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?
The following stats are sourced from the Arizona Regional Multiple Listing Service (ARMLS) as of today, 3/29/12.
The data includes residential properties (houses, patio homes, town homes, and patio homes). It excludes land, multi-family properties (2+ units), commercial properties, mobile homes, and timeshares.
The search area covers a 40-mile radius centered on Phoenix Sky Harbor Airport, creating a circle with an 80-mile diameter.
Total Active Inventory: 11,627 units
Single Family Homes: 9,496 units
Patio Homes: 276 units
Condos/Town Homes/Other: 1,853 units
Total AWC/Pending Inventory: 20,011
Single Family Homes: 17,472 units
Patio Homes: 249 units
Condos/Town Homes/Other: 2,293 units
Trailing 30-Day Sales Data
Total Sales: 7,482 units
Single Family Homes: 6,335
Patio Homes: 133
Condos/Town Homes/Other: 1,014
Average Sales Price: $184,455
Median Sales Price: $131,000
If you have any questions about these stats or about the Greater Phoenix real estate market in general, feel free to post them below.
The City of Phoenix will receive about $40M from the Housing and Economic Recovery Act to bolster the hard-hit Phoenix real estate market. The funds are almost double what was expected, which is really not a good thing, as the funds are based on need.
The grant will be applied across a number of initiatives at the City’s discretion, and could range from buyer assistance of foreclosures to rehabilitation of distressed properties. Unfortunately, the funds will only provide assistance for ‘up to’ 500 of Phoenix’s 11,000 foreclosures, or just under 5%.
If you’re in the market to purchase a home, your Phoenix real estate agent or Scottsdale real estate agent can help you stay informed about various assistance programs and incentives that might be available to you.
The Phoenix real estate market is wide open with exciting opportunities for prospective homebuyers. With astute research and some negotiating, opportunities abound. The downside to any imbalanced market is that the presence of a clear-cut winner also implies the presence of a losing party.
The Scottsdale real estate and Phoenix real estate markets currently face among the highest foreclosure rates of any major city in the United States. The huge boom cycle of 2002-2006 has created an echo where an increasing number of homeowners find themselves in financial distress. What can homeowners do in this situation to possibly avoid foreclosure and keep their homes?
- Don’t ignore the issue! They say ‘ignorance is bliss,’ but it’s also one that’s paid for in spades when you’re talking about financial delinquency. Act now & you will minimize the negative consequences.
- Let your lender know! Contact your lender the moment you recognize that you could be in trouble. Now more than ever, lenders are working hard to keep borrowers in their homes and keep their real estate holdings down. Banks aren’t in the business of owning homes…
- Read the mail from your lender! Be sure to open all mail that your lender sends to you. You need to know exactly where you’re at and what your options are.
- Seek professional advice! There are a few professionals that you should contact the moment you recognize that you may be in trouble: a good Phoenix Realtor, an attorney, your accountant, and the loss mitigation specialist at your bank. Each of these professionals can provide targeted advice to help you make the right decisions for your particular situation. It is critical to know your rights and the options that are available to you at every stage of the process.
- Call HUD! Did you know the US Department of Housing and Urban Development offers low-cost (sometimes free!) counseling for distressed homeowners? Why not let a knowledgeable HUD Counselor discuss your options with you? Call (800) 569-4287 to reach HUD.
- Pare down your budget! Take a close look at your household budget for miscellaneous expenses that might be pared down or even eliminated. Do you really need that subscription to Netflix? Or the premium cable TV subscription? Several small reductions in your budget can make a huge difference in your ability to make payments on your home.
- Increase your readily-available cash! Brainstorm on ways you might be able to increase your monthly household income and/or contribute to your savings. Is a 2nd job possible? Can you sell the quads or the boat to cover the next few months’ worth of payments?
- Beware! When your lender sends you the 3rd notice that you’re delinquent on your house payment, it also files a Notice of Public Default. The Notice is a public-domain filing that notifies those who look for it that you’re behind on your payments and at risk to lose your house to foreclosure. Some companies, both ethical and unethical, will approach you with options to prevent foreclosure. So-called foreclosure prevention companies will charge you fees to negotiate with your lender, which you may be able to do just as successfully on your own after consulting with a HUD counselor. Another common scam is for someone to approach you with the promise of stopping foreclosure action on your home by having you sign the home over to them and becoming a renter. Some services are ethical and above-the-board, but many are not. In general, if someone asks you to sign your house over to them and lease it back as a tenant, it means you have enough equity in your home to be able to sell it through traditional channels or to figure out a workout with your lender. In the worst cases, your property could be ‘given’ to the scammer who then sells it out from under you. If you decide to work with a foreclosure prevention specialty company, be sure to review VERY CLOSELY any documents that you’re asked to sign. Even better, have them reviewed by an attorney or a trustworthy Realtor.
