The official sales stats for May have been released by the Arizona Regional Multiple Listing Service (ARMLS) and the trends are consistent with what one would expect to see (historically) for Phoenix real estate and Scottsdale real estate in terms of the seasonal sales cycle.

 

Here are a few key stats for 2008, as reported by ARMLS:

 

Listing Inventory (Houses + Condos)

-January: 56,874

-February: 57,305

-March: 57,081

-April: 55,726

 

Days on Market (DOM)

-January: 110 (single family)/117 (condo)

-February: 109 (single family)/104 (condo)

-March: 102 (SF)/118 (condo)

-April: 104 (SF)/113 (condo)

 

Median Sales Price (House + Condo)

-January: $220,000

-February: $213,400

-March: $210,000

-April: $209,900

 

I believe we’ll continue to see unit sales pick up through the summer into the fall and a corresponding small correction in days on market.  Dropping prices from foreclosures, short sales, and increasingly-motivated (and realistic!) sellers will continue to stimulate demand and shorten the average market time.  Eventually, this dynamic will give way to a healthy market.

Foreclosures are prevalent in the Metro Phoenix market, no doubt about it.  Banks have recognized the significance of the problem and have recently responded with sometimes shockingly-low prices.  We’re talking about 1600+ sq ft homes, less than 3 years old, in excellent condition, priced in the $120’s and $130’s.  There are some great ownership opportunities in Phoenix real estate today!

 

So what’s the forclosure purchase experience like from my perspective?  What’s the experience like for homebuyers?  Unfortunately, each bank, each asset manager, each listing agent, and each title company has different policies and is different to deal with.  I’ve found that the listing agent, overall, has the biggest impact on the transaction, for better or for worse.

 

To start with, if you’re serious about acquiring one of the market’s better values, you’ll need to be prepared for bidding war.  One property we have under contract had 8 competing offers the first day on market and the purchase price ended up about 17% higher than the original asking price.  Still a super value, but definitely not the value it was when it was first listed.  You’ll need to be able to demonstrate solid financial qualifications, be ready to pre-qualify with the bank that owns the property (whether you intend to use them or not), and be prepared to jump through hoops.  Many hoops.

 

Either when you make your offer or when your offer is accepted, you’ll be required to complete a ‘Seller’s Addendum,” which ranges in length from about 8 pages to more than 15.  The Seller’s Addendum overrides the Arizona Purchase Contract and effectively rewrites the rules in the bank’s favor.  Short inspection periods, as-is requirements, unilateral right to rescind, etc.

 

You’ll need to be on your toes!  Many banks won’t sign the actual acceptance until they receive the closing packet just prior to close of escrow.  The implication is that you’ll be working through an escrow with no binding contract in place, only the initials or verbal word of the Listing Agent.

 

The Asset Managers who negotiate the contracts are generally number-crunchers, with little-to-no experience with contract law. I’ve seen contracts that they ‘accept,’ where they literally cross out terms and write in what they’d like to see.  Contractually, without the buyer’s signed agreement to a change in terms, it’s not a valid modification.  There’s nothing more potentially surprising than getting a copy of the accepted ‘original’ agreement only to discover that it’s been physically modified without the knowledge of the buyer.

 

And are you ready for games?  Banks today are more often than not kicking offers back and asking all parties to resubmit their ‘highest and best offer,’ even if one offer is clearly superior to the others.  It’s their effort to understandably recapture as much of their lost investment as they can.

 

I’ve seen banks ‘accidentally’ accept multiple offers then tell all of the ‘winning’ buyers that they need to resubmit their highest and best offers.  Talk about an emotional roller coaster!

 

Perhaps most frustrating is the fact that all timelines are moving targets that the buyer is expected to adhere to, but the bank and title companies don’t seem to strive to meet.  Title companies have stated for some banks that they have 24 hours to approve the Pre-Audit HUD-1 (Settlement Statement), while other title companies give other banks up to 72 hours to conduct the same approval.  If you plan on moving out of one property and right into the new one, be prepared to camp out for a few days!

 

From  my perspective, the bulk of the problems arise from the fact that much of the process is ‘loosey-goosey,’ without executed contracts that lay the entire framework of the agreement.  The bank’s timelines shift on a whim.  Executing even the slightest modifications (e.g. adding one spouse to the contract) can be such a daunting task that many listing agents will advise against even trying.  And if you are fortunate enough to have the change approved, it will (with some banks) require a full re-draw of all contract paperwork generated to date! 

 

Add to the fact that, at least in AZ, the title companies that handle large foreclosure accounts have set up ‘clearinghouse’ offices that do nothing but handle these accounts.  The escrow officers at these offices are overworked due to understaffing and customer service and communication suffer dramatically as a result.  Title companies are supposed to be 3rd party intermediaries, but that obligation does not apparently carry forward into any particular standard of service.  Today I spent 45 minutes waiting for an escrow officer who was ‘on the other line’ only to have her assistant field my call and tell me she couldn’t help me with my question and would have the escrow officer call me back when she was off the other line.  She never called back.

