Very often, I work with buyers who are more focused on specific property characteristics (e.g. square footage, # of rooms, interior upgrades, price, location, etc) than the type of property they purchase. They’d equally entertain a house or a condo with no strong preference either way. This is particularly true of seasonal “snow bird” residents, who tend to have stronger preferences for location.
Any home buyer who’s considering a Phoenix condo should be aware that they require a different set of considerations than a traditional home, patio home, or even townhouse.
For starters, lending guidelines have tightened across the board, but remain particularly strict for condos. The owner 0ccupancy rate, reserve fund balance, dues delinquency rate, etc, all come into play in the underwriting process. The guidelines are so strict that I know of reputable lenders who won’t even take applications for condo purchases.
Compounding the problem is that you’d think you could just call someone at the property management company to determine if a unit qualified for financing, right? Unfortunately, no. Even though I (as a Buyer’s Agent) can do some tax record research to assess the possibility of a condo qualifying for mortgage financing, the actual answer won’t be clear until the lender receives the HOA questionnaire from the property management company. And since some of the variables change monthly, so can a property’s suitability. Even if tax records and the property manager indicate there have been recent financed sales, a change in numbers could cause a property to no longer qualify once the underwriter actually reviews the questionnaire.
And here’s the kicker: The property management company charges fees of $150 and up to put the packet together and send it to the lender, and even more for expedited turnaround. Though almost everything is negotiable, it’s customarily the buyer who pays for the HOA packet.
So a buyer could go through the emotional process of negotiating an offer, arriving at an acceptance, conducting (costly) inspections, making arrangements to move, and then learning late in the process that their condo won’t qualify for financing. Even though the Purchase Contract’s financing contingency calls for a refund of the buyer’s earnest deposit, the fees (emotional and financial) paid up until that point cannot be recovered.
Now, what about cash buyers? Indeed, underwriting guidelines are irrelevant to cash buyers. However, cash buyers and non-cash buyers alike face some due diligence concerns that are especially important with a condo purchase:
- Budgetary and financial health of the community
- HOA fees and what do they cover
- Special assessments?
- Common area maintenance
- Specific CCR and bylaw restrictions (e.g. no rentals allowed or no BBQs on patios)
So if you are in the market for a condo and will be taking out a mortgage on the property, be sure to have a detailed conversation with your lender before you begin your search. That could save you valuable time and effort.
And if you move forward, regardless of the type of financing, ask your real estate agent what specific questions they’d recommend you ask to supplement yours when you call the HOA.
Election Day has come and gone and regardless of who you voted for, there will be consequences on the domestic housing market. This article is courtesy of Jed Kolko, Chief Economist at Trulia.com.
Refinancing, new mortgage regulations, and the mortgage interest deduction all won on Tuesday. But the best shot at more principal reductions might have been lost.
Throughout the 2012 presidential campaign, both candidates were short on specifics about their housing policy, to put it very kindly. They ignored housing in the debates and acted as if the housing crisis were over. Neither their actions nor their policy statements gave a clear idea of what they might do about housing. But what the candidates DIDN’T do or say helps draw out the differences between what housing policy will look like during Obama’s second term and what housing policy would have looked like with a Romney administration. Here’s what Obama’s re-election means for housing:
1. The refinancing push continues. The Obama Administration has made it easier for homeowners to refinance at today’s low mortgage rates and plans to make refinancing available to even more borrowers. Refinancing is economic stimulus since it gives homeowners with mortgages more spending money, but it doesn’t help most people on the verge of losing their homes. Although refinancing has been a priority for Obama, Romney made no mention of refinancing in his housing plan – despite strong support for refinancing from one of his economic advisors.
2. New mortgage regulations are coming. The Consumer Financial Protection Bureau, established by the Dodd-Frank Act, will set new mortgage standards by January 2013. These standards will define which mortgages are judged to be beyond a borrower’s ability to repay and would therefore trigger legal and financial implications for lenders. These standards, yet to be established, will need to strike a delicate balance between protecting consumers from high-risk loans and giving lenders the incentive to expand mortgage credit. Romney blamed Dodd-Frank for holding back mortgage lending, pledging to “repeal and replace” it. But with Obama’s re-election, Dodd-Frank–and the coming mortgage regulations–is a reality.
