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.
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?
Phoenix real estate is in full recovery.
The excerpt below was posted by Inman News on Thursday, and it calls attention to the top 10 US markets (among 146 anaylzed) for median price increases. The Phoenix, AZ real estate market topped the list with a 23.5% increase in median home prices from March 2011.
Anyone following the Phoenix real estate market (or my blog postings!) has recognized that the Phoenix housing market has been slowly strengthening in terms of inventory (supply) and unit sales (demand). We just hadn’t experienced the price increases that are to be expected with the law of supply and demand. Earlier this year we hit a point where ‘the market’ suddenly woke up and realized that dwindling inventory coupled with continued solid demand for Phoenix real estate has reached a critical level. Now it’s a strong seller’s market in the sub-$300k segment.
Whether you’re a real estate investor, a first time home buyer, or a local Phoenician looking for a move-up home, now might be the time to capitalize on the upswing as Phoenix real estate continues its turn around.
Here’s an excerpt from the Inman News article:
Top 10 markets for rising list prices
Realtor.com finds list prices up nationwide in March
Editor’s note: Data from Realtor.com’s first-quarter real estate trend data report. The report analyzes data for 146 U.S. metros and includes single-family homes, condos, townhomes and co-ops.
The spring homebuying season continues its brush with optimism with median list prices of homes for sale nationwide up 5.56 percent over the last year, according to Realtor.com data updated through March 2012. The jump to $189,900 brings the national median list price close to what it was two years ago.
Continuing a distressed-market turnaround trend, the Phoenix-Mesa, Ariz., metro took the No. 1 position on the list with a 23.5 percent jump from a year ago, to $179,000. The Miami metro made No. 2 on the list with a 22.27 percent list-price increase from a year ago, to $269,000. Both Phoenix and Miami were among the top 10 metros for year-over-year reductions in for-sale inventory, ranking No. 3 and No. 5, respectively.
Florida showed especially strong in median list-price growth in the last year, with five of the top 10 metros located in the Sunshine State. In addition to Miami, Punta Gorda made the list at No. 4 (17.5 percent), along with Daytona Beach (No. 8 at 15.47 percent), West Palm Beach-Boca Raton (No. 9 at 15.38 percent) and Naples (No. 10 at 15.38 percent).
Although they didn’t make the top 10 list, strong growth in median list prices in other Realtor.com-tracked Florida and Arizona metros like Fort Myers-Cape Coral (up 15.31 percent), the West-Ariz. rural statistical area (up 13.64 percent) and Fort Lauderdale (up 8.39 percent) suggest a bottom has formed in these hard-hit housing markets.
However, Realtor.com analysts noted that the large shadow inventory of potential foreclosures in these states could undermine this optimism and keep prices low as supply floods the market.
The Phoenix metro area has had a particularly notable shift in fortunes. In March 2011, it was No. 4 in the top 10 metros Realtor.com tracks for year-over-year median list-price declines. The median list price was down 14.2 percent from March 2010. List prices are a leading indicator, and may reflect optimism about a market that doesn’t always translate into actual sale prices.
The current median existing-home price in the Phoenix metro area is $124,500, less than half of the metro’s peak list price of $267,000, seen in the summer of 2006 at the height of the housing boom.
Source: Inman News, 4/26/12
Here’s an understatement from Tom Lindmark at Wall St. Pit Global Market Insight on 4/19/12. The author, perhaps not a resident of the Valley, seems to imply that our market isn’t as frenzied as is being reported. While I understand that he’s making a point that he believes most of the activity is investor driven and pertains to the lower priced market segments, he’s missing the bigger picture. You see, in any market, regardless of location or preference for buyers or sellers, the lower price points experience the greatest turnover for several obvious reasons, including first time home buyers, income distribution, financing regulations, and overall volume of available inventory.
