Big Fat Recovery

March 22, 2012 By Jon Griffith Leave a Comment

Last week I had the pleasure of hearing Michael Orr, founder and creator of the Cromford Report, an extremely comprehensive up to the minute charting system that shows exactly what’s going on in the real estate market. The focus of his presentation today was mostly North Scottsdale, but he touched upon some very clear facts about the real state of Real Estate in Phoenix.

Let me touch upon the basic market cycle before I continue, and I’ll add a simple reminder as well. Mainstream media, while accurate at times, is typically WAY behind where we really are. If you want to know what’s REALLY happening in the market, then you need to tune in to a blog like this one.

The image below is the basic cycle of emotions that people go through in an economic market. We’re all familiar with every part of this chart. Mainstream media places us somewhere between Capitulation and Depression. We in the real estate industry, see things differently. I personally find myself already at Optimism after some of my recent observations.

Here are some key points that Michael made today at the Pinnacle Peak RMS meeting. Many of them involve busting through some of the myths that people believe right now.

Fact #1: Phoenix is a unique market compared to the rest of the nation. We lead along with a few other markets, but we’re not like the rest, so national news does not apply in a general sense. We have to rely upon market data to determine what’s happening.

Fact #2: Urban sprawl creates a unique pattern in this city. The market here moves much like the ripple of a pond, only in reverse, where the outlying areas experience the most movement at the highest speed in both upward and downward trends. Lower valued properties in the sub 250K range experienced the highest decreases in value, and during the coming recovery will experience the greatest and earliest increases in value.

Towns like Paradise Valley continued to increase in value while the outlying cheapest areas fell like rocks.

Fact #3: There is a massive disconnect between what’s actually going on in real estate and what people think is happening in real estate.

Fact #4: Foreclosures exist always, and they grow in line with the population. The number of trustee sales has dramatically fallen compared to 2009 which was the highest year.

Myth #1: There is another wave of foreclosures coming.
Truth: In states where there is actual judicial foreclosure, this may be true because of the backlog of cases that go through the court systems. In Arizona we have Deeds of Trust which require no judicial foreclosure process should a home owner default, therefore the process is much faster. We do not have a huge wave of foreclosures coming.

Myth #2: Shadow Inventory is the 800 lb gorilla in the closet.
Truth: Nobody can agree upon what “shadow inventory” is. In fact, when asked, nobody in the entire meeting believed that prices were declining. Granted, there are areas where prices are weaker, but the long term trend is a bounce-back.

Myth #3: 60% of homes in Phoenix are under-water.
Truth: When asked about the value of a home, two Realtors responded with answers that differed by $175,000 for the same home. The value of the home is determined by what someone will pay for it. It’s impossible to measure the under-water statistic because in order to do so, one needs to know the value of the home, and also what the remaining balance on the mortgage is. Unfortunately, most people have no idea how much their payoff is…including Michael Orr, as he stated, “we all know how much we borrowed, but most of us have no idea what we owe now.” In fact, hardly anyone in the meeting admitted to knowing the balance on their own mortgage. So how could one come to the assessment that any percentage of the valley is under water? In Arcadia, only 11% of the homes are under-water. Other areas of town, such as Southwest Phoenix, experience 80% rates of negative equity. The bottom line is that it’s different in almost every area of town, which is part of the unique nature of our market.

Two forms of Trustee Deeds

There are two measures of trustee sales. There are the trustee sales that are purchased by private buyers at auction, and there are trustee sales that go back to the bank which lead to REO or Bank Owned properties. There are two things to note about these. The first thing is that the number of trustee sale notices overall has decreased. The second thing to notice is that the number of private sales as a percentage over bank recovery is increasing, which means more and more private buyers have entered the market. In fact, in Phoenix, roughly 30% of all homes are paid for because of how much cash has been infused into our market. As a result, the REO market is declining very quickly, starting again at the bottom end of the market and moving up to the higher priced properties.

Foreclosures next year are not going to be a significant enough part of our market for it to be newsworthy.

Unusual

Currently our supply is down dramatically. As of this moment, there are 18,651 single family homes for sale in the Arizona MLS (Search here). Of those, roughly 6,862 are short sales waiting for approvals. That leaves 11,778 homes to choose from. Only 1,113 of those homes will require short sale approval, while 1,164 are either HUD owned or Bank Owned for a total of 2,277 distressed properties on the market.

(Note: A few days have passed since I originally drafted this article. Stay updated by subscribing or bookmark my site so you can stay on top of what’s happening.)

Filed Under: Real Estate News Tagged With: home, market, Trustee Deeds, value

Sixty One Cents

July 13, 2010 By Jon Griffith Leave a Comment

Barren. A small neighborhood subdivision that was never completed is where you’ll find rental opportunities that are priced in the sixty one cents per square foot range. There are only two massive homes in this area which overlooks North Scottsdale and Cave Creek from atop a mountain preserve just above the North 101 Loop near cave creek road. Sitting here in my car blogging on my iPhone, I find it a bit sad to see the lingering remnants of a badly injured economy. One day these homes will have companions when the bludgeoned builders start developing again.

However, if you are looking for a home to rent, you can know the value per square foot that’s out there!

Compare a 3200 square foot home under 2000.00/month to the now-leasing project at Sotelo in Tempe and you’ll wonder why they would be booking tenants at nearly $1.00/ft.

Filed Under: Giveaways, Real Estate News Tagged With: rentals, undeveloped

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.