment
Single Family Home Sales Year to Year Comparison by Price Range. When comparing single family homes sales by price range for October 2007 to October 2008, homes sales have boomed in the under $200,000 price range. Home sales in every other category have declined.
Special thanks to Fletcher Wilcox of Grand Canyon Title Agency for the data.
A Little Appraisal Humor
December 11, 2008 by admin · Leave a Comment
Your house as seen by:
Just kidding. Really. But I hope you enjoyed seeing it.
