The good news for metro Phoenix is that home values are still on a steep upswing — by more than 35 percent in November, to be exact — and foreclosures and short sales continue drying up. Ironically, that leads us to the bad news, which is that the Valley may be headed toward — and I quote the words of a local expert — a “chronic supply problem.”
Michael Orr, a real estate expert at Arizona State University’s W.P. Carey School of Business, released his latest housing report on Thursday stating that last year’s surge in Valley median home prices continued through November, which also climbed by about 3.5 percent from the previous month to $162,500.
The boost, Orr said, has been gradually pushing out cash investors, who made up 27.5 percent of all Valley home sales in November. That’s still a high figure, but was nonetheless down from the August peak of about 35 percent.
Much to the relief of traditional homebuyers, who typically need financing, fewer investors could mean a less competitive market in 2013, he said. But their woes may not end there.
The price surge has been driven by an abnormally low supply of homes for sale in the Phoenix market — and Orr believes the problem may persist, or even worsen, this spring.
“We don’t see a strong flow of new listings coming onto the market,” Orr said in the report. “For example, short-sale listings are down about 70 percent compared to this same time last year. As the market improves, it seems many people may have decided to hang onto their homes in an effort to let values keep going up. I also anticipate another possible drop in supply this spring.”
In recent months, competition for the few homes for sale has grown increasingly fierce, and more often than not favors those with cash-on-hand. Ordinary buyers have thus turned to the new-home market out of frustration. While the investor trend seems to be waning, the supply problem persists, and “Unless new-home builders can start keeping up with rising demand, we may have a chronic supply problem,” Orr said.
On Dec. 1, almost 13,500 single-family homes were for sale on the Arizona Regional Multiple Listing Service, according to Orr’s report. That’s down 7 percent year-over-year, but was still 8 percent better than November and up by almost one-third from September. But supply may dip again early this year as the number of distressed properties that once flooded the market continues to dwindle.
In November, there were 34 percent less completed foreclosures year-over-year, nearly 48 percent fewer homeowners that started the foreclosure process and a whopping 43 percent drop in overall supply of distressed properties, the report said.
That means bargain deals are now increasingly harder to come by, with homes priced below $150,000 making up only 6 percent of all supply — or about 810 homes — on Dec. 1.
“As prices go up each month, price-sensitive buyers, such as investors, get a little less enthusiastic,” Orr said. “Bargain hunters haven’t got much left to pick over, which is allowing more normal buyers to jump into the market before prices rise past what they can afford.”
The next few months may be a good window to purchasing a home as investors drop off and before prices surge up.
After three consecutive years of holding strong at No. 2, Arizona’s 2.69 percent home foreclosure rate dropped to the No. 3 spot in the nation last year, according to RealtyTrac’s 2012 year-end report released late Wednesday.
Improving from second worst to third worst is hardly an improvement by most standards however, foreclosure activity throughout Arizona was still down significantly — by 33 percent from 2011 and 51 percent from 2012.
That 33 percent year-over-year decline in foreclosure activity last year was also the fourth-biggest drop in the nation, the report said.
• Arizona’s 2.69 percent foreclosure rate for 2012 means that nearly 76,500 homes statewide had a foreclosure filing — meaning a default notice, scheduled auction or bank repossession — at some point of the year. In other terms, that’s one in every 37 existing homes in Arizona that entered some stage of the foreclosure process.
• The metro Phoenix foreclosure rate was 3.09 percent, which ranked the area at No. 17 in the nation.
• Both Arizona and Phoenix have notably higher foreclosure rates than that of the nationwide figure, which fell slightly to 1.39 percent for the year.
• The foreclosure process continues to grow longer for struggling homeowners. In the final three months of 2012, the foreclosure process took an average 414 days to complete. That’s up almost 20 percent year-over-year and the longest-ever time frame since RealtyTrac began tracking that data in 2007.
• Government-backed entities of Fannie Mae, Freddie Mac and the Department of Housing and Urban Development were responsible for 26 percent of all bank-owned inventory last year. Bank of America followed in second place with 8 percent of all bank-owned inventory, Wells Fargo had 6 percent while US Bank Corp and JPMorgan Chase each had 4 percent.
