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Phoenix Area Home Market at a Glance – Sales strong but not as strong as last year

Monday, June 28th, 2010

by John Wake on June 26, 2010

(”MLS Listings” are measured at one point in time, usually the 15th day of the current month. “Median Price” of homes sold and the total number of home “MLS Sales” are for the entire preceding month.)

Phoenix Real Estate Market Analysis

In May, the median single family home sold price in the Phoenix area MLS was $137,900, up from $135,000 in March and April. A year earlier, in May 2009, the price was $122,000.

I can see prices tapering off for a few months as demand goes limp with the end of the $8,000 home buyer tax credit in April. (Most Arizona home sales closed in May and many closed in June will qualify for the tax credit.)

Sales (blue line)

Surprisingly, the number of Phoenix area single family homes sold in May (7,675 homes) was less than last May (8,287 homes). And that’s despite the $8,000 first-time home buyer tax credit this year.

May was the first month this year when the number of Phoenix area single family homes sold via the MLS were less than the same month in 2009.

The median price, as you can see above, was 13% higher this year which would discourage some sales but I’m still surprised. The sales in May were good but sales were higher in May 2004, 2005 and 2009.

Listings (red line)

The number or single family homes listed for sale in metro Phoenix has been pretty steady since February ranging from about 33,000 to 34,000. The number of listings tends to fall in strong Springs but didn’t this year because an unusually large number of homes hit the market in March and April.

Although we apparently have a lot of supply of Arizona homes ready to hit the market, we are by no means in a buyer’s market.

We are definitely in a normal market with a 4.4-month supply of homes listed for sale in May. A year ago in May 2009 we had a 4.2-month supply of Arizona homes listed for sale. (I consider a 4-month to 6-month supply of Arizona homes a “normal” market.)

Conclusion

The Phoenix area real estate market is normal.

Sure, it’s hard to sell a home but that’s because of low priced competition from short sales and bank-owned homes, it’s not because homes aren’t selling.

And sure, it can be a pain in the neck to buy an Arizona short sale or an Arizona bank-owned home but homes are selling at a normal pace.

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PHOENIX HOMES BUYERS, ARE YOU BEING REALISTIC?

Friday, June 18th, 2010

Much has been written across real estate blogs and mainstream media outlets about unrealistic home sellers. It seems much less common though to talk about unrealistic home buyers.

Naturally everyone wants to get the most home they can for the least amount of money. Which is, of course, in opposition to the home seller, who wants the most money for their home. This inherent conflict is one of the things that makes real estate sales… challenging at times.

It has been my experience of late that home sellers in Phoenix are becoming much more realistic. While it used to be quite common to hear sellers say things like, “But my neighbors house sold for x dollars last year!”, sellers seem to be getting more realistic when it comes to their home’s value, as depressing as that may be.

Home buyers on the other hand almost seem to be losing their grip on reality.

Here are some examples of communication we have received lately:

We’d like to offer $30K under list price…
I want a single-family detached house in Scottsdale, on a golf course. I can spend up to $150K…
I need a home less than three years old, NOT in a HOA…
We just foreclosed last month and are looking to buy. I think our credit is horrible, and we don’t have any down payment money…
I need a smoking deal on a bank owned home or short sale. I’m willing to pay 50% of list on multiple properties…
I refuse to pay a dime over list price on a short sale or bank owned home…

I could go on and on.

The answer for all of those comments above is “you can’t do/get/buy that”.

Here’s the deal. Much of this type of thing comes from simply not understanding what is happening in the real estate market. And by “the real estate market” I am not talking about what you hear on CNN or even your local evening news / newspaper. You need to understand what the market is doing in the specific area you are interested in. “The market” is just too broad and real estate is hyper local.

As a home buyer, you can’t be expected to truly understand your local real estate market. Most people buy a home every 7 – 10 years. We are up to our necks in this stuff every single day. That doesn’t make real estate sales people better than you, or smarter. It’s just what we do for a living (and sometimes I ask myself why in the world I’m doing it…). Helping people determine the nuances of their local real estate market is what we get paid for (and why, to be brutally honest, it is very frustrating to have our data, attempts at education, and advice questioned repeatedly – or ignored).

An example:

At this moment in time, the average price of a home in the Phoenix Multiple Listing Service is $175,509. That number is for the entire Phoenix MLS area, which includes all of Maricopa County and a significant swath of Pinal county. That is a HUGE area – almost the size of the state of Massachusetts.

Listen to the mainstream media and you’ll often hear the average priced batted about – it’s rising, it’s falling, it’s hopeless, it’s recovering.

So what does an average home price in the Phoenix area of $175K mean?

Absolutely nothing.

You want a home in Phoenix proper? Average price is $132K

Scottsdale? Average price is $639K

Gilbert? Average price is $221K

El Mirage? Average price is $79K

You see, when you lump every type of home in a 10,000 square mile area into one number, it swiftly begins to become meaningless.

