The Good News, and the Not So Good News in the Housing Resale Market

Today, Bloomberg.com published an informative article by Bob Willis, on November existing home sales. Please click the link to read.
The article speaks for itself and shows the power of the free market to stimulate sales. Yes, prices were down, but it encouraged buyers to step up. I have never understood the rush to artificially prop up prices. What is wrong with lower prices? It allows more folks to become home-owners without the lowering of credit-worthiness standards that have brought us to this current debacle. Note that all government attempts at "rescue" have centered on helping the banks that were encouraged, aided and abetted by Congress and Wall Street, to offer loans to people who could not afford them. Other organizations, like the under-investigated A.C.O.R.N. and various inter-faith groups are slated to receive billions in funding to offer "counselling" to those who are in danger of losing their homes. Counselling? We are witnessing the largest single giveaway of public funds, that we do not have, in the history of this country. Future generations will pay dearly.
Senator Chris Dodds, currently under an ethics investigation due to the preferential terms and conditions of two mortgages from Countrywide, was not only in charge of this tragedy, he remains empowered as someone who is supposed to extricate us from this mess. As I write this, Dodds promised to reveal the details of his sweetheart loan 185 days ago. Click on this link to see how much time has elapsed since his empty promise.
In politics there is no longer any shame. Throughout this entire fiasco, name one politico who has resigned. Remember, Pelosi promised to "drain the swamp" and give us the "most ethical Congress ever". I'm still waiting.

North Phoenix Real Estate Market, Healthy or Not?

In response to various inquiries, I delved into the statistics of an anonymous Phoenix area neighborhood to check the pulse of the market.

Around this time of year, whilst attending a never-ending round of cocktail parties that being a busy Realtor entails, one question is posed time after time..."How's the real estate business?" the truth is- not bad! It could be, and has been, far worse.

So I decided to run the numbers on a neighborhood that has homes for sale from the low $200's, up to the one million dollar mark; and here is what I found.

In the last six months there have been 37 genuine sales, not change of ownership by virtue of a property being returned to the bank. Of these sales, 13 (35%) were regular person to person, arms-length transactions. A further 43% (16 homes) were either REO's or short-sales, and the remaining 8 homes (21%) were sold at a loss by their owners. Currently, in the same area, there are 83 homes active on the market. This means that this community has slightly more than a 12 months supply of homes available; or slightly less than 12 months if the 8 homes that are currently "pending", actually close. Not good news for sellers but definetly a buyers market.

Clearly, from the numbers I have cited, two thirds of sales have been a distress sale of some kind, which is not good for sellers. However, buyers are out in force, and taking advantage of lower sales prices. If this trend continues, it will represent a great stride towards the return of a normal and balanced market-place. Once all foreclosed and bank owned properties are absorbed, we will begin to see a return to single-digit annual appreciation.

Strangely enough, we hear some buyers are still being reticent, lest prices fall further. Whilst, no one really knows for sure if they will, it is a lucky man who is able to buy at the absolute bottom, or sell at the absolute top. Most of us just need to ride the general wave of the trend to do well. Interestingly, during the crazed sellers' market of 2005-2006, buyers were falling over themselves to purchase a home in case they missed out to higher prices. My suggestion would be to take advantage of this current buyers' market and remember that, in the long term, a home is still the best investment you can make.

If you were unfortunate enough to have purchased your home at the wrong time, but are able to weather the storm; then do so. It will turn around soon.

2009 Predictions for the Phoenix Real Estate Market

My annual attempt at the impossible. Trying to guess where real estate markets will trend in the greater Phoenix metropolitan area in the coming year.

Predicting future events is never an easy job, and more often than not, a futile exercise of vanity over reality. However, that has never stopped me from sticking my neck out! Further complicating the issue this year is the fact that we will be installing a new administration on January 20th, 2009. Also, due to the strange peccadilloes of the electorate in general, we have managed to re-elect virtually every member of Congress, (leastwise those who were up for re-election). Please bear in mind, that this was a congress whose popularity rating has never, ever been rated at a lower percentage, since records have been kept. This means that they very same congress-critters who got us into this mess, will be the ones who will be attempting to fix it! Encouraged-I am not!