3. The mortgage interest deduction lives to fight another day.Romney proposed capping overall income tax itemized deductions at $25,000, which would have, in effect, reduced the mortgage interest deduction (which accounts for 35% of the value of total itemized deductions) even for many middle-income taxpayers. Obama, in contrast, is open to cutting the mortgage interest deduction only for the wealthy. Even if deeply cutting deductions finds bipartisan agreement in Congress–and it might–Obama is likely to resist gutting the mortgage interest deduction. Why? The ten states that benefit most from the mortgage-interest-deduction ALL voted for Obama on Tuesday (see table below). The average household in an Obama-voting state claims 66% more for the mortgage interest deduction than the average household in a Romney-voting state. If Obama takes a swing at the mortgage interest deduction, he’ll be hurting his supporters and putting his fellow Democrats in a tough political spot.
|States with the Most Mortgage Interest Deducted Per Household|
|#||State||Average Amount Deducted, $*|
|9||District Of Columbia||$4,581|
|* Average amount of mortgage interest deduction claimed per household. Includes households who do not itemize. National average = $3,343.|
4. A chance for principal reductions may have been lost. In his housing plan, Romney called for more “shared appreciation” loan modifications. This means that a borrower would get a reduction in their unpaid principal balance but would have to share some of the upside with whoever took the hit for the principal reduction if the home’s value appreciates. Shared-appreciation loan modifications reduce a borrower’s incentive to strategically fall behind on their payments in order to get a principal reduction. This “moral hazard” problem was one reason why many Republicans and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, resisted the Obama Administration’s call for more principal reductions earlier this year. Shared-appreciation loan modifications are an approach to principal reductions that Democrats, Republicans, and even a financial regulator could all learn to love. It would be a shame if this approach to keeping more people in their homes goes down in defeat.
Metro Phoenix home prices are expected to continue climbing during the next few years.
Housing analysts agree that demand for homes in the region is strong, and many don’t appear to be concerned about prices rising too fast and shutting the door on regular homebuyers or investors.
Several experts are looking for metro Phoenix home prices to climb more than 10 percent annually during the next three years.
“We think Phoenix home prices will appreciate 12 percent in 2013, 12 percent in 2014 and 10 percent in 2015,” said national housing analyst John Burns of Los Angeles.
He said the price increases will be driven by “boomerang” buyers who purchase after waiting three years — as required under new credit standards — following a foreclosure or short sale.
“Our major assumption is continued strong economic growth (for Phoenix) and low mortgage rates,” said Burns of John Burns Real Estate Consulting.
The Phoenix area’s median home price has jumped by 35 percent during the past year, boosting the number of sales by homeowners who are not facing foreclosure or a distressed sale. The price gains in recent months have been smaller than earlier this year.
Matt Widdows, CEO of HomeSmart, Arizona’s largest residential-real-estate brokerage, is also bullish on a further rebound in home prices.
“I would say that in the next five to seven years, we will see (home) prices back to levels we saw in 2005,” he said. “Many (Phoenix-area) homes dropped to one-third of their value in 2005, and I have no doubt that we will be right back to those levels.”
These might sound like aggressive forecasts, but even Arizona economist Elliott Pollack, whose forecasts are often conservative, recently projected Phoenix-area home prices would climb 50 percent by 2015-16.
Metro Phoenix’s median home price is currently $150,000, so it would have to increase at least 11 percent annually over the next four years to reach $225,000, a 50 percent increase.
In May 2005, the median existing-home price in metro Phoenix was $228,000.
Other analysts aren’t as bullish.
Mike Orr, an analyst with the W.P. Carey School of Business at Arizona State University, tracks home sales daily but never forecasts home prices more than a month out.
“At the moment, pricing pressure is upwards, but there is always the potential for prices to dip,” he said. His monthly report on prices is due out this week.