It’s worth noting that during the housing boom, the median home price in the Greater Phoenix market only reached an all-time high of $264,800 in June 2006. So one-half of all Phoenix real estate sales activity was under $265k and one-half of the sales activity was above that price.
It’s also worth noting that the record high number of units sold in a single year was 104,725 in 2005 (when the median sales price was even lower) and the second highest year was 2011 (last year), when 101,436 units were sold. From a historical standpoint, nobody can dispute that more than 100,000 units sold represents a significant level in the Phoenix real estate market.
You see, sales activity levels are similar to what they were during a time that nobody disputed that our market was on fire. Furthermore, the majority of sales activity occurred the same (sub-$250k) price point.
Having been a Realtor in Phoenix during the height of the Phoenix real estate market boom and having experienced the bust, my perception (validated by market facts) is that the dynamic is consistent with what we saw in 2005. Furthermore, while lending guidelines have no doubt dampened the jumbo market, the best opportunities at all price points are selling fast and often with multiple offers received.
I don’t pretend to know how long the Greater Phoenix real estate market will remain this competitive or whether we’ll see another surge of foreclosures, as some predict. However, nobody can deny that our market is extremely competitive right now…except perhaps those who aren’t making a living by working in it on a day-to-day basis.
Anyway, here’s the article. What are your key take-aways?
Signs of Life in Phoenix Housing
What’s going on with Phoenix real estate. If you believe the realtor hype prices are going through the roof, supply is practically non-existent and buyers are trying to shove competitors aside to get what homes are available. As you might suspect the truth is a bit more nuanced.
To get some perspective on the market I pulled up the latest (Feb. 2012) report from Arizona State University’s business school. It paints a picture of a market on the mend, albeit in less than an organic mode, but one with wide price trends among the various sales components. Here are their headline observations:
• Overall single family home prices are now higher than 12 months ago:
o The median sales price is up 8.3% from $115,000 to $124,500
o Average price per square foot is up 4.1% from $81.07 to $84.36
• Pricing has moved higher since reaching a low point in September 2011
• Supply is down 42% compared with 12 months ago
• Monthly foreclosure starts rose in February 2012 but were still down 9% from February 2011
• Monthly foreclosures completions were down 52% from February 2011
• There has been a 72% reduction in the number of homes reverting to lenders at trustee sale
• Overall sales were 9% higher than in February 2011
• Single family home sales increased for
o New homes (up 26%)
o Normal re-sales (up 63%)
o Investor flips (up 71%)
o Short sales and pre-foreclosures (up 34%)
o HUD sales (up 9%)
o Third party purchases at trustee sale (up 15%)
• Single family home sales reduced for:
o Bank owned homes (down 40%)
o GSE (Fannie Mae, Freddie Mac, etc.) owned homes (down 58%)
As a point of clarification, all the comparisons in these bullet points are February 2012 to February 2011.
The number that I suspect jumped out at you is the 8.9% increase in the median sales price. Don’t start hyperventilating. Go to the article and you will find a couple of graphs that clarify the situation. You’re going to see that the sales price of new homes and normal resales in fact declined 2.2% and 22.2% respectively. Things aren’t quite coming up roses yet. The overall increase in sales price was driven by sales of foreclosed homes and investor flips, though to be fair the decline in normal resales is overstated due to the absence of sales at the higher end.
To put this another way, investors are crawling all over each other to get what for the time being is a dwindling supply of appropriate rental property and in the course of doing so are driving up prices. A few of them, probably the smart ones who got in early, are taking their money and running.
Nevertheless, the supply of homes for sale under $250,000 stood in February at a 25 day supply. You don’t have to be a student of real estate markets to understand that represents a considerable supply/demand imbalance. Assuming investor demand remains solid, an inordinate number of current investors don’t decide to cash in and organic demand builds, even slowly, it seems reasonable to expect Phoenix real estate prices to firm if not escalate.
