Market Updates

Despite the Fears, It’s Still a Good Time to Buy a Home

September 13, 2010 By Jon Griffith Leave a Comment

The Condition of the Market

Government has a way of destroying all hopes of a successful economic cycle by creating artificial markets through incentives. The most recent example is the tax credit offered to new home owners. By giving away tax-payer dollars to buyers who wouldn’t be buyers otherwise, it creates a buying frenzy for the short-term mindset of the ever-so-common paycheck to paycheck wage-earner.

The problem you’ll find in this is that when you create imaginary markets, they become, well, imaginary. In the Phoenix market, what we’re seeing today is a slow-down in buying. We’re experiencing an increase in inventory (more homes going on the market than being sold), and that’s part of a widely known law called the Law of Supply and Demand. When supply increases and demand does not, or even worse, when demand recedes, the prices fall.

Today, we have thousands of homes that are awaiting foreclosure that aren’t even part of that inventory count. Those homes equate to increased supply. Buyers are not buying because they’re afraid that once they buy they’ll be upside down in their home. This may be true, but you must look at one important factor.

Owning Real Estate is a Long Term Prospect

Don’t buy if you aren’t prepared to own for the long haul. People who get into owning homes before they think about the fact that they may need to be there for a long time aren’t doing themselves any favors. Part of their monthly mortgage payment goes up in smoke, and the cost to sell in the future means the home needs to appreciate in value enough to cover the fees associated with selling.

This is not an argument against buying. It is an argument for “buying at the right time.”

Buying at the Right Time

Buying at the right time doesn’t mean that you’re timing the market. It doesn’t mean you’re looking at the appreciation of real estate as a means to financial independence. You’re not gambling in this world if you’re truly ready to buy. Buying at the right time means that you’re ready to buy, whether the market is up, or down. If you understand the fundamental purpose for home ownership…to build life-long wealth…then you’re ready to buy. If you have a down payment of at least 20% of the purchase price and you’re going for a loan no longer than 15 years at a fixed rate, then you’re ready to buy.

If you have to use FHA financing, you’re probably not ready to buy. Sure you may be able to weather the long haul, but without a goal of knocking out your mortgage payment faster than the amortization schedule, then you shouldn’t be buying.

When should I buy?

When you resolve to keep the home for life, creating a possibility of future passive income.
When you see that your mortgage payment will be less than rent for a comparable property. (This is a big one.)
When you have at least a 20% down payment.
When you’ve resolved to take no more than a 15-Year fixed mortgage.
When you’ve eliminated all consumer debt.
When you have no car payment.
When you have no student loan debt.

So what do I mean when I say, “it’s still a good time to buy a home?” The answer is simple. If you’re ready to buy, then it’s a good time to buy, because you’ll be holding the property for life. Not prepared to do that? Don’t buy.

Filed Under: Market Updates Tagged With: buying, home, mortgage, Right Time

This Is Going to Hurt

July 7, 2010 By Jon Griffith 2 Comments

The economic crisis as we have experienced it thus far has been rather devastating. I have close friends who are out of work, who have been forced to sell their homes for less than they owe, and who have lost everything they have. I’m thankful that I’m able to be there to help them through this time.

All but one of the homes that I have sold in the past 2 years has been under water. I also haven’t placed a buyer in a non-distressed home (short sale or foreclosure) in the same time frame.

Some said that we would be out of this mess by now. Reality dictates otherwise, and it’s been that way for a while. We can continue down a road of denial steeped in a bog of irresponsible optimism, or we can open our eyes and see the housing market for what it is.

If you’ll recall, when the market shot through the roof sporting unsustainable prices, it was a direct result of lenders offering incentives (free money) to people who weren’t in a financial position to buy stamps, let alone a house. When you give money away, you are effectively stealing future business from the marketplace. In other words, millions of people who would have otherwise not purchased a home until a future date were lured into buying.

The consequences of those purchases resulted in a surplus of homes, and if you know anything about the laws of supply and demand, when there’s too much supply, the price of the product naturally falls because the suppliers (home sellers) are forced to compete against each other, which means lowering their prices to be competitive.

Many economists share the opinion that the free market can take care of itself without intervention. One example of intervention is minimum wage. Minimum wage is an example of a price floor. In other words, we artificially set a price for the supply of labor regardless of the demand. It’s manipulation of the basic laws of supply and demand, and it doesn’t work.