An unknown for the housing market is what the handful of large investors who are buying thousands of homes in metro Phoenix plan to do with them.
If they decide to sell around the same time, the supply of homes could jump, dampening prices.
That’s unlikely to happen, at least in the short term, industry experts say.
“We wouldn’t sell now,” said Justin Chang, a principal with one of the biggest residential investors in the country, Los Angeles-based Colony Capital. “We think (Phoenix) home prices will recover more.”
He said the company wants to create a real-estate investment trust next year and put its metro Phoenix rental homes in the trust, then sell shares to individual investors.
Mark Stark, CEO of Prudential Arizona Properties, believes the increase in home prices has slowed and the market has steadied.
“If additional price increases do happen, I feel they will be gradual,” Stark said. “We’re not looking at any dramatic pricing changes.”
Homebuilding in metro Phoenix was a dominant factor in the housing market until the crash. Many buyers once again are opting for new homes so they don’t have to compete in bidding wars for inexpensive existing houses.
New-home building has more than doubled this year, and the price of new houses is climbing.
“We originally forecast 10,000 permits for new homes this year, but we are going to go well past 11,000,” said Greg Burger, co-publisher of the Phoenix Housing Market Letter.
He said he expects the trend of rising new-home prices to continue for the next few years. The median price for a new Phoenix-area home is $222,000.
“Buyers waiting for the bottom of the market missed out months ago,” Orr said.
Source: The Arizona Republic, 10/28/2012
The fact is, when I do a listing presentation, I always explain to my sellers that there is a difference between “market value” and “appraisal value.” Market value represents what a ready, willing, and able buyer would pay for a property. Appraisal value is self-explanatory. Because buyers are actively in and out of properties and not merely dependent on MLS photos, I believe they are in a better position to assess value. Plus, appraisers have become increasingly conservative since taking some of the “blame” for the market run-up of the mid-2000’s. Appraisers do the best they can to quantify the value of a property in black and white terms, but without properly weighing other criteria that are important to buyers, such as floor plan, lot configuration, upgrades, neighborhood demographic/crime trends, property condition concerns not readily visible to the appraiser, etc.
This article demonstrates what happens when appraisal value and market value differ. -Justin
10/13/12: When Justin Olson put his Southwest-style ranch house outside Phoenix on the market, he got what he was expecting: an immediate batch of offers, virtually all above his asking price, which was set intentionally low to attract interest at $197,500. He chose an offer of $210,000.
But then came an unpleasant surprise. An appraiser for the buyer’s bank said the house was worth only $195,000. That limited the amount that the bank would lend, forcing the buyer to come up with more cash or negotiate a lower price.
“There was just no way I was selling that house for less than $200,000,” Olson said. His broker, Brett Barry of Homesmart, advised him that there was little chance of changing the appraiser’s mind. Olson said, “The part that blows me away — the appraisal can be such an arbitrary, personal decision and there is no appeals process.”
Adding to his indignation, a similar house two doors away was appraised and sold for $225,000.
Appraisals are generally ordered by banks so they can verify the value of collateral before granting a mortgage. Before the housing crash, when home values seemed only to rise, appraisals were almost an afterthought.
But now, with banks far more cautious about lending, a low appraisal can torpedo a deal.
The problem is so widespread that this week the National Association of Realtors blamed faulty appraisals for holding back the housing recovery, saying its members had reported that more than a third of all deals were canceled, delayed or renegotiated to a lower price because of a low appraisal. Several real estate agents said they were starting to include appraisal contingencies in their contracts, spelling out how much a buyer would be willing to pay in cash if the appraisal fell short.
Appraisers use previous sales of comparable houses to help value a home. If prices are just starting to climb, and sales take two or three months to close, there can be a lag before the change in prices is observed.
The Realtors report said appraisers were improperly using foreclosures and neglected properties as comparable homes, failing to account for market conditions like scarce inventory and bidding wars, and working in areas where they lack local expertise. The report faulted banks for using inexperienced appraisers and for creating unrealistic requirements, like six comparable sales instead of three, at a time of few sales.
