Buyers market.... really? (Phoenix, Chandler, Gilbert: home builders, landlords, zip code)

[ArizonaBear]

Originally Posted by JoePAz

In Anthem I estimate a 5.6 month supply.

There are 451 homes listed in AMLS and 80 were sold in July. In Anthem the months fo May, June and July have shows resales being more in each of these months than any time in the last 2 years.

The listed homes have been showing declining trend and sales have been up. Pending sales are also hold strong up dramticly from the past couple years. Prices are down significantly from the prior highs and it is still to early to determine if prices have stablized or not. What is clear however that demand is stronger now than any time in the past couple years. Inventory is down to the lowest levels in the past couple years. This has been the pattern for the last few months so it is not an odd ball spike. Has the Anthem market turned the corner? Maybe. Is this just a Seasonal demand? Probably not given the 2 year highs in sales, but it will be interesting to see if sales hold through the fall and winter.

Quite plausible there:

I strongly suspect the outlying areas have pretty much bottomed out (Anthem, Queen Creek, Maricopa, Buckeye, etc) and the wave of price declines is heading closer and closer to the downtown/Sky Harbor areas. For that matter; I also sense we are approaching the bottom here as well (I live at the Scottsdale/Tempe border).

[MotleyCrew]

We are down to 24 foreclosure home vs 40+ a few months ago in Vistancia. I am sure there will be more with the next wave of Alt loans getting ready to pop. Be glad when this credit crunch thing is over.

[Rick Lee]

I can't buy until around April. I hope that's the real bottom.

[Captain Bill]

Lester, you have a good handle on the market, with excellent questions, and I applaud your insights. I don't have answers but it's a good discussion.

1.- (Why the drop in inventory from 6 mo ago?) Mainly because it's summer. April, May, June, July to a lesser extent August are always strong in sales (per the graphs at ARMLS). Sales in Sept thru Jan are almost certainly going to be down. Note that we haven't really cut into the absolute inventory which is still near a record high.

The inventory has been declining all year, so I'm not sure it's entirely seasonal. The drop from 18 months seems too great to be seasonal. I think many people, who aren't forced to sell, have just decided to take their home off the market until it changes. I know a lot of people are watching to find a time to list their homes because I get requests from my web site every day from owners wanting to know the current value of their home.



The absolute inventory, as you so correctly noted, is still high:

• 59,168 on Dec 1, 2007
• 53,361 on Aug 22, 2008

The sales have increased:

• 2869 sales in month of January
• 5994 sales in past 30 days.
• $273,275 average sale price month of January
• $243,820 average sale price last 30 days.

2.- (Inventory in Jan 09?) I don't know. I'd guess 10-14 months for entire Metro. I expect absolute inventory to grow slightly and sales to take their standard seasonal drop. I suspect it will look better than Jan 08 but will still look like a market in free-fall.

We'll have to watch the next few months to see if sales decline, but they've remained strong up until now at least.

3.- (What happens under 6 mo inventory?) Good question, I wish I knew the answer. First, I suspect there will be few areas or price ranges which stay under 6 mo of inventory until maybe April 09 because of the seasonal effect.

Quite a few areas in the <$300k range are under 6 months now, and that's where the sales have been happening. From what I've observed in the $180-$225 range is that they're staying fairly steady now because there are plenty of buyers in that range (and below)

When < 6 mo inventory of lower-priced homes does come about, it will be very interesting to see what happens. Of course the first inclination is that prices will start to go back up. But I'm not so sure it's that easy for any market segment to decouple itself from the market in general. If the seller of a house at 200K today keeps his/her house at 200K because the inventory is low and the seller of today's 300K house down the street drops the price to $230K, will the demand still be there for the 200K house? Or will the seller have to drop to maybe $160K in response?

That's an interesting observation, and a real possibility.

Even in the range and areas where houses are selling, I don't think there will be any rapid reversal of prices. When they stop declining I think there will be some fluctuations until the rest of the market sorts itself out.

The majority of the buyers in this price range are first time home buyers, and relocations, and others, where the prices have declined to an affordable price for the type of home and area they desire.

The next group of buyers that we need to see enter the market are the move-up market into the >$300-500 range. This will be a tough range because they have to sell their home first.

4.- (Interest rate increases?). Fairly simple calculation, from a monthly payment perspective 1% interest rate is about equal to 9% drop in amount financed. However the savvy buyer who is not tightly cash-flow constrained would always prefer a cheaper price at a higher interest rate. Smaller down payment, better tax writeoff, theoretically lower taxes & insurance and if interest rates ever drop, the buyer can refinance. Once you've paid a high price for your house, you can't get out of it.