In the real estate market, we recently went through a period where the government offered $8,000 to anyone who entered into a purchase contract to buy a home before April 30th. Sound familiar? By offering money to people who would have otherwise not purchased stamps, let alone a house (see the pattern?) we have yet again borrowed from the future to acquire buyers to buy now. Naturally, when the dangling carrot is revoked, sales fall off, and the market begins to correct itself. Unfortunately, like any swing, it will over-correct by swinging past the balancing point, and this will lead yet again to more foreclosures, more short sales, and more unemployment.

It’s 2010. We are nowhere near recovering. In fact, we are in the midst of a wave of mortgage rate resets that are going to devastate the 2nd batch of unsuspecting home-owners who had no idea what type of loans they were getting themselves into back in 2005 and later.

So what makes me think there’s a problem?

Option ARM mortgages. These are miserable products, and there are billions of dollars worth of Option ARMs (Adjustable Rate Mortgages) that are resetting over the next 2 years. Option ARM mortgages have a very low rate of interest in the beginning, and even allow for the borrower to go negative on their mortgage. In other words, their payment can be so low that the balance of their loan increases instead of decreases as they may payments. What a bargain! In the midst of declining market values, your loan balance is going up.

The risks of an Option ARM place you on a very slippery slope akin to betting your life savings on one company’s stock. Most borrowers will suddenly be hit with “payment shock” as their payment is reset after a period of time has passed. Option ARMs can negatively amortize up to 110-125% of the home’s appraised value at the time of purchase. Once this happens, it caps, and the payments are amortized based on a normal 30 year period, or other similar terms. Either way, most mortgagors (home owners) suddenly see their payments skyrocket to an unaffordable level. That means distressed home-owners, which leads to loan mod applications, short sales, and foreclosure (in that order.)

What’s the Solution?

It’s time to get real about your money. It’s time to get real about the future of our economy. In the most uncertain economic times that we have known, with speculation that we’re entering the Greater Depression, and being witness to some of the most heinous fiscal decisions our federal government has ever considered, it’s time to get to work. It’s time to start going without those little luxuries that you’re accustomed to. Adjust your lifestyle to fit a greater vision of how you see yourself in the future and save your butt off. Stop spending other people’s money with the justification that “it’s a low rate of interest,” or “it’s only $7.00/month extra,” or “I’ll just pay it off the next time I get paid.” You may not get paid again, and then where will you be?

Don’t be fooled by what the optimists are saying. We are not out of this mess yet, and it will be a long while before we ever see what we used to know as “normal” appreciation in the real estate market. Bottom line? This is going to hurt, for a while.

Filed Under: Blah Blah Economy, Coffee Shops, Market Updates, Short Sale Success Stories Tagged With: amortization, economy, foreclosure, mortgage, negative amortization, option arm

Arizona Anti-Deficiency Laws Are Changing

July 16, 2009 By Jon Griffith 3 Comments

The following information was provided by Marc McCain, Attorney at law, regarding the changes that are coming regarding the Arizona Anti-Deficiency legislation.

A deficiency is the amount that you still owe the bank after the bank forecloses. If you are selling your home short of what you owe, or you are about to experience a foreclosure, then this information is important for you. As always, please seek professional legal council when it comes to your particular situation. I can help you sell your house, but I’m not an attorney. We leave that up to the legal experts.

Arizona’s anti-deficiency laws are changing effective September 30, 2009!

The change is designed to limit the type of borrowers that will qualify for anti-deficiency treatment. Set forth below is a general outline of Arizona law regarding when a borrower may be subject to a deficiency action or sued on its note following a foreclosure or short sale. However, borrowers must understand that these are only general rules — every situation must be analyzed carefully based on the specific facts – consult with a professional at all times to determine your rights and obligations in connection with a foreclosure or short sale.