“It’s holding sellers off the market,” said Jed Smith, the managing director of quantitative research for the Realtors group. “Sales volume could probably be an additional 10 to 15 percent higher if we had normal lending practices and if we had normal appraisal practices.” That in turn, he said, would create more jobs.
Appraisers and real estate brokers agreed that a ban, imposed since the housing crash, on loan originators’ handpicking appraisers had led to the use of appraisal management companies that take a healthy cut of the consumer’s fee and hire inexperienced, low-cost appraisers.
But appraisers took issue with the complaints and pointed out that unlike real estate agents, they have no bias or incentive to help complete a deal.
“Appraisers don’t set the market; they reflect what’s happening in the market,” said Ken Chitester, a spokesman for the Appraisal Institute, a professional association. “So don’t shoot the messenger. Blaming the appraiser for a bad housing market is like blaming the weatherman because you don’t like the weather.”
Olson and his buyer compromised on a price of $205,000, less than initially offered and therefore, some might say, less than the house was worth.
But any transaction involving a mortgage is limited by the appraisal — an assessment that is part science, part art and is based on a variety of factors like location and square footage.
Though Olson’s house was in good condition, the house nearby that sold for more had at least $30,000 worth of upgrades, said Craig Young, the broker who represented the seller. But Young said appraisals could still be unpredictable, pointing out that a home across the street sold for even more, $239,000.
Some appraisers said agents misunderstand the way homes are valued. For example, although bank-owned homes generally sell at a discount, that is not true in every neighborhood, said Dan McKinnon, who runs an appraisal company with his wife in Phoenix. Appraisers, therefore, do not automatically make adjustments if they are using such sales for comparison. Some bank-owned homes are in good condition, and in some neighborhoods bank-owned sales dominate the market and thus determine prices.
“If that property is in similar condition to your subject, it is direct competition,” McKinnon said.
Below is a chart from the Arizona Regional Multiple Listing Service (ARMLS) highlighting and comparing Scottsdale real estate stats between August 2011 and August 2012.
Consistent with other areas of the Valley, inventory is down (37%), as are days on market (27%), reflecting the recovering real estate market in Scottsdale.
Meanwhile, as inventory has dropped, prices have risen. The average sold price of a Scottsdale house (single family residence) was up 7.4% year-over-year, and 11.3% among all property types combined.
(CLICK CHART TO ENLARGE)
Have questions about the Scottsdale real estate market?
Drop me a line anytime and I’d be happy to help!
The housing market continues to gather strength, and the biggest gains in price now appear to be among the least expensive homes, whose values fell the most in the downturn and have weighed against any would-be recovery.
Over all, the Standard & Poor’s Case-Shiller index showed an annual gain of 1.2 percent in the price of single-family homes across 20 cities in July, according to data released Tuesday. In addition, all 20 cities showed price increases from the previous month, the third monthly gain in a row, supporting the idea that the nation’s housing market has bottomed out and, some analysts said, contributing to an unexpected bump in consumer confidence.
Luxury homes lost less value in the housing crisis and began to rebound more quickly, but lower-price homes are catching up, rising slightly faster in value than homes in the middle and upper tiers, according to an analysis of the Case-Shiller data by Patrick Newport and Michelle Valverde of IHS Global Insight, a private research firm in Lexington, Mass.
The typical lower-price home rose at an annualized rate of 1 percent from June to July on a seasonally adjusted basis. The middle tier posted a one-month gain of 0.4 percent, and the highest tier inched up by 0.1 percent.
In the last three months, Mr. Newport said, the lowest tier has been rising in value more than twice as fast as the other two categories. For the least expensive homes, “prices just shot up too fast on the way up and then went down more sharply,” he said. “We’re seeing the correction from that.”
The price cutoffs for each tier vary widely depending on the city. The cutoff for the lowest tier ranges from $86,000 in Atlanta to $349,000 in San Francisco.
