by Dru Bloomfield on June 21, 2009
More evidence of our changing real estate market:
The Cromford Report has defined Contract Ratio as follows:
Contract Ratio indicates how “hot” a market it. It specifically measures the number of active sales contracts under negotiation relative to the supply of active listings. It is defined as 100 x (Pending Listings + Active Listings with Contingent Offer) / Active Listings Without a Contingent Offer. The higher the number the greater the buying activity relative to supply.
If this number rises then it is a sign of growing contract activity and a positive signal for sellers. Conversely a falling number is a sign of a weakening market - either supply of active listings is increasing or contract activity is slowing, or both. In a balanced market the value of the Contract Ratio is about 30. When it lies below 20 the market can be considered “slow” or a “buyer’s market”. Above 40 can be considered a “seller’s market” and when it moves above 100 we regard this as evidence of a “buying frenzy”.
As you can see, in this chart, the Seller’s market ended in November 2005, and the Phoenix area has re-entered this realm as of March 2009. Decreased inventory and increased investor and first-time buyer demand is fuelling this surge.
by Dru Bloomfield on June 21, 2009
Here’s the latest “Good News” from the Cromford Report:
On June 20, 2009 for “all areas and types” we recorded a Monthly Median Sales Price of $124,000, up 7.8% from the $115,000 we recorded on April 30.
This is for ALL ARMLS listings and all types of dwellings, so it represents the median across this entire market. But specific sectors may be performing quite differently. The principal reason for the price increase is the change in the market in west Phoenix, where properties below $50,000 have become much scarcer and purchase prices have risen sharply due to intense competition and reduced supply. A similar increase in pricing, but less pronounced, can be seen in many other affordable areas of the valley. In addition, lender owned properties now comprise a diminishing percentage of the total number of homes sold, diluting their power to bring the median sales price down to the extreme lows we saw in April.
Pricing above the $500,000 level is still falling, but these homes now constitute a very small part of the market compared with a few years ago.
I’m representing a number of buyers and it’s been tough to get an offer accepted in the lower price ranges. Competition is fierce, even for short sales. Multiple offers are much more the norm, rather than the exception.
If you are planning to purchase a home before the end of the year, you must get your loan pre-approval before you start looking. If you find a home before you have your paperwork in order, you will be at a real disadvantage. Lenders have geared up and are able to get you the Arizona required paper work (LSR - Loan Status Report) much more quickly. However, it does take some time, so plan ahead!
by Dru Bloomfield on June 5, 2009
This is the June update I promised a couple days ago.
April 2009 - Seller’s market (<5 months inventory) exists below $175K. Buyer’s market (>7 months supply of homes) starts at $275K.
May 2009 - Seller’s market exists below $225K. Buyer’s market starts at $350K.
June 2009 - Seller’s market exists below $350K. Buyer’s market starts at $400K.
QED
by Dru Bloomfield on June 4, 2009
Over the past five years, investors have accounted for more than 10% of the home sales in:
- Tempe
- Carefree
- Phoenix
- El Mirage
- Tonapah
- Glendale
- Scottsdale
- Avondale
- Paradise Valley
- Apache Junction
- Mesa
- Fountain Hills
Surprised?
by Dru Bloomfield on June 3, 2009
Several days ago, I wrote about the much publicized wave of foreclosures that has yet to materialize, Is the REO bubble over in Phoenix?. Later that day, I read Mortgage delinquencies hit record high.
We live in a time of uncertainty, and consternation.
I’ve spent the past couple of days mulling over the differences between the two reports, and come up with the following:
- One view is short-term and doesn’t have the benefit of seeing the number of delinquencies that are actually on the bank’s books.
- Banks have been counseling their clients to stop paying their mortgages, before requesting a short-sale consideration. This aspect of mortgage delinquencies does not get mentioned much, but talk to a seller who’s behind, and I bet you the bank may have recommended they stop paying their mortgage.
- The number of short sales is increasing, and even though banks are much too slow in closing these sales, there is some improvement. Some banks now actually seem motivated to work with the seller and their agent.