In Arizona, if a borrower fails to pay its loan, a lender can foreclose its Deed of Trust lien either judicially per A.R.S. § 33-721
If the foreclosure price does not pay a lender what it is owed, the lender may generally seek a deficiency against the borrower for the difference. However, certain states, including Arizona, have what are called anti-deficiency laws that bar a lender from seeking a deficiency in certain situations.
In determining if anti-deficiency rules apply, the first step is to confirm what law applies to the loan, particularly the lender’s remedies under the Promissory Note. The applicable law should NOT be assumed. Read your Promissory Note and other loan documents carefully and understand their terms.
Assuming Arizona law applies to the lender’s rights under the Promissory Note, Arizona’s anti-deficiency laws are found in 2 places – in A.R.S. § 33-729(A) (regarding judicial foreclosures), and A.R.S. § 33-814(G) (regarding trustee’s sales).
In both judicial foreclosures and trustee’s sales, anti-deficiency rules apply only if the property being foreclosed meets the following criteria: (a) 2½ acres or less; and (b) limited to and utilized as a single one-family or single two-family dwelling. However, on July 10, 2009 Governor Brewer signed into law a change to A.R.S. § 33-814(G) which will take effect September 30, 2009. In addition to the above requirements, the trustee’s sale statute will also require that: (a) the trustor has lived in the property for at least 6 consecutive months; and (b) a certificate of occupancy has been issued. Until September 30, 2009, there is NO requirement that the trustor use the property as a residence – residential investment properties satisfy the anti-deficiency criteria. Effective September 30, 2009, investment properties sold at trustee’s sale will NOT qualify for anti-deficiency treatment if the trustor has not lived in the property for at least 6 consecutive months. Commercial properties and loans secured by residential homes being developed for sale but never used as dwellings don’t qualify for anti-deficiency treatment. In addition, a deed of trust that is a lien against more than one property will not be subject to anti-deficiency rules — the deed of trust needs to be a lien against a single trust property.
A.R.S. § 33-729(A) also requires that the loan be a purchase money (“PM”). However, the trustee’s sale statute, A.R.S. § 33-814(G), does NOT require that the loan be a PM loan. A PM loan doesn’t lose its PM nature when it is refinanced. However, cash out refi’s raise interesting issues.
In a judicial foreclosure, only a PM lender on qualifying residential property is prevented from seeking a deficiency; a nonpurchase money (“NPM”) lender is not – it can obtain a deficiency following a foreclosure or sue the borrower on the note.
In a trustee’s sale, both PM and NPM lenders that foreclose on qualifying property are prevented from seeking a deficiency and from suing directly on the note.
Junior liens extinguished by a 1st position foreclosure may be able to sue on the note. The issue is whether the junior loan was a PM or NPM loan – if it was a PM loan on qualifying property, the lender can NOT sue the borrower on the note following the foreclosure; if it was a NPM loan, the lender CAN sue the borrower.
If a lender can not seek a deficiency, then the lender can NOT waive its security and sue directly on its note. This means that a lender under a PM loan on qualifying property will NOT be able to sue the borrower on the note. This rule also applies to short sales. Note there are gray areas regarding cash out refi’s. Other Lender claims are also not barred – e.g. mortgage fraud.
Even if anti-deficiency rules apply, a borrower will be liable to a lender for any diminution in value of the trust property due to voluntary waste. In other words, don’t damage the property, take fixtures, A/C units, etc., or let the Property go to waste.
Real property taxes are NOT an owner’s personal obligation, but only a lien against the real property. However, HOA assessments ARE an owner’s personal obligation and if not paid can result in credit damage, lawsuits and other collection efforts.
Last, but not least, consult with qualified tax professionals BEFORE deciding to do a short sale or foreclosure. 1099 income, gains, losses and other tax consequences may result from foreclosures, short sales and loan modifications. Know what tax consequences you will face and plan accordingly.

Filed Under: Blah Blah Economy, Market Updates, Real Estate Finances Tagged With: applicable law, foreclosure, information, legislation, mortgage, short sale

Scottsdale Real Estate Market Statistics

July 3, 2009 By Jon Griffith 2 Comments

Some people would ask, “if the number of homes being sold is increasing, and the number of homes on the market is decreasing, isn’t the reduced supply causing the price point to increase?”

It is, in some areas. The law of supply and demand is hard at work here in the Scottsdale market, just as it is in the rest of the Greater Phoenix Metro area. The reason the prices continue to fall is because of the quality of the homes that are on the market, not the quantity. Bank owned properties are being liquidated, and the investors are snatching them up because they know that real estate is on sale. Bank owned, or REO properties tend to sit and for a better lack of terms, rot, and when a cash investor comes to the table, the banks are very eager to take a decent offer, even if it means taking an additional discount to have cash in hand.

REAL ESTATE IS ON SALE! The doom and gloom has instilled fear into the hearts of many, and as a result, the market values have fallen below a normal value, which means they WILL bounce back, but not to the levels that you may think. The market will equalize, as long as our government stops screwing around with it.

Below are some snapshots of the current market conditions as of Thursday, July 2nd, 2009:

To view statistics on Queen Creek, visit Jamie Geiger’s most recent statistics update.

Filed Under: Featured Article, Market Updates Tagged With: market, Market Updates, PRICES, RealScottsdaleLiving, Scottsdale, statistics, supply and demand

Good News for Phoenix Real Estate

June 21, 2009 By Jon Griffith Leave a Comment

It’s not a big surprise considering the number of homes that have been selling recently that the inventory has depleted considerably and the availability of affordable housing is drying up after this massive real estate hemorrhage.