I believe that the volume of sales will remain steady, or increase slightly, during the course of 2009. Here, in the Valley of the Sun, we have a great deal of affordable housing, which attracts out of state buyers. If the economy remains constant, or improves slightly, there will be a commensurate increase in sales. Notice I said "increase in sales"- not increase in prices. Big distinction. I still believe that the majority of sales will be some kind of distress sale, i.e. REO's, short sales or people losing money personally to close the deal. However, it is absolutely vital for these properties to be absorbed into the market in order for normalcy. Whatever that may be, to eventually return.

In the more affluent neighborhoods, Cave Creek, Carefree or Fountain Hills for example, I think we will see fewer sales. This is because in those areas, many of the homes are owned by retirees or wealthy snowbirders. Often, they do not have to sell, so the decision to stay in the property and ride out the storm is a relatively easy one.

So, is it going to be a good year, or a bad one? Well, it all depends on your perspective. For buyers, I think it will be all good--especially first-time buyers. For homeowners, who purchased in 2005 or later, who have to sell, there will be some degree of pain. For those who don't have to sell, or bought before 2004, it's a wash. Although, the growth they initially experienced has gone away, I think we will return to low single digit appreciation in late 2009, early 2010. Which will mean, as ever, that a home is always a good Long-Term investment.

More importantly than all of the above, however, is to stay healthy and enjoy life.

Phoenix Real Estate, How Far have Prices Fallen

Some months ago, I wrote of two homes that had come onto the market due to the owner's need to re-locate (Phoenix Real Estate, No More Mr. Nice Guy) I will briefly re-cap the stories.

Couple "A" bought a phoenix home in March 2006 for $335,000, with a substantial down payment of $185,000; or more than 50% of sales price. Couple "B" bought a more grand home, also in Phoenix, in December 2005 for the sum of $530,000, with a 10% down-payment of $53,000.

This summer, both couples were in the position of having to sell, due to the fact that their employer was re-locating them. Here is how they fared.

Couple "A" sold their home for $230,000, which basically represented a loss of one third (33%) of the initial sales price. Because of their relatively low mortgage, as a result of their large down payment, they were able to actually walk away with some cash, even though their loss was substantial. If you estimate closing costs, including commission, at around 8%, they probably walked away with around $61,000.

Couple "B" sold their home for $363,000, again representing approximately a one third loss on the initial sales price. (Incidentally, that sales price of $363,000, is almost identical to the $365,000 this home had previously sold for in April, 2004. Demonstrating quite neatly, both the dramatic rise and precipitous fall of home prices in the Phoenix Metropolitan area in the last four years.) Unfortunately, in order to close this deal, by paying off the loan plus the closing costs, they also had to write a check of approximately $156,000 to cover the shortfall. Remember, this is over and above their initial $53,000 down payment.

As you can see, home ownership in Phoenix was a very expensive and unpleasant experience for both these families. In fairness, I think it is very unreasonable to expect to live in a home for 3 years, in a normal market, and do anything more than break-even. However, these losses were spectacular.

Now contrast these stories with those of the many people who bought homes, with no money down, using adjustable loans that they knew full well they would not be able to afford. Many of those folks have just walked away from their homes. I would argue that they were never really "owners" in the first place, as they really had no financial stake in their "homes". The very people who fueled the fires of greed that were instrumental in the rise and collapse of the real estate market get to walk away scot-free. Those who had invested their own money get burned. This is what happens when government interferes with the free market. They are also the people who are going to "fix" this problem. Don't you feel safe? One of their proposals, again completely contrary to free-market principles, is to delay foreclosures in order to keep prices up. Since when were high home prices a good idea? What happens when this temporary support measure expires? Do you think prices will then go up, or down?

As the late lamented Ronald Reagan said "The nine most scary words in the English language- I'm from the government, and I'm here to help."

May God help us all!

Phoenix Real Estate, No more Mr. Nice Guy?

