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.
Trilogy at Vistancia remains my favorite active adult community in the Valley. When I do a walk-through of a new home in Trilogy, I’m consistently impressed with the quality of construction. With many builders, I leave a walk-through looking like a blue-tape blizzard has blown through, due to so many quality control issues. I’ve done walk-throughs with Shea Homes where we haven’t even torn one strip from the blue tape roll. Just amazing!
Equally impressive are Trilogy customer support and onsite staff. They’re helpful to my buyers and responsive to needs after close of escrow. Every time I accompany them on a tour of Trilogy’s amenities, I learn something new.
As an obvious fan of Trilogy at Vistancia, I was pleased to receive the following email from one of the Sales Staff notifying me of a new parcel release:
I hope this email finds you well. I wanted to give you a quick update on our Trilogy at Vistancia community in Peoria Arizona. I am very excited to share we are days away from opening our next neighborhood Desert Bloom aka Parcel C-12. This quaint neighborhood will have approximately 99 home sites and will be released in phases. The first phase we will release home sites 1582 through 1622. Please let me know if you have a client who you think may have an interest – if so, highlight the specific lot of interest and I will be more than happy to provide more information!
Sales will commence on Saturday, November 17, 2012. While I am not anticipating needing a drawing, you just never know. So, should we have more than one individual interested in the same lot we will have a drawing for that specific lot to determine who has the first opportunity to purchase the home site. If a drawing is necessary it will be held on Saturday morning, November 17th, 2012. The party drawn who has the first opportunity to purchase that specific lot will have 4 hours to execute a purchase contract. Should they fail to execute a purchase contract in the 4 hour window then the 2nd interested party will have the same 4 hours to execute and so on until the lot is sold.
I have included a copy of the new neighborhood map for Desert Bloom at Trilogy (Parcel C-12) below for your reference. I also included a copy of the overall Trilogy community map so that you can see where this new neighborhood is located within Trilogy. The location is spectacular – in the heart of the community and extremely close to the Kiva Club. We saved the best for last – this will be your clients last opportunity to enjoy a new home in a premier location!!
Here’s an updated price list (remember — BASE PRICES ONLY — no lot premiums or personal upgrades):
A couple of important points to remember when you consider purchasing a new home. Most importantly, don’t EVER contact a new home builder directly until your Realtor has registered you. Otherwise, the builder will not allow you to work with your Buyer’s Agent. Furthermore, the builder will require you to sign a disclosure that says you understand and agree that the builder’s agent ONLY represents the BUILDER, not you!
Read more in one of my previous posts about new home representation in Phoenix here.
For many considering Phoenix real estate, new homes are an attractive option. Call or email if you have any questions at all! I can help you evaluate new home subdivisions across the Valley and compare prices with resale homes in the same communities, which are often available.
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
Buying sprees by billion-dollar hedge funds and real-estate investment firms have investors owning nearly 20 percent, or one out of every five, of the region’s single-family houses and condominiums, according to an Arizona Republic analysis of recent sales data.
That’s double the number of rentals considered normal in metro Phoenix in 2000, according to housing-market analysts.
Although it is too soon to gauge the impact of such a large increase in rental properties, the jump in investor-owned properties has the potential to change the character of neighborhoods, influence the options available to other homebuyers and ultimately alter the trajectory of the region’s housing recovery.
Since 2009, deep-pocketed buyers have snapped up tens of thousands of houses in all-cash deals, helping to stanch the bleeding in metro Phoenix’s real-estate market. Their purchases have driven up the region’s median home price 40 percent in the past year and significantly cut the supply of houses for sale.
While real-estate analysts laud investors for buying when others wouldn’t, analysts also express concern about the potential impact of so many buying in such a short time.
In Avondale’s 85323 ZIP code in the West Valley, with many relatively new, affordable homes, 32 percent of the houses are investor-owned rentals. That’s one of the highest rates for single-family homes in metro Phoenix.
In several other West Valley neighborhoods, more than 30 percent of all homes are rentals. About 32 percent of houses and condos in north Glendale ZIP code 85301 are rentals.
But the trend isn’t limited to the West Valley. In the East Valley, 30 percent of all homes in central Mesa’s 85210 ZIP code are owned by investors. And large swaths of the Valley’s core include ZIP codes where 25 percent or more of all residential properties are investor-owned.
Market analysts worry about investors’ impact on traditional buyers, who are finding it extraordinarily difficult this year to close a deal. Sellers, especially those of distressed properties and of homes priced below $150,000, often take the simpler route, accepting bids from investors paying cash instead of from traditional buyers who need to get a mortgage. Bidding wars on the moderately priced houses are the norm, and investors usually win.