I cannot tell the future, but I can see when there’s a break in a pattern, as you will also see indicated in the graph below. Whenever a market corrects, it usually over corrects to a comparable intensity of the original inflation. Prices were so overinflated, and people have SO overreacted, that the low prices in the valley are deflated and can be considered as artificially low as they were high.

Average Monthly Sales

If I base my opinion simply on the pattern in this graph which outlines average monthly sales in the Greater Metropolitan Phoenix Market, then we are on track to recover, and we will bounce back. Since Arizona is a national leader in real estate trends, we should see a healthy recovery. Again, I cannot predict the future.

It was towards the end of 2003, beginning of 2004 that things started to exponentially bloat, soaring to ridiculous heights, and absolutely crashing as quickly as a 747 filled with solid lead.

In August of 2005, my neighbor bought the same unit I purchased in 2003 for $200,000.00 more than I paid for mine. They are still there. Oops.

The market’s plateau began in approximately June of 2006, rose a bit more, and then decidedly burned in flames at about January of 2008, through March of 2009. The number of homes sold began to increase in May of 2008, but the price continued to drop.

What would have happened if we had continued to grow at a normal, typical rate of 4% per year? Perhaps the following, showing a line drawn at about a 4% increase over the same period of time. This shows that a starting value of $175,000.00 would over the time represented in this graph, grow to approximately $244,000.00.

Average Sales with Assumed 4% Annual Increase

One could argue at this point one of two possibilities. Either a) the market will quickly correct, over correct, and bounce back and forth over the next 8 years or so to find equilibrium along that blue line, or b) the blue line must be adjusted down, erasing all of the growth in this millennium.

If that’s the case, then the home you’re living in, which is now worth what it was pre-Y2K, will not be worth what it should be worth for as long, if not longer than it takes to re-write the entire first decade of this century. To reach home prices that we should be at, we’re looking at roughly 10 years of steady growth at a “normal” rate.

The problem is that nobody knows what normal is anymore BECAUSE OF THAT GIANT HUMP in the middle of the chart. Who’s to blame? Many people think it was the government forcing the banks to lend to people who couldn’t afford it which drove them to “get creative.” Dave Ramsey calls “creative financing” “Too Broke to Buy a House.” I tend to agree.

Either way, it will be interesting to see what happens, and ultimately, it appears as though we’ve experienced the beginning of the bottom of this roller coaster ride. Which means one thing…

If you haven’t bought a house yet, it’s time to buy. There’s blood in the streets and the street sweepers (the investors) have been very busy recently. Don’t miss out.

Filed Under: Blah Blah Economy, Market Updates, Real Estate Finances, Real Estate News Tagged With: Arizona, average, growth, market, pattern, Phoenix, PRICES, RealScottsdaleLiving, Scottsdale, value

Low-Ball Appraisals Cause Problems

June 5, 2009 By Jon Griffith 3 Comments

The original article was posted on the NAR website and I have re-posted it here. I don’t typically copy others’ articles since I enjoy writing my own, but for the sake of getting the word out, because I am in the middle of this problem right now, I thought I’d pass it along:

Real estate practitioners in Nevada, one of the areas hit hardest by foreclosures, say low-ball appraisals are slowing sales and preventing recovery.

Mark Stark, CEO of Prudential Americana Group in Las Vegas, says he thinks appraisers are too focused on projecting how much prices could fall rather than reflecting what values really are.

“The appraisers are being very conservative,” Stark says. “They are trying to cover themselves.”

Mark Madsen, communications director for Raintree Mortgage Services, says appraisers are just doing what they’ve been told. “I think appraisers are scared to get blacklisted,” he explains. “If the appraisals are too high, then banks may no longer accept appraisals from that person.”

Source: Brian Wargo, Las Vegas Sun (06/05/09)

My recent experience involved Bank of America on a beautiful home well worth the offering price in Gilbert, Arizona. Bank of America’s appraiser came in $20,000 short on a property that was worth every penny of the offering price based on comps and upgrades. There’s no doubt about it. As a result, we have been forced into a tailspin of events that have caused everyone grief due to the affect that the appraisal had on the loan to value ratio and the ability for my buyer to obtain conventional financing at that ratio. It’s a nightmare, to say the least.

The lenders, in conjunction with government regulation, seem to be causing the real estate practitioners to bang their heads against the wall as they attempt to put good buyers into properties that they CAN afford.