Fear of rising interest rates is, in my opinion, a pretty poor reason for someone to rush to buy a house. Interest rates may indeed go up, but if they do, it will shrink the pool of buyers and how much they can pay even further, and hence pushes home prices even lower.

I have an ARM on my home that is resetting in September, and I was concerned about that. But I have a 12 month LIBOR index, and just checked that out. That index last year was 5.06. Today it's 3.26. So my interest rate will drop close to 2%. I'm still getting it refinanced because I found a great 30 yr fixed jumbo rate.

Ok, so now you know where I'm coming from, so my inventory related question is:

Where are all the foreclosures?

Sure there's bunch on the market and a bunch selling and according the NAR they are now "dominating the market". But as far as I can tell it's only the tip of the iceberg. And I'm not talking about the predicted defaults still coming on Alt-A's and other exotic loans, I'm talking about the foreclosures that have already happened. It's hard to get good statistics, but the best I've been able to come up with is that around 1000-2000 foreclosures are selling a month right now and supply is growing only slightly. But 2000 foreclosures per month is the number of foreclosures we were seeing about a year ago. Perhaps that makes sense as it takes the banks a year to get the house back on the market.

But if that's the case, this year we've see foreclosures grow from 3000/month early in the year to 4000/month in the spring to around 6000/month currently.

When these do come on the market, probably in '09, how are we going to absorb all this inventory? It seems we'd need a doubling of the sales numbers back to peak 2005 levels just to keep the inventory from growing and record breaking sales to actually reduce the inventory.


There doesn't seem to be anybody talking about this, so maybe my thinking is off and I'd appreciate your opinion

.[/quote]

Your thinking is right on. These are excellent questions.
If other indexes have declined like the 12-month LIBOR, and if some of the Govt programs forestall many of the foreclosures, and give people time to get their ducks back in a row, then perhaps we won't see such a glut of foreclosures.

It's difficult to determine the number of foreclosures and even bank owned properties on the mls for several reasons.

The old ARMLS system did not have a searchable field to place "bank owned" or "short sale", so a search would not return reliable numbers. The new system has the field, but it will take time before all agents begin to input into that field properly.

The software that is available to track foreclosure sales is all proprietary, or subscription based. It's there, for a price. Our HOA is going to research a service that provides updates on foreclosures and sale transactions in our community to help in our collections from banks, and others who owe the association money.

I subscribe to a service that gives me foreclosure notices and foreclosure sale dates, and other information, which is affordable for what I need. But it is not all inclusive.

To date, I only use that service to track two small areas in search for properties to buy for myself and my investors. As I have time I'll have to try and check out the statistics.

[JoePAz]

Originally Posted by ArizonaBear

Quite plausible there:

I strongly suspect the outlying areas have pretty much bottomed out (Anthem, Queen Creek, Maricopa, Buckeye, etc) and the wave of price declines is heading closer and closer to the downtown/Sky Harbor areas. For that matter; I also sense we are approaching the bottom here as well (I live at the Scottsdale/Tempe border).

Well prices per sqft were around $200-$205 at the peak and now are $115-120 a sqft. That is HUGE drop. This why there are houses here going for what they were originally sold for back in 2001. Given that and the recient sales numbes I have a hard time thinking prices will drop by ANOTHER 10%. However in the market we are in now anything can happen. I feel the "recovery" (if you can even call it that) is very tenious here. Many outside factors can hinder it. In fact gas prices could really hurt since we are farther from the city core thus people tend to have longer drives. Hard to say for sure though as we are still not in a normal market driven by simple fundamentals. People are still buying and selling (or not) by emotion and fear. I know there are alot of people renting that would like to buy, but are afraid of losing money or waiting to get a deal. These people in a more stable enviroment would have already bought by now. Even so this is what we have right now and we need to make the best of it.

[hootie]

Originally Posted by Captain Bill

Quite a few areas in the <$300k range are under 6 months now, and that's where the sales have been happening. From what I've observed in the $180-$225 range is that they're staying fairly steady now because there are plenty of buyers in that range (and below)

What are the supply numbers for Chandler and Gilbert areas in the 175-250k range? Just curious because it does seem as there is a lot more competition in this price range....

[MotleyCrew]

How about town homes in the 85027 zip code?

[LesterBurnham]

Bill,

As always, very informative and well written post. Thanks for taking the time to respond in such detail. I'll just make a couple of notes.

