ALL PHOENIX REAL ESTATE

In all honesty, I had thought about tying up this week’s Phoenix real estate year in review series with a cute little bow and bringing it to an end similar to what you’d see in your local newspaper or what you saw when you watched Shogun back in the day on NBC.

Except it’s not really that simple. I can end the series but the story of the Phoenix real estate market is ongoing. The changing of the calendar from one year to the next, one decade to the next doesn’t really change the look of things from today to tomorrow.

Yesterday, a client with whom I was having lunch asked if we’ve hit bottom. So I told him the same thing I’ve been saying since April. I don’t know if this is the bottom and I’m not even sure there will be the type of bottom everyone asking about the bottom seems to expect, a finite point where the skies lighten and a booming voice announces “yep, this is the bottom, folks. Moose out front should have told you.”

We’ve been bottoming since the beginning of April when sales started to spike back to 2005 levels. Prices haven’t followed suit because of the influence of low-priced bank owned homes and that trend likely is going to continue forward, though there seem to be exceptions in some of the lower-priced areas where there’s not much room left to drop.

At some point, though, the law of supply and demand will take hold and prices will start to creep higher - not to the degree we saw in the insanity of 2005, but at least a little bit.

In the interim, affordability could be a challenge even ahead of an increase in prices. I’ve blatantly stolen this tidbit from the wonderful Kris Berg’s San Diego Home Blog.

From Matt Carter at Inman News:

The Mortgage Bankers Association forecasts a more abrupt rise in 30-year fixed-rate mortgage rates, from 5.2 percent during the first quarter to 5.7 percent in the fourth. By the final three months of 2011, the MBA expects 30-year fixed-rate mortgages will average 6.2 percent.

What does this mean if you are waiting for the mother of all recession discount sales? If you believe that a 1% bump in mortgage interest rates is in the cards, you had better be hoping for a more than 10% price reduction to go along with it. Otherwise, you will be no better off.

Call this the American equivalent of yesterday’s discussion of Canadian exchange rates. Watching prices is all well and good but if you’re not also watching mortgage rates, you could find yourself priced out of the market anyway.

Which reminds me of one other trend …

So many would-be buyers have a series of check boxes that need to be marked before they feel it’s safe to proceed, which is prudent. Others continue to add check boxes even as the others get checked off. These are the folks who, once prices start to move or interest rates start to rise, are unlikely to purchase because they “missed the opportunity.”

My best advice as we enter 2010 … figure out what your parameters are for purchasing and stick to them. Don’t push your budget too far and don’t rush when you’re not ready. But when all the conditions are a go, don’t find other reasons not to purchase. And if you keep finding these other reasons, save yourself some time and relax where you are.

Wishing you a Happy, Safe and Prosperous 2010.

And from Tobey, Merry Beneful to All and to All a Good Night.

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2009 was the year we welcomed Canadians back to the Phoenix real estate market. Okay, so to some degree our friends from north of the border never left but as the Canadian dollar fell to 78 and 79 cents compared to an American dollar interest logically fell.

The following chart shows you the rise, fall and rise of the loony against the U.S. dollar (it’s a USD/CAD chart, so you’re looking at the opposite - the fall, rise and fall of the U.S. dollar but the other way just sounds less depressing when you have greenbacks in your pocket.)

The Canadian dollar’s strongest moments actually are to the left of this chart when the U.S. dollar was trading around 92 to 93 cents for one Canadian dollar. It lasted for about a week or so, but you can see the CAD held close to par until September 2008.

If you recall from those pleasant days at the gas pump, that was the time when oil prices were falling off the map and a gallon of unleaded would cost you about $1.40 (compared to the $2.45 I paid this morning.) Falling oil prices submarined the Canadian dollar and it fell quickly until it was worth about 78 cents of an American dollar.

Back to this time period in a minute.

This past year, especially the past two quarters, has seen the Canadian dollar bouncing between around $1.03 and $1.12 American. There’s still a substantial number of experts predicting the Canadian dollar will go back to par and beyond, maybe even reaching those halcyon days of $1.10 American to a loony. Or so many of my Canadian clients tell me.

I’m not a member of that camp if only because 40 years of history says a couple-week blip looks like an anomaly more than a trend. Maybe I’ll turn out to be wrong and if I am, it certainly won’t be the first time.

