ALL PHOENIX REAL ESTATE

News of eight offers on a bank-owned home that just hit the Phoenix real estate market (Mesa, actually) still has me reeling today.

How many of those would-be buyers actually saw the house in the one day it was on the market? How many are writing offers sight unseen, knowing they can cancel the offer after it’s been accepted if they don’t like what they see?

Simply put, how have we arrived back at the silliness of 2005 - at least in the REO side of the business? Did we learn that little back then? Or is housing hysteria inevitable in a place like Phoenix, where the sun keeps shining and the retirees and winter visitors keep visiting and the jobs remain available?

Here’s what I’d love to know (but won’t since I’m not the listing agent) …

• How many of those eight offers are from investors and how many from buyers looking at the house as their primary residence?
• How many of those offers were full price and how many were the usual BS lowballs?

Also, tell me if my logic is flawed. Lender puts a home on the market slightly below the current market value in hopes of attracting attention and offers. Multiple offers come in, which most likely will push the price above list. Push the price high enough above list and suddenly the price is at or above market value.

Appraisal? Only an issue if there’s a loan being done or if a cash buyer wants to have one, though many lenders’ counteroffers and addenda wipe out the financing contingencies.

Other than the fact we’re talking about this in a trough and not a peak, and aside from the fact this isn’t happening in the entire market but only among bank owned homes, does the above scenario sound all that much different than three years ago?

Ugh.

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There’s a debate brewing over the number of sales that actually are taking place here in the Phoenix real estate market.

Jay Butler, director of real-estate studies at Arizona State University’s Morrison School of Management and Agribusiness, apparently had been including as sales homes where the banks have taken over ownership of the property after foreclosing on the owner and failing to find a new buyer on the courthouse steps. 

Removing these non-sales from the numbers, and sales actually were not higher year over year than they were a year ago as was reported in numerous places, including right here on AllPhoenixRealEstate.com.

Supply and Demand in Phoenix

Though the news isn’t as sexy as the first year-over-year increase in three years, there still are some signs of improvement in the market. Prices continue to decline under heavy pressure from banks attempting to clear out their inventory of REO properties, but basic supply and demand - to the point, steadily falling inventory and steadly increasing sales - are leading to increasingly lower absorption rates.

Lowered prices also will lead to increased affordability which leads to more buyers taking the leap and entering into the market. Timing the bottom (an impossible task, yet one that many still attempt) often is less about current numbers and more about perception of the market’s short-term direction.

One Other Discrepancy

I’m still working on getting my arms around the reasons why Butler’s resale numbers are almost always lower than the data available through the Arizona Regional MLS, especially since his figures include sales such as new builds not included in the MLS.

While it’s true some agents will not update a pending sale that doesn’t close, I’ve not seen this happen a great deal. And it makes little sense, seeing as the agent then is left to try and sell the house anew and would want the listing active.

Even assuming this does occur, it doesn’t seem this should account for major differences in sales figures, at least not when looking at the raw numbers from ARMLS.

But that’s another issue for another day.

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I admit, I read Dr. Housing Bubble Blog out of Southern California. Very little of the hysteria and a good read on where values should be compared to where they are. So I was more than a little shocked and/or dismayed when I read a recent interview with bubble author John Rubin.

According to Mr. Rubin, home values in higher-priced metro areas will be down by 80% by the year 2010 …

What’s your take on the tens of thousands of Real Homes of Genius in high priced metro areas?

Down 80% by 2010.

I’m not sure if he includes Phoenix but let’s assume so.

So, let’s take my parents house. According to Mr. Rubin, the value of my parents’ house will drop below where it was before the 2005 run-up in home values. Fair enough. But it also will drop below where it was in the days of double-digit interest rates.

In fact, an 80 percent drop in home value would mean their home would be worth less in 2010 than it was as a new build in 1976.

Read that last sentence again … according to him, home prices would retreat to levels from the Ford administration.

For that matter, I believe he’s also predicting your microwave will stop working on Jan. 1, 2000. Oh wait, that’s already passed. Different hysteria for a different book I suppose.

Amazingly, Dr. HB gives him a pass on this utterly ridiculous statement. Lord knows that if someone holding a real estate licensed predicted even an eight percent rise by 2010 they would be lambasted by the bubble-heads. Yet this lunacy gets a free pass.

