reports of Promising Trends

re-printed from our Viewpoint e-newsletter service. You can sign up here to receive this free-premium content as soon as it’s realeased!

Viewpoint 6/2/2010

reports of Promising Trends

Last week I read an article in the mainstream media reporting “Phoenix home sales show promising trends.”  (thank you to good friend and colleague Michele Guss for sending it to me.)

Now, long-time readers know my disdain for the media’s use of statistics and their sensationalizing headlines without showing the supporting data..  Needless to say I read through the article with the hope of a Realtor who would LOVE to see a promising trend, and the cynicism of one who knows better…

The article made some strong points and quoted a couple of experts; anyone reading to the end of it would most likely feel like they could see the light at the end of the economically dismal tunnel.  The real question is then, is that light coming from the sunshine not too far ahead, or is it the headlight of an oncoming train?!

I’m going to pull some quotes from the article below, and then I’ll pull some data from the MLS to see if I can validate the article’s claims.

Phoenix home sales show promising trends (select quotes; all emphasis mine.)

A) Foreclosures did NOT dominate. 

“Foreclosures did not dominate sales of existing homes in the Valley for the first time in more than a year.”

B) Return of Normal.

“The return of average buyers to the market suggests more people are buying for the long haul rather than for a quick resale. The shift away from foreclosures also means more Valley homeowners were able to sell their houses last month.”

C) Prices could go up.

“It appears foreclosures may have finally made their downward turn," said Tom Ruff, analyst for real-estate-research firm Information Market. "The number of home sales might drop now, but prices could go up.”

D) nearly Half of buyers using mortgages used FHA.

“Nearly half of the 5,953 homebuyers who financed their purchase through mortgages used Federal Housing Administration loans, which are primarily obtained by first-time buyers.”

Those are just a few of the dozen or so bullet points mentioned in the article, and after reading them it’s hard not to get excited about where the market is heading.  Unfortunately, as is often the case, the author doesn’t give us much in the way of relative or historical information, nor do we get access to the actual data they used.

Re-creating the data.

I tried to recreate this information using the data I have access to:  the Arizona Regional Multiple Listing Service (ARMLS).  The charts & graphs below were all created using data pulled from ARMLS – all data is believed to be accurate but not guaranteed.

A) Foreclosures did NOT dominate.  Really?

The chart below shows all Single Family homes sold since 1/1/2009 in Maricopa County (in ARMLS). 

I see a few trends in this chart worth commenting on:

• Foreclosures (blue) are not dominating the market the way they were a year ago.  In fact, the last 2 months have seen more traditional Owner sales than Foreclosure sales. But let’s not get caught up in semantics – foreclosures were still a major part of the marketplace.
• The number of traditional Owner sales (red) has climbed steadily over the last year, with the exception of the traditionally seasonally low December through February.
• The number of Short Sales (green) has also steadily increased since the beginning of last year, from approx 250 in Jan, 2009 to almost 1,500 last month!  Good news here is that, even though a short sale is still a distressed sale where the bank will take a loss, the house will not sit vacant for a year while the bank processes the foreclosure.  (Much better for the neighbors!)
• Overall, the rise in short sales is somewhat offsetting the decline in foreclosures, and these are both distressed listings.  Traditional Owners have increased steadily, but still make up less than half of the market.  I don’t think I’m ready to declare the end of the foreclosure market quite yet…

B) Return of Normal.  define normal.

Is the market really getting back to normal?  Let’s take a look at who is occupying the homes which are selling:

While a larger number of traditional Owner Occupied houses (blue) are selling every month – which is a very good thing – Vacant homes (red) are still dominating the market.  Occasionally there is a vacant home owned by somebody who is financially stable, and who has simply moved in advance of selling his/her home.  Realistically, however, most of these vacant homes are heading in the direction of foreclosure.  Whether they sell as a traditional Owner or a Short Sale before they get all the way to the Bank is just a matter of timing.

Overall, I don’t think we can call a market where vacant homes outnumber owner occupied homes by a 3 or 4 to 1 ratio a “return of normal”.

C) Prices could go up.  yeah, could.

I agree with the analyst’s theory that IF we’re through the foreclosure-driven market THEN prices will go up.  In fact, I’ve written several times I expect to see a bump in prices when traditional sellers are no longer competing with banks and once again begin to compete with each other.

The chart above shows buyers were paying more than the asking price in the 3rd quarter last year, but since then the market has softened a little bit.  (although 98%-99% isn’t exactly soft!)