- And, as the second article mentioned, the current loan modification and refinancing plan may help a bit, but not those who have lost their jobs.
A client, who has been waiting and watching the market for almost four years, asked me yesterday if I thought the timing was right to buy now. It’s always a difficult and dangerous question to answer. I’m not sure whether house prices have bottomed, although there are indications that they have. I do know that another client was complaining about interest rates going up, which has an impact, by reducing buying power.
Whether there is, or isn’t, another tsunami of foreclosures remains to be seen. If there is, banks will continue to price them according to the market, which at this point appears to be stabilized, and if there aren’t, then we can all breathe a collective sigh of relief, while we continue to work towards a more balanced and sustainable real estate market.
by Dru Bloomfield on June 2, 2009
Yesterday, I shared a year by year sales history for the City of Phoenix, showing a record number of home sales, by month, in 2009.
Today, I’ll go through the same exercise, showing the dramatic changes over the past four plus years. The year 2005 showed some phenomenal changes in the average price per square foot for homes sold. The increase of an average of $120/sf to approximately $175/sf in an 11-month period was huge, resulting in appreciation that year of approximately 45%.
In 2006, prices (red) leveled off and remained in the range of $170 to $180 per square foot.
During 2007, prices (blue) remained plateaued around $180/sf, be midyear began dropping off.
By 2008, prices (olive) were depreciating at an even faster rate than they’d appreciated at 3 years earlier.
Prices in the beginning of 2009 (gold) continued the decline, but appear to have stabilized of the past couple of months.
I think what is most surprising to me here is that prices have not started increasing. With the dramatic increase in sale we’ve seen in 2009, it seems that prices would have stabilized more quickly and even started appreciating.
Summer will be very interesting this year. Will sales continue at the level we’ve seen so far this year? What about prices? What do you think?
by Dru Bloomfield on June 2, 2009
Yes, the number of homes for sale in the Phoenix Metro market is dropping, and this inventory reduction is creeping into the higher price ranges.
As of April 5th, homes priced in the range of $175,000 were clearly in the seller’s market range, which is typically defined as 5 months or less of inventory. Homes priced in the range of $175,000-$275,000 (and maybe $300,000) are in the range, called a balanced market. All the higher price ranges, show a buyer’s market.
One month later, May 5th, shows a changed market. Homes priced in the range of $225,000 are clearly in the seller’s market range. while homes priced in the range of $225,000-$350,000 are experiencing a more balanced market. All the higher price ranges, show a buyer’s market.
In another week or so, we’ll see how things look, but I expect the lower end of the market to show an even lower supply of homes for sale, and hopefully, we’ll see that there’s been more activity in mid and upper ranges of the market.
Yet, with extremely tight lending standards for jumbo loans ($417,000 and higher), we may hit a ceiling. I hear lenders, buyer, and real estate agents all indicating this higher end of the market will be impacted until there are some changes made, but it does sound like there may be some signs of hope.
Stay tuned.
by Dru Bloomfield on June 1, 2009
These charts tell a story, at least from the perspective of the number of homes selling in the City of Phoenix.
2005 was a record year for real estate sales.
Sales dropped off in 2006 (red line).
But that was only the beginning. In 2007 (purple line), sales continued to drop, significantly.
2008 (olive line) shows that after a few weeks of record low real estate sales, a gradual and continued increase in sales lasted through September where it basically plateaued.
After the seasonal drop at the beginning of the year, sales for 2009 have continued to increase and have now very rapidly surpassed the record year of 2005.
It will be interesting to see how sales figures hold up with the decreased inventory we now have.
Tomorrow, I’ll do this same exercise for price, so you can see why I’ve been calling our market "vibrant" and "distressed". They both hold true.
by Dru Bloomfield on May 31, 2009
Mike Orr loves his numbers, even more than I do. Last week he published an interesting article on "shadow inventory" on his subscription site, www.CromfordReport.com.
While I could add my two cents to Mike’s analysis, I think he’s done such a thorough job that I’ll include the full article.
Shadow Inventory?