Other data supports the trend. According to a report from Zillow, a real estate Web site that divides homes into three price groups, the gap in price changes between the top and the bottom of the market is narrowing. “It’s less that the top tier is cooling than that the bottom tier is strengthening,” said Stan Humphries, chief economist at Zillow. “The bulk of the recovery is due to the changes in the bottom and middle tiers.”
Even in Las Vegas, where housing prices are still slightly down over the last year, lower-end homes have ticked up in value, which may be good news for sellers but can be a hurdle for buyers. Mark Graham, a youth pastor who has been looking for a house for his family there for months, said buying a home for less than $150,000 could be a challenge.
“Houses are going on the market and within a day have multiple offers already on them,” Mr. Graham said, adding that most of the offers were from investors who did not need financing. “It’s more or less a heartbreaking market, because you get your heart set on a house, and then someone walks in with cash.”
Not every market is showing improvement on the low end, according to Case-Shiller. Atlanta and Chicago are still lagging, but in places like Boston and San Diego, the bottom third of houses are doing better.
“The majority of the cities have been more like Boston and San Diego,” said Maureen Maitland, a vice president at S.& P. Dow Jones Indexes, which produces the Case-Shiller index.
In Phoenix, which has shown the strongest recovery in housing prices of the 20 cities surveyed, the lowest third — homes under $127,000 — gained 33.5 percent from July 2011 to July 2012, while the top tier — homes above $211,000 — posted an 11.5 percent increase in that period.
Prices have been bolstered by a decline in the number of foreclosure sales and strong interest from investors, who are buying low-price properties and converting them to rentals.
In the Sarasota, Fla., area, investor demand has driven up prices for lower-end homes, said Roxanne Moore, a real estate agent with Green Lion Realty there.
“Investors are finding properties that they used to be able to buy for $80,000 or $90,000 are now going for $100,000,” she said. In addition, after a long absence, first-time home buyers are beginning to trickle back in.
Over all, home values in the first seven months of the year rose 5.9 percent, the best year-to-date performance in seven years. Nevertheless, the broad housing market is still nearly 30 percent below its high in 2006.
In four cities — Atlanta, Chicago, Las Vegas and New York — prices are lower than they were a year ago. In New York, including the surrounding suburbs, prices increased 1.2 percent from June to July, but remain 2.6 percent lower than they were in July 2011. Prices at the low end of the market — houses below $271,000 — have dropped 3.9 percent in the last year, while high-end homes — $437,000 or more — have dropped 2.5 percent.
But in an optimistic sign, consumer confidence rose in September to its highest level since February, according to a report released Tuesday by the Conference Board, a private group.
The consumer confidence index reached 70.3 points, well above economists’ expectations of 63 and a significant improvement from the upwardly revised level of 61.3 in August. Some analysts attributed the bump to gains in the stock market, while others credited the improved outlook for housing.
Source: New York Times
As further evidence that the Phoenix real estate market is in full recovery, many homebuilders are aggressively expanding their land holdings in anticipation of continued recovery.
As noted in the Arizona Republic, Taylor Morrison Homes of Arizona, for example, has already purchased 700 lots in 2012, has contracts on 1,000 more, and is seeking additional opportunities in Maricopa County.
The builder has communities under construction in the East Valley, but the current focus is on North Valley locations, such as Lone Mountain, Vistancia, Terramar, and parts of Scottsdale.
Charlie Enochs, Division President of Taylor Morrison Arizona, expects the builder to build twice as many homes in 2012 as it did in 2011.
Taylor Morrison isn’t alone. The City of Scottsdale recently reported a 52% increase in building permits issued over the previous fiscal year.
The uptick in construction activity is a function of resale inventory scarcity, frustration over short sale logistics and waiting periods, and aggressive incentives offered by homebuilders.
From my perspective, it’s refreshing to drive through new home subdivisions and see and hear the hustle and bustle of construction. For a few years, construction came to a virtual halt. In fact, in some parts of the Valley you can still see skeletons of subdivisions abandoned mid-build, victims of the housing bust and weak economy.