In the extremely competitive real estate market that is gripping the nation, and particularly the greater Phoenix area, should your agent be a nice guy?

Let me explain. First of all, should your real estate agent be a "nice"guy? (or gal, I know!) Well, whether you are selling or buying, what you need most of all, in any market, but especially in tough markets like Phoenix, is an experienced and competent agent. Many tout their longevity as a plus, and it is to an extent, but their competence is much more relevant. Ask yourself, who would be better? A motivated, 4 years experienced, internet savvy, go getter with several closings to his credit? Or a jaded, 25+ years experienced, "inter-web/tube-hating" old crank-pot? Clearly, it is not a simple question. However, let me give you an example of why "nice" sometimes does you no good, at all.
Quite recently the relocation department of my previous company had me visit with a couple who were, of course, selling their home due to a business re-location. One of the problems with the home was that it had an addition, but it was not clear whether it had been permitted or not. Plus, when they initially bought the house, it was implied that the additional footage was not recorded by the assessor, and was therefore "bonus". After due diligence, I was able to show them that it was permitted (the good news), but that there was not "bonus" extra square footage, the city had already included the footage in the assessment (the bad news). I was in competition with two other companies, but the couple chose me to represent them. We agreed to start at $259,000, but to reduce it to $249,000 within 2 weeks if showings, and interest were low.
There were a number of cosmetic items that needed to be addressed, for which we allowed 2 weeks before entering the property in the MLS. Well, the two weeks became 4, and in that interim period I had taken the decision to move to another company. I immediately returned the file to the re-lo department for them to assign it to another agent. Well, they assigned it to a "nice" guy, and this is what he did. He listened to the sellers who "wished" that the extra footage was bonus, even tough they knew it was not. In the MLS he actually wrote that the extra footage "probably" was bonus, despite the assessor's assertion to the contrary. This last act, incidentally, leaving both the sellers and himself open to a lawsuit. At their prodding, and despite having a signed agreement at the lower price of $259,000, the "nice" guy decided that they would at least try $289,000.
So, 60 days later, the price is finally $259,000 but the property is as stale as week-old bread. See, what a "nice" guy gets you?
If the agent will not stand up to his client, how on earth do you think he is going to stand up FOR you in a negotiation.
In a slightly different vein, I sometimes have clients who say (of their neighborhood Realtor) "Oh, you must meet Jim. He's the nicest guy you'll ever meet!" They then proceed to recount all the neighborhood secrets that Jim has gleaned and has happily divulged to all in earshot. Little gems like, "I listed it at $750,000, but it'll go for $650,000!" The fact that such gems are ethical violations do not bother Jim, or the people he tells. I normally respond by saying if he is telling you all your neighbor's business, don't you think he might be revealing yours" That normally gets them thinking.
Let's be honest, nice is a very overused and meaningless word. Should your Realtor be nice? It would be nice, I suppose. Ideally, you really want smart, knowledgeable, honest and diligent. Believe it or not it is out there if you look hard enough.

Pricing Your Home in the AZ Real Estate Market

Competitive pricing has always been an important factor when selling your home. Now, more than ever, it is an essential component when marketing your home in the Valley of the Sun.

Traditionally, the summer has been a time when the real estate market begins to slow down in Phoenix, AZ. Partly due to snowbirds returning home, and partly due to our high temperatures which make us less inclined to search for a new home. However, and regular readers know that I am more realistic than I am wildly optimistic, I feel that this summer season is beginning to show some signs of life.

Recent FHA loan limit increases, coupled with dramatic price reductions across the board, have opened up the possibility of home ownership to a whole new bunch of people. Many of these folks thought their chance to become a homeowner had evaporated forever, but are now being presented with a second chance. Good for them.

Unless you have been living under a rock, you will likely be aware that many homes on the market are either R.E.O.S or "short sales". Let me explain. An R.E.O. (real estate owned) is a property that has been foreclosed upon and is now entirely owned by the bank. A "short sale" is where the current owner owes more than the home is worth and, in order to sell it, will ask the bank to forgive some of the debt in order to complete the sale.