What investors plan to do with nearly 225,000 homes they own in metro Phoenix is the multibillion-dollar question. When a handful of major investors, who together have purchased more than 10,000 Phoenix-area homes this year, decide to buy, sell or hold, their decisions will affect the rest of the market. Now, the majority of investors are renovating and renting out the properties. But if the big companies decide to take their profit in five to seven years and move on, real-estate insiders worry that a flood of houses back on the market could send prices spiraling down again.
“Investors helped stabilize Phoenix’s housing market,” said Mark Stapp, director of real-estate development for Arizona State University’s W.P. Carey School of Business. “My concerns are that too many investors are treating Phoenix’s homes as a commodity, and not the area as a community.”
Investors have purchased more than 30 percent of all single-family houses and condominiums sold this year, and their purchases have grown to an even bigger percentage of all sales in the past few months.
The type of investor has shifted dramatically this year, from small and large local investors to billion-dollar funds based in New York and Los Angeles. A Republic analysis of purchases, provided by real-estate data firm Information Market, found that in some areas of metro Phoenix, the most active three or four investors own more than half of the rentals.
The most prolific homebuyers are New York-based Blackstone Real Estate, Los Angeles-based Colony Capital and Scottsdale-based American Residential Properties. Those groups alone have purchased more than 3,000 houses in the area so far this year.
Local investor and real-estate agent Julie Bieganski is selling a 2,000-square-foot south Phoenix house for $82,000. The day the house went on the market in early October, a real-estate agent representing Tempe-based Treehouse Group made her a full-cash offer to buy the house “as is” for cash and close within 30 days. Treehouse is buying homes for Blackstone and other investors.
“According to the contract, the buyer has purchased 1,400 houses in Maricopa County in the past 90 days and plans to own the home and rent it out for five to seven years,” she said.
The investor-buying frenzy in metro Phoenix began with smaller investors like Bieganski with the cash to pick up a couple of houses as foreclosures peaked more than two years ago. With auctions running all day in front of the Maricopa County Courthouse, large out-of-state buyers’ interest in the market grew. As foreclosures slowed, many of these investors turned to short sales. But those deals must be lender-approved and take longer to close. Now, the biggest and richest of the investors have stepped in, often purchasing foreclosure houses previously bought by those earlier investors. Still bullish on the Phoenix market even as prices rise, these big investors sometimes buy one home at a time — and often 50 to 100 homes at once.
Investors now own 225,000 homes, the same number of all homes typically found in a city the size of Glendale. Their profit-focused strategy is a key issue for everyone else with a stake in the housing market.
Because of the high demand for rental homes and relatively low prices to buy, most are making 5 to 10 percent annual returns on houses by leasing them to tenants. But investors don’t hold on to properties forever, and those that control hundreds or thousands of properties can have outsize impact. If too many big property-holders try to sell at the same time, it could lead to another drop in Valley home prices.
Large investors are guarded about strategies. Publicly traded companies such as Blackstone can’t talk about future plans because that violates shareholders’ rights. Many of the latest investors in the Phoenix market want to become publicly traded real-estate investment trusts to attract smaller investors looking to grab a stake in real estate.
Colony said it plans to keep most of its metro Phoenix homes as rentals for five to seven years. The company is planning to go public next year. “We started looking at investing in housing a year ago. There’s a real opportunity to renovate homes and lease them to people who need them,” said Justin Chang, principal of Colony Capital and acting CEO of Colony American Homes. “We like what we have bought in Phoenix and the value there.”
American Residential also has a long-term buy and hold strategy. “We are not in business to flip real estate. American Residential hasn’t sold one of the 1,000 houses it has purchased in Phoenix since 2008,” said Steve Schmitz, CEO and founder of the firm. “We are in the business of providing nice, clean housing to families.”
Mike Orr, who analyzes real-estate information for ASU’s W.P. Carey School of Business, is another market analyst with concerns about the investor influx. “We don’t know their plans. They don’t want their competitors to know their plans. But they clearly have a lot of money to spend.”
The rental market
In Avondale ZIP code 85323, Liz Moad, who said she has owned her home there for three years, pointed across the street and said, “This house has had four families move in and out in the last two years.”
Empty houses that had been foreclosed on and auctioned are now rentals, said Chris Sammons, who said he has owned his home there for five years.
“Definitely you don’t want to see them just sitting there empty,” Sammons said.