2009 – Home Builders Abandoned Communities
Today – New Home Construction is Back
Considering a new home in Phoenix or Scottsdale? I have helped many buyers save money by representing them on their new home purchases. In fact, purchasing a new home without dedicated Realtor representation can cost you big time!
For more information on how a Realtor can help you buy a new home, read this posting.
When it rains, it pours.
Though I’m not featured as prominently (or with a photo!) as I was in my recent interview with the Phoenix Business Journal, I was contacted out of the blue by The Globe and Mail (Toronto, ON) to comment on rising investor participation in the Greater Phoenix real estate market. Pleasant surprises like this are uncommon and I am privileged by the opportunity. I do not advertise in either publication, so this was truly “earned media coverage.”
Read the full article here or below. They saved the best comments for last…
In hard-hit cities like Phoenix, the home market rises
Foreclosures are down and bidding wars are back as U.S. real estate begins to bounce back in areas like Arizona, Miami and southern California
The Phoenix real estate market is suddenly experiencing something it hasn’t seen in years: Bidding wars.
Phoenix used to represent just about the worst of the U.S. housing market, with suburbs full of empty homes and foreclosures running so high that investors gathered like vultures at the county courthouse to snap up distressed properties.
But like its namesake, Phoenix’s housing market is rising. Foreclosures have dropped 20 per cent in the past year and the median house price has climbed about 25 per cent, making the city one of the hottest real estate markets in the U.S. But perhaps the most telling sign of a recovery is the return of heated bidding that has been a long time coming for agents like Maureen Porter.
“A good house in a good neighbourhood will go on the market for two days and they’ll already have five or 10 offers,” Ms. Porter said. “When I started my business [four years ago]there were around 56,000 homes for sale in Maricopa County [which includes Phoenix] Now there’s about 12,000 homes for sale.”
Ms. Porter said she recently took two clients from Vancouver to look at a 70-lot housing development in Goodyear, a community outside Phoenix.
“It was all dirt, there were maybe two homes built,” Ms. Porter recalled. “We walked into the presentation centre and everything but two lots were sold out.”
The housing market is showing signs of life across the U.S., with existing home sales and the median price up about 10 per cent year-over-year, hitting levels not seen since the summer of 2010. Sales and prices have been rising steadily for months, proof that the long-suffering real estate sector may have finally turned the corner. Buyers are returning thanks to an improved employment picture, record-low mortgage rates and near-bottom prices.
Housing is a critical component to the U.S. economy and improvements in the sector usually lead to a boost in consumer confidence, employment and spending. All of which is good news for the Canadian economy, as well.
The real impact of the recovery can be seen in places like Phoenix, Miami and southern California, which were among the hardest hit during the recession. The supply of homes for sale has dropped in all three locations as banks move quickly to unload troubled properties, often through “short sales” where mortgage holders get permission from lenders to sell their property for less than the amount owed. Banks often prefer short sales to foreclosures because they are a faster way to deal with borrowers.
In Miami, the median price is up 15 per cent from a year ago and the occupancy rates in downtown condominiums is 94 per cent. Southern California has a four-month supply of homes for sale, roughly two months less than what is considered a healthy market, and foreclosure sales have reached a four-year low.
Phoenix offers some of the most dramatic evidence of the turnaround. This is a city where house prices fell by up to 50 per cent during the recession and people walked away from their homes in droves, leaving vast stretches of empty neighbourhoods. Today the number of homes listed for sale has dropped by 64 per cent in the last year and foreclosures have fallen by 20 per cent. The market has tightened up so much that prices are jumping 5 per cent each month and buyers are competing fiercely for just about anything that’s available.
“We’ve now got a fully fledged buying frenzy going on while people try to buy something before they miss the boat,” said Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University.
Last week there were roughly 12,000 homes listed for sale across the city. That compared to more than 50,000 around the same time last year.