A chart showing $/sqft would give us a better indication of where things are, but we’ve discussed before (at length) that prices, and price trends, will vary by zip code & even by neighborhood.  One neighborhood can see prices rise while another neighborhood not too far away can see prices fall.

Sales prices being so close to Listing prices is a very good indication, but based on A) and B) above I think it’s a bit early to call for prices to rise across the entire Phoenix area.

D) nearly half of buyers using mortgages used FHA.

This is a nearly meaningless stat.

FHA raised their loan limits awhile back which, along with the drop in Phoenix real estate prices, means most middle-income and even upper-middle-income homebuyers will buy homes which can effectively use an FHA loan.

FHA has less restrictive underwriting guidelines than most conventional loans.  This means folks who have struggled a little bit in our recent economic environment may still qualify for an FHA loan.

The chart below shows the number of buyers using FHA (most likely to be first-time buyers or buyers with imperfect credit), Conventional Financing (most likely to be buyers above $350,000 and buyers with terrific credit), and Cash (most likely to be investors.)

Cash buyers (blue) have been and are continuing to be a major part of the market, while Mortgage-buyers (red and green) make up almost 2/3 of the market.  FHA (green) has gained market share over Conventional (red) during the last year.

Conclusion

Statistics can be extremely misleading, especially when used without a reference point or in historical context (which mainstream media tends to do every day.)

Is the market getting better?  Yes.  Are traditional homeowners in better shape than they were a year ago?  Yes.  But we’re not ready to make the call on “the market has turned the corner.”  Vacant and Distressed homes are still a major factor in today’s market, and I expect it will take more than a year before we see these types of listings fade into the minority.

In the meantime, keep reading – we’ll do our best to keep you informed of what we’re seeing and thinking.  And if you have questions about your house, neighborhood, or personal situation, please give us a shout!

Non-related reading

Still thirsty for knowledge?  Here are some other articles we’ve written lately:

The Highs and Lows – a look at the most expensive and least expensive homes which sold.

Is there a benefit in working with the seller’s Realtor when buying a home?

Cash vs Loan by Size of Home – graph

Moving Stills – pictures from in and around Phoenix, all taken from my car!  93 so far and counting..

If you’re reading this in text, rather than html format, you can find all these articles on our website at http://thephoenixagents.com.

Your seeing the market getting better but patience wearing thin Realtor,

Chris Butterworth

Chris & Heather, The Phoenix Agents

http://thephoenixagents.com

623-570-9940

Chris Butterworth and Heather Barr are The Phoenix Agents at Thompson’s Realty.  The Phoenix Agents are Realtors in the Greater Phoenix area, who have built a loyal following over the years by offering superior service levels coupled with a low-pressure approach.  You can visit http://ThePhoenixAgents.com online to learn more about Chris, Heather, and the Phoenix-area real estate market.  If you have real estate questions or needs, please contact us anytime; we’d love to hear from you.

Share This Email! While this email is FREE in terms of money, we accept ‘sharing’ as a currency.  In fact, it’s the only way we spread the word!  If you found this article enjoyable/informative/helpful, please tell 2 people you know to subscribe to this service.  They can subscribe online at:  http://thephoenixagents.com/free-premium

Privacy.  We will NEVER sell, rent, or otherwise distribute your email address to other marketers.  We promise.

Reproduction & Redistribution.  Via Email, you may forward this message to as many people as you’d like.  In fact, we hope you do!  Via Web, you may reproduce &/or redistribute this content in full or in part provided you meet these 3 requests:

1. Citation – you must provide a citation to The Phoenix Agents as the author, a link to The Phoenix Agents’ web site (http://thephoenixagents.com), and a link to allow readers to subscribe to this Viewpoint service (http://thephoenixagents.com/free-premium/).
2. Notification – you must provide a notice to The Phoenix Agents with a link to show how/where you are using our content.  (news@thephoenixagents.com)
3. Monetization – this content is FREE and shall remain FREE.  You are not allowed to profit from this information.

Legal Disclaimer & Disclosure, in plain English.  The views expressed in this article are solely the views of the author, and are intended to provide one person’s thoughts on the topic put forth.  The author cannot see the future, so please don’t make any investment, financial, or other important decisions based solely on what you’ve just read & then blame the author if things don’t work out the way you planned.  Reader agrees to hold the author and any other member of The Phoenix Agents &/or Thompson’s Realty (including the Broker) harmless for anything the reader connects with having happened due to reading this article.

Remove Me.  Don’t want to receive anymore emails like this?  That’s ok – just click the “Manage my Subscription” link down below & you’ll be removed, simple as pie.