For various reasons, many banks are dis-inclined to offer debt relief so, very often, the attempt to purchase a "short sale" ends in frustration I advise buyers that if they find a "short sale" that they like, by all means make an offer. However, as response times can be long, do not let it deter you from looking at other homes. In other words, if you find another home that suits your needs, do not pass it up whilst waiting for a response that may never come. It is a simple matter to rescind an offer before it has been accepted.

R.E.O.s, on the other hand, are an excellent source for the home purchaser. I doubt that you will find a more motivated seller (a much-abused and cliched term) than a bank. They have no desire, whatsoever, to own the home and best of all, they are emotionally detached from the property.

I have been tracking one home in an upscale market that started out very well priced. Within in a month it went from "fair price", to "somewhat of a bargain", to "that seems cheap", to "is there something wrong with it?", to "sold!" A successful result occasioned by a combination of a smart realtor and an astute bank ending with a happy buyer.

Recently, I have also been seeing some spectacular reductions in the million dollar range. Some clients have even asked me whether prices are still crashing. In my opinion prices are flat to slightly soft. What we are seeing is overpriced homes, some of which have been on the market for a long time, getting introduced to reality. I see many homes priced at, or above, $1,000,000. That in reality are worth around $850,000. The owners hope against hope that some rube, preferably a cash buyer, will miraculously appear and fall so helplessly in love with their home that they must buy it. Meanwhile, back on planet earth, few buyers pay cash and there is a person called an appraiser who has to share your opinion of the price, before the bank will part with its money; so, I think you know the ending to this little story.

It seems like a good time to buy a home, or trade up to a larger home. Truthfully, no-one knows where prices will go and this is an election year, but it is certainly a better market for buyers than the past few years.

Good News in Phoenix Real Estate

At last, some good news for the Phoenix real estate market? Well, yes, but...

As I write this article, in the dying days of May, it seems that there may be a light at the end of the tunnel; and I do not believe it is a train coming towards us!

It has been reported, on a nation-wide basis, that existing home sales in February, 2008, actually rose. Something that has not occurred in seven months. So that gives us one reason for cautious optimism.

Also, the weakening of the U.S. dollar is not all bad news. It has made homes here in the United States a very attractive proposition for overseas buyers, and we have noticed a sizable increase in inquiries. Particularly from our neighbors in the north, many of whom seek retirement homes here in the Phoenix area, as a respite from the frigid temperatures that Canada often endures.

Locally, the news is a mixed bag depending on your geographical location. Carefree lived up to its name, reporting a median price 6.7% higher than last year, at $944,000. At the other end of the scale, Queen Creek saw a 19% drop in median prices. Why the disparity? Queen Creek is an entry-level community that appealed to a lot of first-time buyers, and "investors", that have been affected by the whole sub-prime mess. Consequently, the level of foreclosures and short-sales, plus the abandonment by said 'investors' has, naturally, had a detrimental effect on prices. Hopefully, this year will see these homes absorbed by real end-users to bring some level of stability back to the market.

Conversely, Carefree is an extremely upmarket, witness the median price, mostly retirement community that has emerged relatively unscathed by the vagaries of the real estate world. The reported increase of 6.7%, on the back of just 70 sales in 2007, reflects the fact that wealthy retirees, or snow-birders, who did not have to sell, are able to ride out the rough times. Also, wealthy buyers are able to pay higher prices for the quality that Carefree provides.

Interestingly, neighboring Cave Creek reported a drop of 4.7% in 2007 to $505,000. The reasons for this, I believe, are a little more nuanced. For reporting purposes zip code 85331 is used for Cave Creek. It does not make a distinction between houses actually in Phoenix, generally south of Carefree Highway, that share the zip code by post office whim. Home prices in "actual" Cave Creek have been quite resilient, but the statistics have been skewed slightly by the "not real" Cave Creek sales.

To sum up, things are starting to look up and I think 2008 will set us back on a path to normalcy, such as it is in real estate.

Buyers are timidly emerging, so sellers remember to price your home like 2008, not 2006, and all should be well.