So let’s drill down a little bit. . .

$639K average home price in Scottsdale? What does that mean?

Only slightly more than absolutely nothing.

Right now I could sell you a condo in Scottsdale for $32,000 (but it’s not on a golf course). Or a (really) nice home for $15,000,000. About all the average price tells you is that generally, homes in Scottsdale cost more than say… homes in Gilbert, which are more, generally, than homes in El Mirage.

Here is where being a “realistic buyer” comes in to play

It is a waste of your time and your agent’s time to try to find homes that simply do not exist. That part is relatively easy to educate, and provide hard data to back up that education. Want a golf-course lot single-family home in Scottsdale? A quick trip to the MLS shows you have 323 options, and the five lowest priced ones are: $295K; $350K; $394K; $410K; and $424K. You simply can’t get one for $150K — it does not exist. Don’t waste your, mine and our time looking for one.

You want to “steal” a bank-owned home for 50% of list price? Consider this… In Feb 2010, there were 2,822 lender owned properties sold, at an average of 98.48% of list price. How many do you think were sold at 50% of list price? While I have not looked at all 2,822 sales, I’m quite confident in saying that number is zero. You can’t buy REO properties in Phoenix at 50% off list price. That’s not a realistic expectation.

That’s all hard data – you can’t argue with it (though many do).

Were it gets tough is on some of the more nebulous requests from buyers. You don’t want to offer a dime over list price on a short sale? Well, here is where you may have to rely on your agent’s expertise. I can tell you (and show you) that there are oodles of short sale listings in the Phoenix market priced woefully under market value. We could spend hours pouring over current listings and past sales to demonstrate this. But that’s not an effective use of your time (or mine). And it is still a difficult thing to prove. The problem is, there are listing agents out there with the nasty habit of grossly under pricing a short sale in an effort to generate an offer and/or bidding frenzy. Offer below list price on a home already priced lower than the bank will accept and you are looking at an exercise in futility.

When you are buying a home, you have to be realistic. You aren’t going to get everything a $500K home has to offer for $250K – it just doesn’t work that way. You’re not going to steal a home from a bank, no matter how much the banks annoy you or how much they got in bailout money. You aren’t going to live a Scottsdale lifestyle on an El Mirage budget.

Please please please, for the love of all things good and the little fluffy bunnies, don’t think for a moment that I’m saying all buyers are unrealistic, or that no one listens. Buyers are smart. Smarter than a lot of people, including many listing agents and sellers, give them credit for. Yes, it is frustrating when a buyer won’t listen, or doesn’t believe what we say. Given the general mistrust of real estate agents in the public’s eye, I understand that reluctance to believe. I understand we have to prove we know what we’re talking about. We have to earn your trust. Once that trust is earned however; take advantage of it! Believe what your agent is telling you. I can assure you that they want to sell you a home as badly as you want to buy one.

Think about what your expectations are, and work with your agent to see if they are realistic. It’s OK to ask for as much proof as your agent can provide. Realize though that some things are difficult to prove with hard factual / statistical data. Sometimes empirical data (based on observation and experience) is all you have to work with. Combine the two, work closely with your agent, build that trust and get out there and find that perfect home!

Just be realistic. It will greatly reduce your stress level. And your agents. Remember, real estate agents are people too. (At least most are most of the time…)

By – Jay Thompson

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Confusion about Short Sales and Arizona’s Anti-Deficiency Law

Tuesday, March 30th, 2010

By Jeana Morrissey, on November 16th, 2009

I consult with property owners several times each week concerning their risks, protections and obligations under Arizona’s foreclosure laws, as well as the legal, tax and practical implications of alternatives to foreclosure, such as short sales, deeds in lieu of foreclosure or loan modifications. One recurring issue that I address has to do with misinformation people are receiving from real estate agents and other sources – even legal professionals- concerning short sales.

A common assumption of many home owners and real estate agents is that Arizona’s anti-deficiency statutes always apply to protect borrowers in a short sale as well as a foreclosure. This is incorrect. The anti-deficiency protections clearly apply where a purchase money lender forecloses on an Arizona property. In a foreclosure situation, Arizona statutes and case law define the circumstances in which a lender is prohibited from pursuing a deficiency action against the borrower. In many situations, the statutes allow the lender to pursue such an action against a borrower after foreclosure…

When a borrower short sells a property, there is no automatic protection from a lawsuit by the lender for the balance of the note. Although there are cases that suggest a purchase money lender may be not be allowed to obtain a judgment against the borrower for balance of the note if the property also qualifies for anti-deficiency protection, the borrower must be sure to negotiate for a release from the lender to be protected. I am aware of situations in which a home owner, ecstatic to obtain the bank’s approval of a short sale, quickly signs the approval agreement without carefully reading and understanding its terms. In many cases, the bank has a right to sue and reserves its right to sue the borrower in the future for the balance owed on the note. It is also important to note that the 90 day limitation after a trustee’s sale for filing the deficiency action against the borrower/home owner does not apply in a short sale situation. Normal statutes of limitation apply and can run for up to 6 years in cases where the bank has the right to sue.

