As Keith Jackson might put it, the Phoenix real estate market has a little hitch in its giddyup this week. Inventory continues to fall but sales also have dropped off for the month of June after extremely strong showings in April and May.

We have had 6,547 closed sales the past 30 days (not quite final June numbers since we won’t know what closed today until it appears in the system tomorrow) which is down about 500 from last week’s report. Inventory fell by just under 200 homes for an absorption rate of 3.17 months.

Bank owned sales over the past 30 days fell under the 4,000 mark to 3,904; inventory remains low at 3,188 but the drop in sales have given us a slight increase to .82 months of inventory.

For short sales, there are 5,249 active listings and 831 closed sales over the past 30 days for 6.32 months of inventory. And among non-bank owned, non-short sale homes, there are 12,304 active listings and 1,812 closed sales for 6.79 months of inventory.

As always, the particulars for the various cities and towns in the Phoenix real estate market are below. And also as always, all data is provided by the Arizona Regional MLS and is deemed reliable but not guaranteed.

Phoenix Real Estate Inventory: June 30

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A bank owned home - this one a former model and still model-perfect - goes on the market in north Surprise at a list price of $182,000. More than a dozen offers flood in. Comps indicate that the home might be worth $200,000 on a good day but that doesn’t stop the buyers from climbing all over each other.

Winning bid on the home? $224,000. And that’s where the problems began.

You see, in the quest to obtain the highest possible dollar for the home, the lender seemed to forget about a little detail called the appraisal. (Why should a bank remember that the appraisal’s part of the deal, since the bank requires appraisals before issuing loans?)

With a normal seller I always discuss the looming appraisal - usually as a matter of trying to keep sellers from overestimating their home’s value. My guess is the bank (or more correctly, the bank’s asset manager) never gave a second thought as to whether this home really was worth the $224,000 being offered.

(Stay tuned for a brief aside on free market economics and why Phoenix real estate doesn’t necessarily apply.)

And so the bank accepts the offer at $224,000, with some closing cost assistance for the buyers included. And so the FHA appraiser goes out to the home and offers his opinion of the value of the property which turns out to be the only opinion that matters …

$184,000.

Oh, and the bank’s still paying buyer closing costs.

At this point, the bank could have told the buyer to take a hike but for reasons known only to them (and certainly, the idea that is was the “right” thing to do never entered into it), the bank agreed to lower its price to the FHA appraisal mark. Oh, and pay closing costs when it’s likely they could have found either a cash buyer or someone who didn’t need to be handed an additional $5,000 off the top.

The lender went for the highest offer and ended up accepting $3,000 net under list price.

This past week I had a buyer enter one of five offers on a home in Goodyear. We didn’t get the house. Why? As the listing agent put it, the lender accepted an offer so high “I don’t know how it’s going to appraise.”

If the offer’s bogus to the high side, if the buyer’s looking to be saved by the appraisal contingency, then why accept the offer in the first place?

And on a related note …

Not all lenders seem to have gotten the news that properties are moving quickly even if not priced well under the going market. There’s one neighborhood in Surprise where the REO agents keep going lower and keep selling homes in a 3-day span.

Wouldn’t it seem that if a home can be sold that quickly at price X, that it would sell just about as quickly … maybe a couple of days more … at X plus 1 percent? Especially when these homes are receiving multiple offers?

This would take some forward thinking, of course, and forward thinking rarely gets in the way of a motivated lender and an REO agent spending their next commission check.

Promised aside: Real estate is not a free economic market. Value is not solely the price at which buyers and sellers agree for the simple fact that they’re not the only parties to the sale, unless pure cash is involved.

Lenders have to decide for themselves whether they’re willing to accept the risk based on what buyers and sellers agree upon, which is why loans are based on the lesser of contract sales price or appraised value.

Just because someone’s willing to pay $224,000 for a $184,000 home doesn’t mean the bank has to provide the financing for a vastly overpriced purchase. Nor should they.

But with that in mind, one would hope the lenders selling these homes think like lenders when reviewing the offers that come in the door.

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KNXV, the local ABC affiliate, ran a story last night about Phoenix’s floundering $15,000 loan program for buyers purchasing foreclosed homes, first announced in March and written about extensively here.

The sense you get is the problem is the program isn’t well known.

“I didn’t even know about it,” said Phoenix resident James DiMartino.

“Never heard of it,” said Nick Calos, who also lives in Phoenix.

DiMartino and Calos both say they’re in the market to buy a home and have an interest in the program. It seems many people don’t know about the program or are discouraged with the requirements to get the loan.

First off … Nick, James … welcome to AllPhoenixRealEstate.com. If you were one of my readers you would have known about this program on March 17.