 

The reality of today’s market for Scottsdale real estate and Phoenix real estate is that foreclosures are here and they’re going to be here en masse for some time.  Realtors need to be organized and knowledgeable enough to protect their buyers’ interests, and adept at explaining the pros and cons of buying real estate from a bank.  Given the right expectations and a critical eye, a foreclosure can be an awesome investment!

Many Valley residents are giddy over the resuscitation of Krispy Kreme Doughnuts, as the first shop re-opened today in East Mesa.  With the donut shop’s highly-publicized, simultaneous multi-outlet shut down about 2 years ago, Valley donut lovers have not had many options for the carb-laden, cholesterol-packed treat.

 

Reportedly, several hundred customers waited in line for hours, while Krispy Kreme employees handed out free samples of milk.  The first customer was awarded a year’s supply of donuts - 52 dozen to be precise.  That should equate to about 35 additional pounds and a hike of several dozen points in his cholesterol count by mid-2009.  Congratulations!

 

A Krispy Kreme fan myself, I’m happy to see them back in the Valley and only hope they’ll open a few new stores to serve the rest of us who don’t live in the East Valley.

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Many owners of Phoenix real estate and Scottsdale real estate are actually 2nd home owners, spending their winters in AZ and their summers in other gorgeous parts of the world.  A percentage of these 2nd home owners keep one or more cars in the garage of each property they own.

 

What’s the safest and best way to garage-store your vehicle for extended periods of time?

 

According to the American Automobile Association of Arizona, there are several tips that you should keep in mind if you plan to store your car in the garage for more than a few months at a time:

 

• For the battery and electrical system: Disconnecting the battery from the system will prevent any ‘leeching’ of battery power from mysterious low-draw sources.
• For your fuel system: Drive your tank until it’s close to empty or put a can of fuel stabilizer in the tank.  Believe it or not, gas actually goes bad after a period of time.  Fuel stabilizer will ensure that the gas in your tank functions as it should, without damaging your fuel system.
• Overall vehicle care: You should take measures to protect your vehicle from rodents, which have been known to chew through expensive electrical systems in order to find the perfect place to nest or burrow.  Consider traps or poisons or a humane way of ensuring that your vehicle is safe from the pesky 4-legged creatures.

By the middle of 2008, Fannie Mae intends to introduce a program that would allow homeowners who currently owe more than their homes are worth to refinance their mortgage(s), giving them the opportunity to lock in a lower fixed rate.

 

The amount refinanced would be equivalent to the existing mortgage and only homeowners who are current on their current mortgage payments would qualify.  They could refinance loans of as much as 120% of their existing mortgage balance.

 

If rolled out, an estimated 150,000 households would qualify for this plan.  Fannie Mae hopes that, since homeowners need to be current to qualify, any who enroll in the program will remain current with their payments until the market fully corrects.

 

This seems to be a very good option for those Phoenix real estate and Scottsdale real estate owners who I really feel bad for - those who remain current with their existing mortgages but at a great cost, and who might not otherwise qualify for a short sale.

An article in the Wall Street Journal today (read it here) claims it’s ‘very likely’ that April marked the bottom of the US housing market.

 

The article contends that our market is at or near all-time lows in several key categories so that the main ingredient in a healthy market, affordability, is back.

 

The correction means that it NOW takes a only 19% of a family’s household income to pay an average mortgage than it did just a few years ago, when it rose to 25%, causing many people to avoid buying homes.  People that could not afford a home 3 years ago are suddenly able to consider purchasing.

 

With affordability and low interest rates, the article asserts, the market will begin a slow upward correction.

 

The article further points to historical market trends that show inventories begin to decline within 2 months of the bottoming of the market.  The assumption here, of course, is that our market has bottomed out.

 

Well, has our market bottomed out?  Is the housing crisis over?  I have not researched enough recently to support my position, but from my vantage point as a busy, full-time Realtor, our market has picked up over the past 2 months.  Phoenix real estate and Scottsdale real estate, in particular appear, to be turning over more quickly.  As mentioned in another recent post, we’ve been involved in several multiple bid situations in recent weeks and investors are returning en masse to our market.

 

I believe a return to even modest appreciation levels of 4-6% per year, are still 18-24 months off, possibly more.  However, I believe we will see prices hold steady and begin to slowly appreciate in the near term.

The Arizona Association of Realtors and others have petitioned to bring to the voters an initiative called, “PROTECT OUR HOMES,” which aims to implement pre-emptive verbiage into existing legislation to prevent real estate transfer taxes.  This is a very important measure for the long-term strength of our state’s housing market and for the American Dream of homeownership.

 

There are currently 36 states that have some form of transfer tax, which ranges from .1% to 2% of a property’s sale price.  This really adds up and would have the effect of preventing many families from being able to afford a home.   A 2% tax on an average $250,000 home equates to $5,000!

 

Once the tax is implemented, it can usually be raised by the city, county, or state at any time.  And since the tax does not offset property taxes, it’s effectively double-taxation.