It is critical that all homeowners and realtors are aware of this important distinction and do not rely on misinformation when deciding whether to consummate a short sale transaction.

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Making the Decision to Walk Away: Morally Wrong….OR…Financially Sound?

Tuesday, March 2nd, 2010

Whether a homeowners ’s decision to allow his or her lender to foreclose is based on a presently existing financial hardship, anticipated financial strain over time, or to strategically divest themselves of a bad investment, the debate rages as to whether such a decision on the part of the borrower is morally wrong or financially sound.

It is important to examine this issue from an objective standpoint, weighing well-informed arguments from both sides of the debate. An excellent commentary on ‘strategic walkaways’ by Mike Bell and the ensuing robust debate on this topic can be found here: The Ethical Dilemma of Strategic Walk-Aways.

For another view, see Arizona Republic reporter Russ Wiles’ story in the February 14, 2010, called “Walking away’ comes with drawbacks.” The story says,

But the prospect of mass “strategic defaults,” where homeowners who can afford their payments nevertheless walk away, has sparked sharp words from both sides. That’s partly because these actions don’t just affect borrowers and their lenders, but other parties, too.

Update: See an MSN Money article called “Are you foolish to pay your mortgage?” and “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis” by Professor Brent T. White, University of Arizona College of Law. The abstract for this article states:

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

By Jeana Morrissey, on February 12th, 2010

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Is the Phoenix, Arizona Real Estate Market Recovering?

Wednesday, February 17th, 2010

Here’s a snapshot of the current Phoenix metro area real estate market, as I see it:

At the end of last year, the real estate market in the Phoenix metropolitan area started to pick up… not because of any government program, but because the free market works. When prices came down to a certain level, the investors came out to play. Some of those who were sitting on the sidelines waiting decided it was time. And people started buying again… not in huge droves like a few years back when people were fighting each other for houses. But then again, who wants that, really? (I was taught that slow and steady wins the race!).

Since then, I’ve seen a steady flow of buyers into the market, and many banks/real estate agents are even creating bidding wars again. Of course, these bidding wars are driven by totally fabricated demand. The bank has a real estate agent list the house for a super low price to attract multiple offers. Then instead of rejecting any of the offers, they entice all of the propsective buyers into a bidding war and tell them to make their “highest and best offer”. None of the buyers know what the other bids are, so they often times end up bidding higher than they should because they get sucked into the emotion of ‘wanting to win the bid’ rather than rationally determining what the house is worth without that emotion present. I always tell buyers to avoid bidding situations, even in a sellers market. But especially in the current buyer’s market… there are still way too many houses available for sale right now to get into a bidding war. Go find a seller who appreciates your offer more and is willing to negotiate under your terms. In a buyer’s market, the buyer should feel like they’re driving the terms of the deal, not the seller.

But realize that Arizona’s residential real estate market still faces significant foreclosures, and this will continue for some time. Supply is good for buyers and you shouldn’t let uncertainty scare you away from the market if you’re buying an owner-occupied home that you plan to keep for at least 3-5 years. However, I would advise inexperienced investors to be very careful buying Arizona real estate right now, especially if you plan to do a short-term flip. There’s money to be made, but you can also lose a bunch so just know what you’re doing.

In my opinion, Arizona’s real estate market is recovering, but is not out of the woods yet. The biggest danger to this recovery (other than government interference) is the commercial real estate market. I’m not sure why nobody is talking about it, but the commercial market could create huge problems in the coming years, especially if banking problems are not addressed. Commercial real estate market trends lag the residential market, and I don’t think we’ve even started to see the real impact of the commercial market yet. Here’s why: Many commerical real estate mortgages are 5-year or 10-year interest-only loans with balloon payments due at the end of the term. So as those commercial loans made at the height of the real estate bubble start to come due (as they currently are), the property owner (probably a small business owner) will have only a few choices. They either have to pay off the entire balance, which is unlikely for most businesses since they’re probably already struggling to make ends meet. Or they’ll have to re-finance the loan, which is also unlikely because 1) property values are much lower now and the property is probably not worth the loan amount anymore, and 2) lending standards are tighter and commercial loans are very hard to get. So if these loans can’t be re-financed or paid off, the only other option is to sell the property before the loan is due. Many property owners will wait too long, not realizing how long it takes to sell a commercial property in today’s market and will consequently face foreclosure. For this reason, I believe the commercial market could be the next big real estate crisis.

Of course, I don’t have a crystal ball, and nobody really knows for sure what tomorrow will bring. Everybody with an opinion on the future of the real estate market is really just guessing So my advice is guess carefully, and as always, buyer beware!