Onward … Forget the first half of the last sentence of the story. The biggest obstacle this program faces is the requirement that buyers purchase these homes at 85 percent or less of appraised value. In a market where there is barely three weeks of inventory of bank owned homes, that’s damn near impossible. (It’s also pointless and can damage the property values of any neighborhood where the program’s used, but that’s a post for tomorrow.)

There are other hoops . Potential homebuyers need to sit through eight hours of financial counseling and the $15,000 is a loan and not a giveaway - it needs to be repaid when the home is sold or refinanced.

Those presumably can be accomplished. It’s the 85 percent requirement that makes it impossible to get the loan, even if city officials believe appraisers will adjust their numbers and banks will sell for pennies on the dollar to help out a buyer.

And that’s why some three full months since the program began, not a single homebuyer has received a loan from the program. Phoenix is 0-for-the duration.

So how do you fix this problem and get the money to the people? Drop the 85 percent requirement. It’s really that simple. Allow buyers to use these funds to find and purchase properties at market value and you’ll see the money flow.

Until that time, the city may as well require buyers to grow a third leg before purchasing. It’s about as practical a requirement as the 85 percent limit.

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Last night I was picking up my daughter at a neighbors house and they asked how business was going. “After all it’s a buyers’ market,” they said. Needless to say they were surprised to learn that’s not the case anymore. And this week’s absorption rate numbers confirm that fact.

Low-priced bank owned homes brought buyers out of the woodwork and exposed the latent buyers demand. When that inventory shrank, buyers turned their attention to non-bank owned homes. The result is an absorption rate of 6.45 months of inventory for non-bank owned, non-short sale homes.

(A balanced market actually has inventory in the 5 to 6 month range but after watching inventory fall by a half-month in the last week, it’s a safe leap to make.)

There are 12,440 non-bank owned, non-short sale single family detached homes for sale in Maricopa County and there were 1,928 closed sales the past 30 days.

Bank owned inventory fell to .74 months (4,274 closed sales and 3,157 active listings) and short sale inventory is at 6.10 months (874 closed sales and 5,330 listings.)

Overall, the Phoenix real estate market has 2.96 months of inventory available - 7,076 closed sales against 20,927 active listings.

Now for the part I’ll point to in two months, just as I can point to my April posts about the market improving significantly now that almost every other real estate agent in Phoenix is calling the bottom …

Will these inventory levels hold? For the short term, yes. But you’ll see them rising again by Labor Day just as happens every other year.

When is the next wave of foreclosures coming? No one seems to know. REO listing agents are carrying one-third to one-half as many listings as they once did and every assignment sends them to an elevated alert … at least until they learn there’s not three dozen more coming behind the one or two. Is it possible lenders have figured out the best way to hold value in their investment - and now that they own the home, it really is their investment - is to slow the pace and maintain a better supply-demand ratio?

About the supply-demand ratio … three weeks of inventory is terrible to work with. Too many buyers, two dozen offers on every property under $100,000, frustrated buyers, homes being bid up to where they won’t appraise. The list goes on.

What would be a better level, at least in Tobey and my eyes? About three months of bank owned inventory. Better selection, less competition for the same houses, more happy buyers and the stabilzation we’re seeing in prices still would hold. To get to three months of inventory we’d need about another 8,000 bank owned homes on the market. We won’t see that number without a flood of foreclosed homes hitting the market; even with the flood that was predicted by some two months ago, would we top that level? Hard to say.

As always, details from the various cities and towns in the Phoenix real estate market are below. And also as always, all data is from the Arizona Regional MLS and is deemed reliable but not guaranteed.

Phoenix Real Estate Inventory: June 23

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“How much are we going to able to sell this house for someday?”

An accurate answer would involve a crystal ball and or some tea leaves, since there’s no way of knowing the state of the market at the exact moment that you decide to sell. More generally, though, there are certain ranges of appreciation that are commin in a more normal real estate market … you know, the kind of thing we haven’t seen in Phoenix in a half-decade.

The following chart comes courtesy of the Cromford Report and illustrated average annual appreciation based on price per square foot in the city of Phoenix since 2002:

If you look at the purple and red lines clustered in the middle, these are the annual appreciation rates measured through 2002 and 2003. The light blue line is 2004, which starts the year in that same single-digit range before rising sharply at the end. And the green is 2005, which is when the insanity struck (followed by the tumble.)

What you can see from the mishmash in the middle is “normal” appreciation is in the single digit range … could be as little as 1 or 2 percent a year or a bit higher depending on the circumstances. What you also can see is we remain off last year’s prices by a large amount, though the gap is closing slightly.

(The gap should continue to close as inventory remains low and the difference in year over year sales price shrinks. Less inventory has led to at least a leveling of home prices in many areas of the Valley.)

Sales numbers coming later today …

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