Despite the current boom, the market still has a long way to go. The median price is now about $135,000 (U.S.). That’s still well below the peak in 2006, when it reached $265,000, and it puts prices at about the same level as in 2000. And although the number of existing homes sold in April across the country rose to an annualized rate of 4.6 million, economists say a healthy U.S. housing market would see almost 6 million sales of existing homes a year.
Much of the activity is also being driven by outsiders, many from Canada, eager to snap up investments. In Phoenix, the number of “investor flips,” people who buy houses and then re-sell them quickly for a profit, has increased 31 per cent year-over-year, according to Mr. Orr.
But with prices rising quickly, good deals are harder to find. Three years ago, dozens of investors lined the steps of the courthouse in downtown Phoenix to bid on foreclosed properties, many going for well below $100,000. This week only a handful of bidders showed up for the auction and just four houses sold.
“The days of getting a property under $125,000 are slim to nil,” said Diane Olson, a real estate agent who caters largely to Canadians.
The question for many agents like Justin Lombard is whether this is a blip or a real recovery. He is cautiously optimistic.
“We’ve seen such steady progress in the way of inventory absorption that I’d be really surprised if we took a big backward step,” he said. “We hit bottom a long time ago. It’s just that a lot of people didn’t realize it because our bottom was so bad.”
Every now and then I have a media opportunity that’s too exciting not to share.
Recently, I was interviewed by the Phoenix Business Journal, complete with photo op. The Phoenix Business Journal is the leading business publication in the state with wide readership and I do not advertise in the Journal, so this was a great honor. Unfortunately, full online access to the story is limited to subscribers, so I can only include the preview.
Investors returning to Phoenix housing market, driving prices up
Real estate investors and short-term flippers are back in town — for better or worse — and once again they’re dominating the housing market for sales of less than $250,000.
Investors are buying those homes with cash, which is pushing up prices in the long-downtrodden local market, tightening inventories and squeezing out traditional home buyers.
Justin Lombard, owner of Stone House Realty of Arizona, says cash sales are starting to dominate the local housing market, preventing many buyers from finding homes.
“It’s very much like 2005 all over again at the entry-level segment,” said Justin Lombard, owner of Stone House Realty of Arizona in Phoenix.
Lombard said cash sales are starting to dominate the market for less expensive homes, as some sellers are looking specifically for …
Only subscribers can read the remainder of the article…click here if you’re a subscriber.
There are few absolute certainties when it comes to Phoenix real estate, and the debate about the so-called “shadow inventory” is no exception. If you’re not aware of that term, it refers to real estate that the banks have already acquired via foreclosure and are holding onto for the perfect moment to dump them back on the market.
Many real estate aficionados believe that the shadow inventory is not only going to quell our current market recovery, but is actually going to lead to a double-dip housing bust.
The truth will only be borne out in time, as it is impossible to accurately determine numbers of properties being held across all the different lending institutions, as well as the status of negotiations with existing homeowners in default.
A number of details seem to indicate that the Phoenix area housing market won’t be subject to a shadow inventory effect.
- Mike Orr, real estate analyst at ASU’s W.P. Carey School of Business, recently reported, “There is still no sign of any significant new supply of homes coming onto the market, and those who anticipate a flood of bank-owned ‘shadow inventory’ are likely to be very disappointed.“
- The Mortgage Bankers’ Association reported last week that Arizona’s mortgage delinquency rate fell from 6.5% to 6.2% since the start of 2012, placing Arizona 35th in the nation in delinquency rates.
- Filing of Notices of Trustee Sales in Maricopa County fell again to 3,219 in July 2012. It was 4,328 in May and 3,711 in June.
- Bank owned sales as a percentage of total monthly sales has also fallen steadily, despite a very tight inventory supply. Here’s a graphic from R.L. Brown Reports that illustrates the trend:
At the moment, most indicators point towards the fact that there will not be a shadow inventory dump in the Greater Phoenix housing market, but only time will tell. If the banks are holding significant inventory, with a 25% rise in the median sales price in the last 12 months and continued tight inventory levels, now would be a good time to start selling it off.
What do you think? Are we going to see a shadow inventory release in the upcoming months?