Filed Under: Market Updates, Personal Finances, Real Estate Finances Tagged With: America, NAR, offering, Source Brian Wargo

Remembering the Equity

January 25, 2009 By Jon Griffith 1 Comment

Looking back can leave you blinded to the future, but sometimes it can help you make decisions for the future too. There’s no way to predict what will happen in the market, but there are ways estimate the continuation of a pattern that hasn’t wavered in quite a while.

There was a time when my little condo would have fetched nearly $320,000.00. I purchased it for $120,000.00 in 2002. My neighbor purchased the same unit, which is perpendicular to mine, for $319,000 in September of 2005. Needless to say, I’m thankful that I’m not in that position as my home is not yet upside down.

Can I count on that long term? Well, last year I continually heard real estate agents talking about how they believed that we had just about hit the bottom of the market. What most of them (I think I may have been one too) did not take into account were the number of short sales and foreclosures that had not, and still have not yet touched the market.

As a result, the prices valley wide have continued to plummet. An interesting fact, as pointed out by Russell Shaw of John Hall & Associates at a recent Paradise Valley Realtor Marketing Session is that even though prices are falling, the number of sales have increased.

In a typical supply and demand model, when supply decreases, price increases. When prices fall, it’s because either demand is low or supply is high, or combination of the two. In the case of home sales in Scottsdale, the supply is abundant, the sales numbers are up, and the prices continue to fall.

REO properties (Real Estate Owned, or Bank Owned) are responsible for the most part. The supply of bank owned foreclosure properties continues to climb and the number of these that sell also continues to climb, but the prices of REO homes are typically slashed to liquidate quickly.

Statistics for 2008 (Scottsdale Single Family Detached)

In January of 2008, the average list price for properties that actually sold was $352,000. The average sale price of those homes (actual closing sale price) was $330,000 or an average of 93.8% of the asking price at the time of sale. (The ratio of 93.8% represents only the percentage of sold price to asking price at the time the home sold, not the original asking price, which would be a more realistic representation to present to the unrealistic seller.)

By December of 2008, the average sale price had fallen by 40.9% to $195,000. That’s a 3.4% per month average. History has shown over time a rough average of 4% year over year gains, which means we’ve lost a little more than 13 years of traditional gains in 12 short months. That puts things into perspective. Here’s the problem. We have no idea if the traditional market we have known will return…at all. The financial sector has changed so much in the past 6 months, it’s hard to say if any familiar patterns are going to continue. Logic should dictate that there is only so much space, and everyone needs a place to live, so prices will eventually head upwards again. We just don’t know when. Anyone who tells you they know simply does not know.

Filed Under: Market Updates Tagged With: equity, Market Updates, statistics

News is News, Facts are Facts

October 29, 2008 By Jon Griffith 1 Comment

It’s not easy to sell a home right now. If you’re a seller, you’re going to have a really tough time. In fact, what we’re seeing in the marketplace now is an overabundance of bank owned properties and homes that are being sold short.

Foreclosures

A foreclosure occurs when you fail to pay your mortgage payment for 90 days or more, typically. There is a point at which the bank will boot you out of your house. Then the house goes up for auction. If the house is not purchased in that auction, the bank owns it, and it sits.

Short Sales

This occurs when you sell your home for less than you owe. This requires bank approval, but is much better for you in the long run than a foreclosure.

Yeah… So?

Both of these situations comprise approximately 60% of all homes being sold today in the greater metropolitan Phoenix area. There’s no ifs, ands, or buts about it. Title companies are reporting that they are having to change their marketing focus as a result. This year, we’re seeing approximately twice as many sales per month as we were the same time last year. What we aren’t seeing is twice as many regular resales as we were.

New home builds are down, new home sales are down, and the market’s response is to quit building and offer massive incentives to unload assets that are weighing the banks down. The banks need to see their investments begin to pay off and in order to do that, new home builders have dropped their prices dramatically. In the wake of these price drops come the Short Sales and Foreclosures, which naturally sell for less than the perceived market value. When this happens, your property is less likely to sell.

So, you as a seller have two options. Stay put, or compete for a sale. To compete for a sale, you WILL have to price your home competetively against heavily discounted new builds, short sales, and bank owned properties. There’s simply no other way.

Consider your financial situation and consult a financial counselor to determine what your best option is. Those of you who are forced to sell due to relocation, death in the family, divorces, etc., will need to get real, real fast and face the facts. Price your home right and it will sell.

Filed Under: Market Updates Tagged With: foreclosure, marketplace, relocation, short sale, value