Well, almost free. Several readers jumped in against the 80% drop stupidity, restoring at least a little faith in the collective brain matter of this country of ours.

What frightens me, though, is some still will read comments such as this and assume there is an ounce of truth when it is rhetoric designed to drive book sales.

But hey, the bubble folks all are objective observers with no profit motive.

Right?

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Dr. Jay Butler, director of Arizona State University’s Realty Studies department at the Polytechnic campus, was the guest of the Arizona Real Estate Educators Association this afternoon.

It’s somewhat difficult to condense the 90-minute presentation and Q&A session (and no, Mr. Smith, I didn’t bring a camera), but here are the highlights:

• The biggest factor impacting the Phoenix real estate market is the loss of affordability. The nationwide median real estate price is around $222,000. In Phoenix, the number’s closer to $260,000 and change.
• Phoenix ranks 31st in affordability. Of the other cities above, only three are not on the coast - Las Vegas, Reno and Boulder.
• Maricopa County currently has an approximate 5% vacancy rate versus a 2% historical norm.
• Basic economics are hastening the decline of property values in Pinal County. Butler said there are 1.9 million jobs in the Greater Phoenix metropolitan area, including both Maricopa and Pinal counties. Only 50,000 of those jobs are in Pinal - home of current bust-towns Queen Creek and Maricopa.
• Speaking of Queen Creek, the median price has dropped from $235,000 two years ago to $198,000 now. In Maricopa, the drop is from $256,000 to $219,000. These are in contrast to the Phoenix metro area’s relatively unchanged median of $264,900, down all of $1,000 over that same time period.
• On talk of urban sprawl creating an unbroken corridor between Phoenix and Tucson: “When I moved here in 1972 they were discussing the exact same thing.”
• On affordability, “the real issue with affordability is the income but nobody wants to focus on income.” Income, Butler said, has remained relatively flat through the real estate boom.

And finally, Butler said a large percentage of current foreclosures are investors - often those who became over-leveraged purchasing multiple properties.

“People would like to help that family who might lose their home,” he said. “But that’s not where the reality lies.”

What was most interesting is Dr. Butler usually is proclaimed to be a cheerleader for the real estate market and the real estate industry. But he appeared to have a fairly distinct, clinical view of the current market as one would expect from a statistician.

Asked what he thought of future real estate agent pool, he said “three would be too many.” And I’m not quite sure he was joking.

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Let’s start this with a basic definition - a short sale takes place when a piece of real estate is being sold for less than the amount of the existing mortgage(s).

In markets such as the Phoenix real estate market, where many homes had been purchased through 100% financing or where equity was taken out of homes at the height of the market through a second mortgage or refinance, short sales are becoming increasingly common.

Last night, I spoke with a couple relocating to New York and facing a short sale to make the move. Fortunately, these folks were current on their mortgage payments. In fact, if not for the corporate relocation, they would not be selling their home. But life has a habit of getting in the way.

Many others are not so fortunate and are facing short sales in advance of foreclosures. No matter what the circumstances, preparing for a short sale requires the same steps:

1. Contact a real estate agent to determine at what price your home is most likely to sell. Zillow gives its Zestimates and has some data on recent sales but Zillow doesn’t take into account currently active homes or new-build inventory.
2. Contact your accountant. There usually are tax ramifications to a short sale as the IRS likely will see the mortgage reduction as income. Check with whomever takes care of your taxes to make sure and see the impact it will have.
3. Contact your lenders and let them know your situation. If you have two mortgages, you need to contact both lenders as you’ll be negotiating a reduction in the mortgage with both. The first lender (the one holding the larger loan) likely won’t act until it knows the second also is surrendering some money.
4. Be patient, but stay in contact. Most lenders have two-foot-high stacks of homes going into foreclosure on their desks. Short sales tend to move to the back of the pack, and there are only so many bodies working on files. Don’t expect an answer right away - in fact, it may take a couple of months to get final agreement from your lender(s) on the short sale.
5. Price your home aggressively and get it sold.  There’s no reason to try and stretch above the current market on a short sale - at the end, there’s no equity coming back to the homeseller. What the seller does get is freedom from their mortgage.

Short sales should not be taken lightly because of the tax impact and also the possible impact on your credit. But sometimes, such as in the case of a corporate relocation, there may not be other options available.

Got questions? As always, drop me a line and I’ll be happy to help.

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