Yes, Virginia. The Market is UP!

As 2013 approaches the halfway mark, the local market trends continue to strengthen their path.  As agents, we continue to be amazed at what a strong real estate recovery is underway in the valley.  But, as always, there is what the market is doing and then what people think the market is doing.  Public sentiment remains mixed despite the (to us) obvious recovery.  So perhaps human reaction is ultimately more interesting than any real estate market will ever be!  Nonetheless, let’s look again at the numbers comparing now with the same time last year.

Active Listings: 20,670 versus 21,841 last year – down 5.4%.

Pending Listings: 10,658 versus 11,964 last year – down 10.9%.

Monthly Sales: 8,162 versus 8,187 last year – down 7.4%.

Monthly Average Sales Price per Sq. Ft.: $113.10 versus $93.57 last year – up 21%.

Monthly Median Sales Price: $167,000 versus $130,000 last year – up 28.5%.

What does this mean?  New listings to the market, are down.  Sales are down from last year, but this is directly connected to the constricted supply rather than low demand.  There are simply more buyers than there are homes for sale.  This connects to the rising prices which are heading up again due to the unsatisfied demand (although not at the same pace of last spring).

Of great interest is the mix of what is selling.  While single family sales are down as are condo/townhome sales, in contrast mobile home sales are up 7%.  Why?  Mainly because the mobile homes new to the market are up 17% over last year’s first quarter.  This demonstrates the effect supply has on sales.

Distressed supply continues to disappear. The number of active REO (Bank Owned) listings across Greater Phoenix is down 18% in just the last month and is now down 93% from the peak in January 2009. Short sales are down 12% in the last month and are also down 93% from their peak in May 2010.  In fact, normal sales are back around a 73% market share (the highest amount since February 2008) and short sales at 16% and REOs at 11% (their lowest share since December 2007).

All of these statistics should tell you one thing, this IS the recovery.  In fact the market is healthy and what is left of the “distressed market” is so small as to be nearly irrelevant.  With that said, Hart Research Associates did a survey of 1433 interviewees during February and March of this year.  They were asked:

“Thinking now about the housing crisis that started in 2008 when many people and families defaulted on their mortgages and lost their homes, do you think the housing crisis is pretty much over, that we are still in the middle of it, or that the worst is yet to come in terms of the housing crisis?”

• 58% think we are still in the middle of the housing crisis
• 20% think the housing crisis is pretty much over
• 19% think the worst is yet to come
• 3% were not sure

Of course the facts are very clear, but 80% of the public have not yet accepted those facts. The housing crisis actually started in 2006 but the public did not really notice until 2008. By April 2009 homes in the City ofPhoenixhad pretty much lost all the value they were going to lose. From reputable analysis sources we can see that most (but not all) parts of the country were well into recovery during 2012. The majority of the general public will probably not really acknowledge the recovery until 2014 or maybe even 2015.

Unfortunately, this mental mindset is sidelining sellers who want to sell but are not certain they can. How do you know if you have equity again and can sell?  Short of an appraisal or a market analysis by your agent, there is a rule of thumb that works in the majority of the cases.  If you bought your home before January of 2004 or after September 2008 (or bought a foreclosure) – you probably now have equity.

These factors are combining to create a housing shortage for this year.  Net migration is up and the builders simply are not building enough volume to meet demand.  In the short term, it would appear sellers have plenty to smile about and buyers are likely to feel some frustration in their efforts to buy.

As always, we remain committed to keeping you informed and helping you through this ever changing market.  As always, we tip our hat to the wonderful Michael Orr of the Cromford report for his accurate market statistics.

Housing Bubble 2.0?

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

Prices are up!

We have waited since 2006 to be able to write that headline.  Yes there have been little spurts of improvement during those years (remember the tax credit of 2009?) but nothing that was headline inducing or that in hindsight really signaled much of anything other than tax breaks do work.  But this market is different and truly is making news – and some of the news is even accurate!  For those who prefer we bottom line it, the price per square foot of homes sold has moved upward at an average of 24% since September 2011.  Price per square foot is the most accurate short term tracking number.  24% is a rather amazing number by any standard, but particularly so as the national news is still reporting declines in housing values for our area.  As Mark Twain said there are “lies, damned lies, and statistics” – so what is really going on?

Remember that housing is a local issue, not a national issue.  So any discussion of our marketplace by necessity must be confined to our marketplace. So let’s look at what is a fact, the price per square foot is up by an average 24% since September.  That is a fact.  What does that mean for the home seller or buyer in this market?

First to the seller:  the message here is that the market has improved greatly and for those sidelined from selling due to value issues, it may be time to check current pricing in your neighborhood.  Does that mean every home has gone up 24%?  No.  As could be predicted, price point has something to do with the movement in values.  The lower prices (let’s say $500,000 and under) show the really significant price appreciation.  Above 500K we see a different picture with price per square foot showing both less of a drop and less upward movement as well.

Also, another factor that is slanting the numbers a bit is the dropped numbers of homes coming to market. This is one of the factors contributing to the price rise – reduced supply.  In our opinion this is the untold story of the market.  New listings coming on the market continue to hit record lows since 2011(when that statistic first began being kept).  The dropped supply is actually affecting the number of sales – Phoenix single family homes are down 18% compared to 2011 the same time of year.  Mesa sales are down 10% and Glendale is down 15%.  However, Scottsdale is up 5% over last year.  Because Scottsdale homes are more expensive on a per square foot basis, this is affecting the monthly average appreciation just by virtue of throwing higher priced homes in to the mix!  So although appreciation is on average 24% since September, that number may be a little bit higher than “reality” given the drop in lower priced sales and the increase in the higher priced sales.

To state the obvious, the best way to determine your current market value for your home is to request a Market Analysis from a competent agent (I highly recommend us).  Even then with supply and demand in flux and pricing shifting, the value is a moving target these days. A “range of value” for your home is probably the best you will do on determining pricing without actually placing your home on the market.

To buyers:  prices today are likely lower than tomorrow’s values.  If you are a buyer, be prepared for the frustration that goes with rising values, limited supply and a strong seller market.  Currently, most homes are receiving multiple offers and cash offers are abundant and often winning over financed offers.  Asking prices in the lower price ranges in particular, are just starting points for the offers as most offers will be above list price.  Those who say “I don’t want to play a bidding game”  need to understand that avoidance of this market and the competition for homes means that you are willing to pay more down the road for the benefit of being the sole bidder.

Rising prices at some point will dampen demand – the real question is how high and how long until we hit that point.  That is the million dollar question.  As the future market unfolds we will attempt to answer it for you.  As always, we are here to help you with the challenges this market presents.

Russell & Wendy Shaw

(Mostly Wendy)

Trend Alert

Last month we examined the overall improving market in some detail as we believe a primary function of our “job” is to keep both ourselves and our clients informed on market trends and shifts.  Trends are rarely formed in a month and so monthly news can often be repetitive more than informative.  With that risk acknowledged, we still feel duty bound to report the latest in the market.  Here are the latest trends:

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

Some Very Interesting Stats

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.