Some analysts have written about a so-called "shadow inventory" of lender-owned property. They speak in dark tones of an ominously vast number of properties which have been foreclosed but are not being marketed. The banks are supposedly hoarding these homes to avoid flooding the market. The implication is that when the banks finally unleash these properties onto the market we will be overloaded with supply.
This is palpable nonsense.
Let’s look at why the shadow inventory is relatively insignificant:
First, we need to establish how many properties have been foreclosed but not yet sold to a third party. It takes much time and effort to establish this, particularly because government entities are not required to file an Affidavit of Value when they deed property. They get an "A-3" exemption. However Tom Ruff of the Information Market is up to the challenge and has counted all the trustee sales, searched for subsequent sales to third parties, accounted for all the A-3s and produced a spreadsheet of shadow inventory counts by ZIP code within Maricopa county. There are a total of 18,386 homes within Maricopa county in REO status.
How many of these are in the ARMLS system as of this morning?
- 5,213 are active
- 7,170 are pending (i.e. in escrow)
- 477 are temporarily off market (in many cases because multiple offers are being negotiated)
Thus there are 12,860 accounted for. So the "shadow inventory" of REOs not currently being marketed through ARMLS for Maricopa is 5,526. No doubt many of them will be listed in the next few weeks.
Is this number likely to cause a flood? Absolutely not. This represents less than 1 month of supply based on the current rate of purchase of REOs through ARMLS (which is 5,556 as of today). In fact if this is the only new supply, the inventory of active REOs will fall over the next month, just as we expect. The trustees would have to increase the rate of their sales substantially to keep up with the current market demand for REOs.
So is the vast hoard of shadow inventory hiding in Pinal county? Well to be honest we can’t count REOs with such accuracy in Pinal due to the delays in recorded documents becoming available. What we can say is that in the ARMLS system this morning, among the lender owned properties:
- 549 are active
- 951 are pending
- 40 are temporarily off market
Thus there are 1,540 accounted for and we know the current monthly sales rate is 779. It would appear that Pinal’s supply is about 10% of Maricopa’s and Pinal’s demand is about 13% to 14% of Maricopa’s. As a result we would estimate that shadow inventory in Pinal is about 550, representing about 3 weeks supply.
So we can conclude, at least for Greater Phoenix, that shadow inventory is a fake issue.
QED
(By the way, the RealtyTrac analysis of these shadow inventory numbers seems to be flawed. They appear to have excluded pending and temporarily off market MLS listings in their analysis and only counted REOs listed "for sale" (active). Thus we believe they may have over-estimated the shadow REO inventory across the whole country.)
What I can add to Mike’s commentary is that:
- I have one lender-owned property that is not on the market yet, but will be. I’ve already been approached about its availability, but do not have a price yet to share.
- Most of Phoenix area REO properties that I have listed and are now under contract have received multiple offers. It’s been the norm, rather than the exception. For the most part, properties are selling very close to list price, or over.
- And just this past week, I called on a new lender-owned listing in Pinal County. This foreclosed property had been on the market 4 days, and the listing agent said she had 15 offers, 10 were cash, and the highest offer was 30% over asking price.
Times - they are a changing.
by Dru Bloomfield on May 28, 2009
Mike Orr is continually monitoring the Phoenix real estate market, looking for changes. Earlier this week, he posted the following on his web site:
This record is caused by an abnormally high number of pending listings (13,814) coupled with a very high monthly sales rate (9,630 today, or 9,249 as a rolling 7-day average). It looks likely that we shall approach or even exceed 10,000 sales through ARMLS in May 2009.
In addition, there are a record number of active listings with contingent offers (4,549), mostly associated with short sales. Offers for short sales are growing rapidly and closed short-sales exceeded 900 per month for the first time on May 21.
Most commentators seem to be focused on the fact that supply is still higher than normal (which it is, although falling very fast). However the extraordinary demand part of the equation is being largely overlooked. The demand, fueled by very low prices, low interest rates and government incentives, appears likely to grow further over the coming months.
Sales seem to be taking longer to close in recent months, breaking 10,000 sales this month may not happen, but homes are selling and inventory is definitely decreasing.