In any event, the rise of the Canadian dollar has brought many folks back across the border. Some have purchased, others jumped off the fence only to jump right back on in hopes of an even stronger loony. If it happens, great. If it doesn’t, they’re hooped and can keep paying exorbitant rates for winter rentals instead of collecting those rates if they so chose. And hey, there’s always the minus-46 Celisus weather to enjoy when our cold snap here has left us at a chilly 56 above Fahrenheit.

All weather-related joking aside, the collective Canadian buyer remains one of the most simultaneously misunderstood and overrated buying segments we’ve seen.

Before the letters start flooding in, when I say overrated I mean many sellers still put their eggs in the Canadian buyer basket without regard for whether their particular property would have any interest for your average foreign buyer. It’s like the Super Bowl from a couple of years back when sellers were putting their rundown 800-square foot, 2-bedroom condos on the market for $2,000 a week and expecting a corporate executive to flop happily on a futon. Wasn’t going to happen.

Three years of experience with Canadian clients has proven that not all properties are going to be considered. There are some on the lower end of the price scale that may appeal to investors looking for year-round renters. But for those looking either for vacation rentals or winter homes, there needs to be something extra - a view, upgrades, amenities, whatever.

Think about it. If you go on vacation and rent a house, you’re probably not going to rent a tract home buried in the middle of a basic subdivision. Not gonna happen.

As for being misunderstood … it took me a transaction or two to figure out that I didn’t know as much about the quirks of Canadians buying locally that I thought I did. Luckily, all turned out well and that was about a dozen transactions ago.

Now when someone asks about the tax ramifications of a purchase for themselves or as an investment, I can give some fair warning even while referring them to a tax professional I trust for further assistance. If someone’s thinking about exchanging their money at the local bank, I can pass them to folks who’ll save them four figures in most cases.

It’s taken three years of solid work and constant networking but I’ve got a full system in place specifically built to help Canadian buyers.

Moving on … or really back.

When the Canadian dollar was about 78 cents I had a client debating whether to purchase. The loony had gone south to the tune of about eight cents since they first found the condo they wanted and was now at such a low point that a purchase seemed iffy. What they needed to move forward, I was told, was 81 cents.

I told them to hang in for an extra three days on the inspection period. What goes down often comes up and if the CAD could fall that quickly, it easily could make up three cents in a couple days’ time. And so it did, with room to spare.

And the moral of the story is this, and it’s one I’ve said countless times over the past three years. The biggest risk Canadian buyers face is currency risk. Not local market values. Not the influx of bank owned homes once upon a time. Even in a declining real estate market, we’re not seeing swings of a couple percentage points on a daily basis. But that’s happening relatively often in the currency markets.

If you’re purchasing in a declining area, it’s possible the sales price will be lower at a later point in time. But it’s also possible the U.S. dollar could find its feet enough to push back against the loony, rise in value and increase a Canadian buyer’s bottom line.

Some things hold just as true in 2009 as they did in 2007 when the Canadian real estate invasion first got underway.

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We’ll get back to the year in review later but I wanted to get this news out first.

One of the things I love about Diverse Solutions, the company responsible for the software that powers the home search on this and my other half-dozen sites, is they’re about the most responsive group of tech-geeks (said lovingly) that I’ve ever seen. Make a suggestion and they’re almost certain to get to work figuring out how to make it happen.

Of course, that also can be a small challenge when the upgrade everyone seems to request is the same thing I’ve already been doing on my bank owned site for the past year - taking the Phoenix real estate listings as they happen and making them Wordpress friendly (good for you) and indexable by Google (good for us.)

In short, everyone now can do what I’ve already been doing technologically which would concern me if I wasn’t finding myself viewing the technology more as a means to an end rather than the core of the business.

Stop me before I subreference again.

In any event, I built a new website this morning for the Phoenix real estate listings that is nothing but listings - streaming listings, listings by city and, soon, listings by subdivision. And, best of all, there’s little of the guesswork you run into on the listings aggregation sites, wondering if what you see’s really there.

One last twist, assuming the setup went okay. If you want to follow this listings stream on Twitter, you can. Simply follow my listings account at https://twitter.com/allphxre.

IMPORTANT NOTE: If you don’t want listings don’t follow. That’s all I’m going to use that account for.