Originally Posted by Captain Bill

The inventory has been declining all year, so I'm not sure it's entirely seasonal. The drop from 18 months seems too great to be seasonal.

I agree it isn't entirely seasonal, sales do seem to be picking up from '07. But the pattern is pretty much what you see every year. January is always the low point in the cycle for sales, and the peak is generally June July or August. I think it would be a big positive sign if sales fall off only 25% from now to around 4500/month at the Dec08/Jan09 low point. That would be a 50% improvement from last year (under 3000/mo), but it still will take inventory to 12 months if the absolute inventory stays the same.

Originally Posted by Captain Bill

I think many people, who aren't forced to sell, have just decided to take their home off the market until it changes. I know a lot of people are watching to find a time to list their homes because I get requests from my web site every day from owners wanting to know the current value of their home.

This will be a very interesting dynamic going forward. There clearly is pent up demand to sell from owners waiting for the market to improve and prices to increase. But there is also plenty of pent up demand to buy from people struggling to find financing and those who are waiting for the market to stabilize. I'm curious to see which demand is greater.

Originally Posted by Captain Bill

Quite a few areas in the <$300k range are under 6 months now, and that's where the sales have been happening. From what I've observed in the $180-$225 range is that they're staying fairly steady now because there are plenty of buyers in that range (and below)

When you stay steady, do you mean you think prices are holding up? Or do you mean the inventory seems pretty balanced? Has it been your observation that a house which sold for $175K in April, an equivalent house is still selling for $175K in August? That would be quite interesting given the the overall price drops we've seen during that time.

Originally Posted by Captain Bill

I have an ARM on my home that is resetting in September, and I was concerned about that. But I have a 12 month LIBOR index, and just checked that out. That index last year was 5.06. Today it's 3.26. So my interest rate will drop close to 2%. I'm still getting it refinanced because I found a great 30 yr fixed jumbo rate.

Not surprisingly, it sounds like you got yourself a pretty smart loan. I'm no expert, but it is my understanding that most ARMs tied to the LIBOR index reset to hefty premium ABOVE LIBOR. I thought I remember that LIBOR + 5%-8% was fairly common. So most people will still see a dramatic jump in payments when the ARM resets, even if the LIBOR remains low.

Congratulations on finding a good deal on a jumbo, that is quite an accomplishment in today's market.

Originally Posted by Captain Bill

If other indexes have declined like the 12-month LIBOR, and if some of the Govt programs forestall many of the foreclosures, and give people time to get their ducks back in a row, then perhaps we won't see such a glut of foreclosures.

Agreed, the housing market can't truly recover until the foreclosure problem is brought under control. As I said above, I'm not sure favorable indexes like LIBOR are going to save many people when rates reset, the rates will still be high for most. I'm undecided yet whether I think the government bailout will help a significant number of people. But even if foreclosures are brought under control, it still appears to me that there is a large inventory of foreclosures which have already gone through which haven't hit the market yet.

[ArizonaBear]

Originally Posted by JoePAz

Well prices per sqft were around $200-$205 at the peak and now are $115-120 a sqft. That is HUGE drop. This why there are houses here going for what they were originally sold for back in 2001. Given that and the recient sales numbes I have a hard time thinking prices will drop by ANOTHER 10%. However in the market we are in now anything can happen. I feel the "recovery" (if you can even call it that) is very tenious here. Many outside factors can hinder it. In fact gas prices could really hurt since we are farther from the city core thus people tend to have longer drives. Hard to say for sure though as we are still not in a normal market driven by simple fundamentals. People are still buying and selling (or not) by emotion and fear. I know there are alot of people renting that would like to buy, but are afraid of losing money or waiting to get a deal. These people in a more stable enviroment would have already bought by now. Even so this is what we have right now and we need to make the best of it.

In other words if I am reading your words correctly: the housing market has lost all of its gains from 2003-05--------and, then some!

I will admit that I was laughing when the market started imploding; now, with the depth of the crash..............I no longer think it is funny. In fact; I am starting to be concerned..........and, I am not even a homeowner at the moment.

[azjack]

"There clearly is pent up demand to sell from owners waiting for the market to improve and prices to increase. But there is also plenty of pent up demand to buy from people struggling to find financing and those who are waiting for the market to stabilize. I'm curious to see which demand is greater."

With record foreclosures and continued credit contraction, I can venture an educated guess.


". . . trustee sales recorded in the Phoenix area increased 95 percent from July 2007 to July 2008."