Normal sales gained market share in January, moving from 40.9% to 41.40% of sales, while REOs were the big losers moving from 30.3% to 26.8%.  Short sales and pre-foreclosures advanced once again moving from 28.9% to 31.8%.  Any improving growth in normal sales is a positive recovery sign – although a cautiously optimistic one as a significant portion of these normal sales are investors doing flips.

Despite a severe imbalance between supply and demand, current pricing is fairly stable and slightly trending upward.  However, a more significant upward price movement seems likely in 2012 or early 2013. 

September 15, 2011 marked the bottom of price per square foot (the most reliable indicator of short term price movement) – coming in at an average of $78.81.  The average price per square foot for all pending listings currently has moved to above $83 for the first time in over 11 months signaling stronger sales pricing for February.

Re-sale listings are coming on to the market at a very low rate.  In the last month, 8,269 have come on the market which is 22% below the same period for 2011.  This supports the tightening supply of homes for sale, which is the force behind the upward pressure on pricing.  In fact, there are fewer single family homes listed for sale in Phoenix than in any year except 2006.  However, in Anthem there are fewer single family homes listed for sale than in any time in the last 10 years!

HUD foreclosures are down 91% from this time last year.  Trustee notices of foreclosures are down 61% from this time last year.

In short, all news continues to support the early stage of recovery is continuing.

Which brings us to another subject, if short sales now compose 31.8% of the sales and “normal” sales are up to 41.40% – the home seller (rather than the institutions) is once again the majority and retains control of the agent selection process handling their home sale.  With that in mind, we believe it is time to revisit issues surrounding that important selection.

An alarming fact of any distressed market is that opportunists arise who seek to exploit the homeseller.  One of the most obvious examples of this is “up-front fees”.  We have seen numerous agents and attorneys alike charge large, non-refundable up-front fees for loan modifications, short sales, and consultations.  In one case, a client of ours explained that a company charged $1,500 for a modification while stating to the client “this is illegal for me to charge this”.  Then this” consultant” sued the owner for the balance of the payment due and won a judgment in small claims court, despite the illegality.  Go figure!  So, with that in mind, run, don’t walk from any agent or firm demanding up-front (or back end for that matter) fees to process a modification or short sale.  Modifications belong in the realm of a free HUD counselor, and any legitimate short sale agent  won’t require fees from the homeowner but will accept payment from the short sale bank.  In our entire career, distressed market or otherwise, we have never charged sellers up-front fees.  We don’t believe others should either.

Additionally, as foreclosed home sales continue to drop, another trend is emerging – the former REO agent now trying to become a short sale specialist.  Of all the sales we handle yearly, the short sale is the most difficult and demanding of our skills.  The mass migration of REO agents over to the short sale causes us much concern.  We have been handling short sales since 2007 (well to completely date ourselves, we first handled them in the late ‘80s).  Frankly, it has taken us years of developing systems to handle the complexities associated with these files and to make sure that our clients are protected from pursuit by their lenders.  The sale of a foreclosed home is so vastly different from handling a short sale that we worry about the service and protection level that the average homeowner is receiving from these newly minted short sale agents. 

In short, if you are facing tough choices about the sale of your home – whether “normal” or a short sale, we stand ready to serve you.  In the meanwhile we will continue to report on the trends that cheer us as well as any that we believe should concern you.

Russell & Wendy

We will take these up – one at a time.

Advantages: Price and Condition. If the transaction is handled correctly, you can usually get much more home for the money than you could get otherwise. For about the same price as a lender owned home, you can buy a short sale home in MUCH better condition.

Disadvantages: Time and Certainty. You don’t have to talk to a lot of people to find some who will tell you to NEVER BUY A SHORT SALE. It takes forever and you don’t know if the bank will ever get back to you. That can be a true statement. It can also be a false statement. This “disadvantage” is largely dependant on the point below.

Possible Additional Disadvantage: Incompetent listing agent. This is probably the single biggest variable currently. If the listing agent knows what they are doing (and many listing agents do a wonderful job in this area) communication to the bank is effective and efficient. If they don’t have experience, pricing is at a level no bank will approve, communications with the bank breakdown, and the file may straggle on for 6 or more months only to be denied.

How does a buyer combat this final disadvantage? Know your agent and make sure they have an interview sheet for the listing agent so they can determine the probability of a successful close. While this is no guarantee, it is possible to significantly jump your odds of obtaining the short sale home of your dreams.

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.

I wonder if anyone’s paycheck went up at an annual rate of 3.24% they would ever consider it a surge?

This isn’t to suggest that the number of foreclosures going up is ever a good thing – just that reading past the headlines and actually looking at the numbers might shed a bit of light on the subject.

If anyone cared to truly examine some relevant market statistics for the Greater Phoenix area here are a couple I personally find quite interesting: The current "success rate" for all listings in ARMLS is 64.8%.  You can see that (along with some other very interesting numbers) here.  But since most of the sales occurring are lender owned properties, that number doesn’t mean too much to me.  Let’s break it down.

Scroll down on this page and you will see the breakdown, based on types of listings.  The success rate (percent of all listings of that type that sell) for lender owned is 91.4%.  Not very surprising – at least not in our market.  But look at the comparison between "normal listings" and short sales.  The numbers are almost the same!  Normal listings success rate is 50.2% and short sales success rate is 49.4%.

I know, I know, the normal listings stat surged way ahead.

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

Next you can see the Average Annual Price Per Square Foot – based on area:

And finally a "market snapshot" that illustrates some interesting comparisons.

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.

Special thanks to Fletcher Wilcox of Grand Canyon Title Agency for the data.

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