Got questions or suggestions? Let me know.

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Yesterday we discussed the role bank owned homes played in the Phoenix market through 2009. While this was the dominant story line, it certainly wasn’t the only factor impacting our market.

Though the scope of its effect can be debated endlessly, the $7,500 first-time home buyers tax credit - and the extension and expansion of that credit in November - was the impetus many buyers needed to get off the fence and make their first purchase.

Combine low interest rates with depressed prices and an extra check coming from Uncle Same for those who qualified, and it was the perfect storm particularly for homes priced at $125,000 and under.

Simply look at the sales per year for 2009 versus the sales per year in 2008 and you get a sense of the severe increase in activity over the past 12 months.

Arguments against the tax credit, including those written right here, weren’t so much about the credit itself but the policy of extending the public dole and the concern that a program once established often comes to be expected and is hard to end.

With just a six-month extension to April 30 (with a close of escrow date of June 30), and even though it’s almost certain there will be a movement to push the tax credit deadline further into the future, there remains a somewhat short time frame for buyers wanting to take advantage of this credit to get into the market.

Most intriguing is the $6,500 tax credit for move-up buyers, especially when you consider that it doesn’t appear a homeowner needs to sell his or her current residence to take advantage of the credit so long as the new residence becomes his or her primary home.

From Michelle Lind, general counsel from the Arizona Association of REALTORS:

Q: I’m already a homeowner. If I buy a replacement home after Nov. 6, 2009, to use as my principal residence, do I have to sell my home to qualify for the homebuyer tax credit?

A: If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home to use as your principal residence. The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009, and on or before April 30, 2010, and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. For example, if you bought a home on Nov. 30, 2009, the eight-year period would run from Dec. 1, 2001, through Nov. 30, 2009. (11/17/09).

(h/t to Kelley Koehler and by extension Dru Bloomfield)

The extension is but one part of the government effort to stabilize the real estate market, at least as much as it can be. Other efforts will be touched upon in a later post.

Do your observations differ from mine? Jump into the comments and join the conversation!

2009 Phoenix real estate in review part one: Bank Owned Homes, REOs and Foreclosures

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No topic has dominated the Phoenix real estate market like foreclosures, also known as bank owned homes or REO (real estate owned) properties. Demand for these homes was so high at one point in the year that I built an entire website dedicated to nothing but Phoenix bank owned homes.

What was most intriguing is interest in bank owned homes was peaking as inventory was on the wane. The moratoriums of last fall and this winter past lessened the number of bank owned properties coming to the market and the REO inventory fell steadily from the first quarter of 2009 onward.

As this was happening we kept hearing about the next wave of foreclosed properties to hit the market, except that wave never materialized. Homes continued to be foreclosed on at a substantial rate but lenders collectively realized flooding the market with a glut of homes just as demand was gaining transaction was financial suicide.

Does anyone remember the fervor over the Wii a couple of years ago when Nintendo was realizing the gaming system at a trickle - a few here, a few there? See any shortages of Wii gaming systems this year? Probably not, because Nintendo opened the gates a while back and filled shelves. (The same strategy was used for the once hard-to-find Wii Fit.)

There’s nothing particularly sinister about individual lenders deciding not to flood the market and instead maintain a steady, slower flow of homes (unless you want to take a look at things from an accounting standpoint, where banks don’t want to take the hit on their books by releasing the deluge.) It’s basic - and solid - economic theory.

It was hard for some to see earlier in the year but has become more apparent as the year has gone on that the increased interest in bank owned homes would be the high tide that eventually raised all the proverbial boats. That has come to pass, if not from a pricing standpoint then at least in terms of interest and demand.

Much of the focus is on the lower price points but well-priced homes at higher price points also are selling. Take the following home in Arrowhead Ranch:

I sold this 3,000-square foot home for $325,000 in just 23 days … considerably less than what it went for three years ago but at or even slightly above market averages because of the upgrades the last two owners have made.

$325,000 may not sound like much in some parts of the world but in the Phoenix real estate market in 2009 it’s just shy of three times the area’s median sales price. And, as I mentioned, it sold in 23 days.

As we close the chapter on 2009, bank owned homes remain a significant factor in the market. But unlike last year, they’re not the entire game anymore.

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