“Probably within the last month there’s been half a dozen different houses where the ‘for rent’ signs have come up.”
“I think eventually when the economy picks up more, you are going to have more people that will take the next step to actually owning their own home,” he said.
Renter demand so far has kept up with the number of investor-home purchases in metro Phoenix, mostly because there are now more potential tenants. In addition to the typical renter who can’t afford to purchase a home, and newcomers moving to Arizona from out of state, former homeowners who lost houses to foreclosure must rent to rebuild their credit. Then there are the prospective homebuyers who are getting outbid by investors. Finally, there is a new group of people who can afford to buy but choose to rent.
A record 3,500 leases a month for rental homes in the Valley were signed in June, July and August, according to the Arizona Regional Multiple Listing Service. Houses in the best locations often draw competing offers.
“We were astounded by the rental market here,” said Mara Lewis, who relocated to Phoenix from Wisconsin. “Not only the up-front fees, and the methods by which they had to be paid (cashier’s checks), but the rules for what a (rental) house has to have here is very lax. We had to purchase our own washer and dryer.”
She and her husband own rental properties in Wisconsin and chose to rent here instead of buying. Lewis leased through a real-estate agency and isn’t sure who owns the house.
Jennifer Taylor said she moved out of a north Phoenix condominium because most of the units in the building were owned by different investors, and the maintenance varied by condo, as did the type of tenant. “The neighbors were messy, and I always had my stuff vandalized,” said Taylor, who recently moved to a central Phoenix condo. “Now I know my landlord, and the issues I had since moving in were all fixed that same week.”
Forecast for future
Before the boom, investors owned 8 to 10 percent of metro Phoenix’s houses. The current rate of 18.2 percent is double that. The shift is so new that it’s difficult to predict what might happen.
Stapp said, “A valid concern is whether people will want to buy homes in neighborhoods where there are the most rentals. We don’t know yet.”
But market analysts offer some scenarios.
The best-case scenario is for investors to hold onto houses for at least a few years and slowly sell to regular buyers before home prices soar. It wouldn’t have too large of a negative impact on the market if one major investor sold all of its homes as long as other major investors continued to hold on and lease out their properties until the supply of houses stabilizes again, market analysts said. Then there’s the worst-case scenario: Home prices continue to climb, and all of the major investors want to lock in their return and try to sell at once.
“It was good when all of the investors came into metro Phoenix and bought when no one else was buying,” said Orr, an early investor himself. “But it might be time for investors to take a rest, and let regular buyers have a chance.”
Source: Arizona Republic. Includes information from data reporter Matthew Dempsey and 12 News reporter Melissa Blasius.
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!
Yesterday, Michael Orr at the W.P. Carey School of Business released his July 2012 Greater Phoenix Housing Report, which includes data from Maricopa and Pinal Counties.
The market continues to evolve and certain trends are clear. In the Greater Phoenix real estate market, we’re seeing increased investor activity (especially in the lower-priced outlying areas), fewer foreclosure completions, more short sales, rising prices (despite a tiny drop between June-July 2012), and continued tight supply.
Here are some of the more interesting highlights:
- Priced dipped slightly in both the single family and multi-family segments between June and July (Avg sales price down $6,000/Median down $1,000)
- Compared to July 2011, median prices are up 31% for single family homes and 17% for Phoenix area condos/townhouses
- Distressed inventory supply (short sales, foreclosures) is down 69% year-over-year
- Total supply of Phoenix real estate is down 26%
- New home sales in the Greater Phoenix area are up 58%
- “Normal” resales are up 68%
- Single family unit sales were down about 7.5% in July 2011 vs July 2012 (likely due to limited supply)
I want to make a comment about inventory supply. In the world of economics, most agree that an unemployment rate of around 4% is considered “full employment,” because there’s a certain number of people at any given time who will never work because they don’t want to or face some condition that prevents them from doing so.
I believe the housing market has a similar dynamic. I don’t pretend to know what a “zero housing level” looks like, I do believe there are a certain number of properties that will always be for sale. The specific properties themselves will change, but at any given time X percentage of “available” inventory is considered unsellable. Location, property condition, defects in title, silent marketing, unrealistic seller expectations, Realtors who neglect to update listing status in the MLS, etc., can all contribute to this condition.
I don’t see any options to change this dynamic because it’s tough (impossible?) to isolate the properties that fall into this category, but the implication to real estate buyers (and sellers!) is that your true competition is greater (or less, for sellers) than the inventory numbers might imply. When Phoenix real estate inventory dips to 10,000, perhaps 10% of that number is actually unsellable…
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.”