 

Throwing money at a problem is not the best way to solve it.  Efficiency is.  Rather than raising taxes (or implementing new ones) to throw at our existing budget deficit, we should focus on waste reduction and administrative efficiencies instead.

 

I can state with confidence that Phoenix real estate and Scottsdale real estate will suffer if a transaction tax is enacted.  Tighter lending standards, poor savings habits, and uncertainty about the current real estate climate have already negatively impacted the pool of potential buyers and additional penalties, such as a transfer tax, will only further shrink the buyer pool.

 

Transfer Tax + Property Taxes = Double Taxation

 

Vote “YES” on November 4th to “PROTECT OUR HOMES!”

Congress and the President are going round and round over the right mix of reforms to help the flagging housing market.

 

Nothing has officially been settled yet, but recent moves by Republican Congressmen to back Democrat-proposed legislature could get the President’s attention.

 

Reforms proposed by Congress include:

 

• $300 billion in FHA insured loans for financially-strapped homeowners
• A $7,500 credit for first-time homebuyers
• Overhauls of the FHA, Fannie Mae, and Freddie Mac
• Permission to state and local housing authorities to use tax-exempt bonds to finance distressed subprime mortgages

President Bush vehemently opposes legislation that would assist lenders and/or speculators, and would prefer to focus on homeowner assistance.  Case in point, the President is expected to veto a $15B assistance program to be offered to the states hardest hit by foreclosures, saying it would benefit the very parties who are most to blame for the current sub-prime meltdown.

 

The issues of who to help, and how, is incredibly complicated.  There are so many different parties to blame, from lenders and loan officers, to homebuyers, to Realtors, to the government itself for not stepping in earlier to avert today’s foreclosure crisis.  The challenge is that, while there may have been SOME opportunistic loan officers, SOME homebuyers who bought more than they could afford, and some Realtors who may have knowingly failed to council said homebuyers, the bulk of the blame does not lie squarely on the shoulders of any of these groups.

 

With respect to Phoenix real estate and Scottsdale real estate, I can’t help but feel for the responsible homebuyers who purchased properties at the height of the market, responsibly, often with 20% down, who now have no chance of even breaking if they had to sell today.  What do you do to help these buyers, who were victims of nothing more than bad timing?

Ironically, the Phoenix real estate market is being hurt (again) by homebuilders in a sort of pendulum back swing effect.

 

The run up in the Valley’s housing market in 2004-2005 was exacerbated by over-building coupled with irresponsible lending practices by the builders themselves. Many builders sold double-digit units to investors who were clearly poised to either re-sell or rent their units out upon completion of construction. Neither high resale inventories nor high percentages of tenanted homes helps local property values.

 

As with many lending institutions, some builders’ financing arms were overly lax with application approvals, putting some homeowners in risky programs that we’re seeing play out in today’s market.

 

For an interesting article on how homebuilders contributed to today’s crisis by jumping into the mortgage business, click here.

 

Now we see builders, in a desperate play to generate cash flow and “hit their numbers,” slashing prices so steeply that they’re hurting their own customers, many of whom are experiencing such huge losses in equity that it will be a decade or more of historical appreciation rates before they can even hope to break even.

 

When builders slash prices, they do accomplish their goals, but they hurt surrounding homeowners in other ways, too. By lowering sales prices, they affect ‘comps’ values. Comps are used in most appraisals to determine fair market value for a given property. So properties that sell at fair market value in the eyes of the buyer and seller, but not in the eyes of the bank, won’t close escrow unless the buyer and/or seller ‘take their lumps’ and compromise. Either the seller lowers the price or the buyer comes up with cash, if they want the deal to happen.

 

Furthermore, homeowners who have responsibly accrued some equity in their homes and want to pull some out through a refi may not be able to do so.

 

And all surrounding communities that have already been built out, suddenly find themselves competing with the builders if they decide to sell.

 

To the builders, this is business. To homeowners, it’s intimately personal. Unfortunately, the builders have the advantage of deep pockets and being able to control the game, at least within their communities. The homeowners are the ones who suffer in the long run.

The Federal Reserve’s Proposal a few months back to require more stringent verification requirements for new mortgages under so-called ‘exotic’ terms was not surprisingly met with significant resistence by 3 of the leading banking trade groups:  the American Banker’s Association, the Mortgage Banker’s Association, and the Independent Community Bankers Association.

 

The legislation would force lenders to show that sub-prime borrowers are able to afford the loans for which they’re applying.  Gee, there’s a novel idea that should have been put in play a long, long time ago.

 

The groups argue that implementation of the policies would make some creditworthy individuals unable to qualify for financing and would increase the costs of mortgage loans, apparently in the form of administrative overhead and legal costs.

 

Perhaps another reason for the resistence is the fact that the regulations would require more transparency of formerly ‘hidden’ fees paid to the mortgage broker.

 

This is sure to be an intersting battle, as influential banking lobby groups try to gain traction at a time when many policymakers and ‘average’ citizens alike place much of the blame for today’s housing market crisis squarely on the mortgage industry.

 

If the proposal is intelligently designed and implemented so that it doesn’t bog down the system, who can argue with the objectives??