A report released last week by Arizona State University revealed that property values fell 18% year-over-year from April 2007 to April 2008. Foreclosures are mostly to blame for the decline, as buyers gobble up deals as banks get more and more aggressive with their ever-growing REO holdings. In fact, estimates indicate that 20-30% of April sales were foreclosures.
Now is an awesome time to snap up some amazing investment properties or to consider moving up to a new Phoenix or Scottsdale home. Consult your Realtor for a list of foreclosures and short sale properties, or for deeper analysis of today’s market. A professional with experience in finding and acquiring the ‘right’ properties can be an invaluable asset in maximizing your return on investment.
If you’re a home seller in today’s market, it’s equally important to work with a qualified professional so as to maximize your chances of selling for top dollar in the shortest time possible.
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!
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.
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?
The following post draws heavily on points from a recent article written by Michelle Lind, General Counsel for the Arizona Association of Realtors, and merits the attention, in light of its relevance in today’s mortgage market:
Here are some options and resources for a homeowner in default.
Contact the Lender or a HUD-Approved Housing Counseling Agency
The natural reaction by many homeowners is to hide their heads in the sand in denial, until it’s too late. To the contrary, the sooner you approach your lender about your situation, the more likely you are to work out a favorable resolution to your difficult situation.
When you call your lender, ask for the “Loss Mitigation Department” or the “Department responsible for negotiating loans in default.” Explain the situation to them and find out if there are any loan workout options.
If you don’t want to talk to the lender directly, contact a HUD-approved housing counseling agency, who can contact the lender on the homeowner’s behalf.
When you call your lender or counselor to discuss your options, have the following information on hand: loan information, monthly income documentation (pay stubs, tax returns), monthly expense documentation (utilities, child care, car payments, etc.). The lender may also require the homeowner to complete and return a loan workout package.
Possible Loan Workout Options
Possible workout options include:
- Reinstatement: Paying the total amount owed in a lump sum by a specific date in exchange for forbearance.
- Forbearance: An agreement to reduce or suspend payments for a short period of time.
- Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
- Loan Modification: An agreement to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified, or the loan term extended.
- Claim Advance/Partial Claim: If the loan is insured, the homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current. If so, the homeowner will be required to sign a promissory note and a lien will be recorded against the home until the loan is paid in full.
The Option to Refinance with Another Lender
If the lender will not agree to a workout, you can look into refinancing the loan with another lender. Resources include:
Sale Options to Avoid Foreclosure
If neither loan workout nor refinance is an option, you may consider selling the property. The lender may elect to work with the homeowner to sell the home and avoid foreclosure. The options include:
- Work Out Sale: An agreement not to foreclose for a specific amount of time to allow the home to be sold and the loan to be paid off.
- Short Sale: In a situation where there is more debt owing against a property than the property’s value, the lender may agree to allow the property to be sold for less than the loan amount and/or accept less than the amount owed as payment in full.
- Assumption: The lender may allow a buyer to assume the loan and purchase the property even if the loan is non-assumable.
Deed in Lieu of Foreclosure
The lender may allow a homeowner to give back the property, an option that may not be possible if there are other liens against the property. Other resources include:
Be Aware of Predatory “Rescue” Scams
While there are many reputable and ethical groups that can help homeowners out of their desperate situation, there are also many predatory scam artists who troll the foreclosure lists for susceptible homeowners. Common scams include:
- Loans with high interest rates and unaffordable repayment terms
- Loan assumptions where the homeowner is not released from liability on the loan
- Offers to repay the loan or sell the property if the homeowner signs over the deed
- Counseling agencies that offer counseling for a fee when it is available at no cost
Remember, if it sounds too good to be true, it probably is. Be sure to report suspected scams to the Department of Financial Institutions.
Naturally, one of your best allies and advocates is an experienced and reputable Realtor.