So lots of you might be happy with a proposed freeze on foreclosures. This is not good news for us here in Arizona.
Data from RealtyTrac Inc. showed that the sale of properties in foreclosure has been brisk in states like Nevada, Arizona and California. Some of the cities which saw the greatest expansion during the real estate boom such as Las Vegas, Phoenix and Los Angeles have also been the same areas which have witnessed a greater percentage of sales coming from foreclosures That is, until the recent wave of foreclosure freezes began occurring all across the country.
In these areas, having foreclosures frozen is very possibly the worst thing that could have happened to markets which were already struggling as a result of the housing crisis. Data from the report showed that sales of foreclosures made up 56 percent of Nevada-based transactions, 47 percent of transactions in Arizona and 43 percent of those occurring in Southern California. This means that freezing foreclosures also means freezing new home sales.
Major lenders including J.P. Morgan Chase, Bank of America, GMAC and PNC Financial services have all halted foreclosure proceedings. What began as a series of apparently isolated incidences has now spread to all 50 states. Experts now believe that it is unclear exactly what the extent of the problem might be and how long it might take to resolve.
This slows down the clearing out process that is necessary to bring the Real Estate market back to health and prolong the protracted period of recovery. Not good news…
For anyone who know knows me, I’m not the biggest fan of banks. If I had to identify how I felt about dealing with a bank I would put it somewhere between a trip to the dentist and an afternoon shopping with the wife at Joanne’s Home Craft Emporium. Nothing against my wife, I love her dearly but not the “quality time” I would agree to spend with her as we would carouse the aisles between the unending styles of buttons, 15,000 types of glitter and sparkly things, long rows of green foam I only though was in pillows to the overwhelming smell of Eucalyptus…
There are recent proposed laws that are requiring banks to respond to short sale offers within ten days. While waiting on banks to respond is certainly not one of my favorite things, often in my experience, it may not solely be the bank’s fault.
Realtors can contribute to the problem of the over-extended workload the bank has to deal with when they do not submit all the necessary paperwork that has to be submitted with a short sale in advance. Then when an offer is submitted, the bank is surprised and has to commit resources to follow up. For a successful short sale to take place, the seller should establish his “hardship” with the bank first. An income shortfall should also be established. Perhaps a modification should be attempted.
Many banks have in place a fast track short sale process. Wells Fargo/ Wachovia and Bank of America/Countrywide do. Once hardship and income shortfall are established, with very little paperwork, these banks will have a BPO (Brokers Price Opinion) done and provide the seller with a pre-approved sales price. They will respond to all offers within 10 business days. Short sale bank managers are in place to respond quickly.
The above mentioned banks hold the vast majority of America’s mortgages. Bank of America receives over 30,000 calls per day. The average foreclosure without damages to the home and theft of appliances, etc. costs the bank $60,000 to $70,000. They would much prefer a short sale to a foreclosure as it is cheaper. Banks are now providing moving expenses to their short sale customers. They may excuse all deficiencies on primary residences. I will follow up on the details on the nuances of short sales in later writings.
In no way am I saying banks have had no part in the present fiasco, far from it, But for now, I would caution against making banks to be the only villains in the story. You know, the one in the black cape with the curly mustache who has just tied our poor helpless heroine to the tracks in front of an oncoming train. Remember, the Government required them to lend money to people who couldn’t or wouldn’t pay them back. Government also encouraged them by telling them they could sell these loan portfolios to Freddie Mac & Fannie Mae. The officials running these agencies then cooked the books to receive large personal bonuses (These same guys are now part of the current administration btw…) Freddie & Fannie failed. All had to be rescued and bailed out by the US treasury – Freddie, Fannie, and the Banking Industry.
Real Estate will recover as will the Banking Industry. Short sales are part of the process. Those of us in the business can make it run smoother if we just do our homework. Those of us who don’t will face penalties in the not too distant future. But just blaming banks will not help speed up our recovery. We must all bone up on the rules and do our part.
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