Here is the summary from the ASU report:
After a slump during the third quarter of 2011, the Phoenix residential real estate market has improved significantly for sellers and a swift recovery is now well under way. Supply of single family and condo homes is now very low, interest rates are low, the economy is showing signs of life and prices are still very affordable
compared with salaries and rental rates. However the supply of homes is now so tight that buying one is ften quite a struggle, primarily due to the intense competition for the few homes available for sale. Public sentiment toward housing remains relatively poor but is now starting to improve as signs emerge that the worst of the housing crisis is over. Loans are still hard to come by and a financed buyer is usually at a distinct disadvantage when competing against a cash buyer who is prepared to waive their appraisal contingency.
With prices that have declined from their peak in June 2006 more than almost anywhere in the US, we still have a large number of homeowners with loans that exceed the market value of their home. Following the launch of HARP 2.0 and the recent settlement between the states and five large lenders,these homeowners may have more of an opportunity to refinance into low interest loans. This will not resolve their underwater condition, but perhaps it will reduce their monthly payments and allow them to feel less financial stress. At the moment the success of these programs remains to be proven.
Given that wholesale reductions in loan principals appear unlikely, the main mechanism available to solve underwater loan problems is for prices to rise. Overall prices have already improved by some 15% since September 2011 and are currently on a strong upward trend. However that trend is fueled mainly by the rise in the prices of lender owned properties, auctioned homes and flips. Normal re-sales and short sales have yet to really participate in the improving price movement. It will take many months of strong improvement for the negative equity problem to abate, and there is little chance of pricing achieving the heights of 2006 in the medium term. However we now have a severe supply/demand imbalance that favors sellers and sets us up for the possibility of a significant rise in pricing at the lower and middle sectors of the market in the immediate future.
For what they’re worth, some observations:
- The significant amount of rental property acquired by investors over the past few years will probably constitute a shadow inventory for some years to come. As interest rates rise creating investments that are equal or superior to their investment real estate, expect this class to look towards cashing out. Keep in mind that maintenance costs are going to increase as the properties age, so the overall return is probably going to decline.
- The still disappointing level of new homeowner buyers is discouraging given the attractiveness of prices, escalating rents and extraordinary interest rates. I suspect this has something to do with fresh memories of the crash as well as less than stellar incomes. A lot of potential owners have jobs but they aren’t pulling in the incomes they enjoyed before things went south. Discretion for them is the watchword.
- A truly organic market in which first time homeowners become move-up buyers and thus support the higher priced end of the market is probably years away. Consequently the upper end of the housing market will most likely suffer for some years to come.
It strikes me that the macro view hasn’t captured the dynamics of the Phoenix real estate market and I suspect that’s true of other real estate markets as well. The data tends to be too sketchy and dated to adequately reflect granular changes. To that end, one should probably be leery of reports that attempt to paint too dire a picture of the market generally as well as skeptical about the need of or utility of large government programs intended to “cure” housing.
For buyers looking for properties in the Phoenix area, it might seem like the market has changed overnight. Media reports have been pumping that “it’s a buyer’s market!” for (literally) years. Indeed, for years that has been true.
However, a look at historical numbers shows that the Phoenix real estate market has been improving for years by at least two measures: new listings and number of units sold.
A look at new listings shows that, with the exception of a slight increase from 2009 to 2010, the number of new listings per year has been declining since 2007. In fact, the annual total of new listings in the Phoenix area was lower than the height of the market in 2005 (in terms of median and average prices).
The chart above represents the supply side of the equation. Now let’s look at demand.
You can see below that 104,725 homes were sold in 2005, then the number of units sold plummeted to much lower levels for the next 5 years. In 2011, the number of homes sold in Greater Phoenix was almost on par with the frenzied year 2005. And 2012 is off to a robust start!
I’ll cover price changes in an upcoming post but, thanks to Economics 101, we can reliably predict that a drop in supply (# of listings) and an increase in demand (units sold) should lead to a corresponding increase in prices.
To be continued…
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?