Tempe

Home sales continue to climb as more and more foreclosures are snatched up by investors. Foreclosure inventory in the last month has dropped from 10,200 to 6,700 – pending home sales are at 8,183, and 5,508 homes were sold in the last 30 days. Investors are buying foreclosures at a faster rate than they are hitting the market.

The percentage of foreclosed homes in Tempe is lower than the rest of the valley (8 percent versus 35 percent), which means Tempe’s absorption rate continues to hover at a 10 or 11 month absorption rate.

The absorption rate is the ratio between active and solds: the time it would take at the current rate of sale for the inventory to be completely sold. Valley wide, however, the absorption rate is now 5.0 – the last time the Valley real estate market saw the absorption rate this low was in 2006.
In the last 30 days, 8,527 homes have been sold, bringing the inventory of available homes down to 42,466.

While foreclosed homes continue to close at a rapid pace, the real estate market is having a more difficult time moving short sales and pre-closure properties. Short sales and pre-closed homes only have a 1 in 15 chance of closing. At present, there are 12,054 short sales on the market and last month, only 804 of those closed. It is for this reason that many of my clients are choosing not to pursue short sales – they are waiting until the banks are more responsive to buyers.

This stunning turn around in the market occurred in the time span of a few weeks. Some insiders are claiming that another wave of foreclosures is about to hit the market, but judging by the high demand for foreclosed properties, these homes won’t last long. As we move into the prime buying time for homes, the demand will continue to increase on the retail end of the market.

November was not a good month for the Tempe housing market. Even allowing for the seasonal fluctuations in the real estate market (November tends to be one of the slowest months for Real Estate sales) the supply of new listings continues at the same pace but the number of closed sales has dropped.

The period of time needed to clear the housing market inventory has gone from a low of seven months (May/June 2008) back up to the mid teens for Tempe and Maricopa County. We haven’t seen those market numbers since November 2007 when I announced that the real estate market had bottomed out. Could this be a new housing market bottom?

Now for the Good Housing Market News:

At a recent Real Estate economic forecast forum one presenter, Valley economist Elliot Pollack, opened his remarks about the market with the comment, “If you thought ‘08 was bad, then ‘09 will be terrible.”

There is a silver lining to this housing market cloud. Both for residential (now) and commercial (soon to follow), we are becoming one of the most affordable real estate markets in the country. So as soon as there is an economic turnaround, Phoenix and Tempe will be one of the first real estate markets companies will be looking for bargains in relocation both for their company facilities as well as housing for their employees. There will be great deals available in Tempe Real Estate.

This housing market optimism was echoed by a report quoted in the Arizona Republic, from national Real Estate economist Tim Sullivan, who indicated that, using seven criteria to track the Real Estate Market recovery for the Phoenix area, all points are positive.
These are the seven positive real estate market indicators:

1. Re-sales are below a 7-month supply (this one is out-of-date based on “by the numbers” above)
2. Home sales have stopped slowing
3. New home permits are falling
4. Mortgage applications are increasing
5. Interest rates are below 6%
6. Affordability has improved
7. Several home builders have gone away

So where is the real estate market recovery? What are we waiting for? Dare I say … Banks? Loans are still difficult to get, substantial down payments are required, and the processing of foreclosures is moving along at a snail’s pace?

Real Estate Recovery Now Tied to Job Recovery:

So for the housing market to recover, we may need to wait for the spring when the $121 million of federal funds arrives in Arizona to help with cleaning up the distressed neighborhoods from foreclosures and, more importantly, if and when the Obama stimulus package starts putting people back to work.

Dr. Jay Butler, Associate Professor of Real Estate at ASU, recently confirmed the impact of jobs on the Real Estate Market recovery. Putting people back to work will be the single most important factor that will slow the foreclosure rate and re-establish consumer confidence.  When we see the unemployment numbers start to drop that will be a signal and, when they get back below 4.5%, we will be in recovery mode.

In the meantime buyers have a large inventory to choose from and sellers are anxious to meet their demands. Conclusion: It is still a buyer’s market in Tempe Real Estate.

The Tempe, AZ home sales numbers for October show that there continues to be no change in the supply and demand factors within the housing market. In Tempe we are still bouncing along the bottom of a somewhat stagnant housing market. The $64,000 dollar question is: When will the Tempe real estate market turn?

In Tempe, in order to help the housing market, availability of credit is the single most important factor, especially for first-time home buyers. As soon as the lending institutions “lighten up” and send some favorable signals from their underwriters, we will see an increase in demand on the housing market and those great deals that you see on the real estate market right now will become scarce.

A secondary factor for a change in the housing market is the number of Tempe’s foreclosures. If the new administration can stem the tide of foreclosures, the inventory on the real estate market will decrease, propelling investors and home buyers who have been sitting on the fence, to start writing realistic offers.

To those Tempe residents wondering about the housing market, I have asked all my lenders to keep me posted if either of these two things happens–and you will be the first to know when housing market circumstances change if you continue to read my newsletters.

We expect to see a seasonal jump in Tempe after the holidays in the Real Estate market. Together with the financial climate, it will be seen as a bounce back. By then the smart money will already be in the game and in the housing market. For those of you who choose to wait till the market is prime, you may be playing catch up … remember the days of multiple offers?!

Waiting for the Housing Market Before You Sell?

If you are waiting for the recovery before you put your home on the housing market and you are wanting to move up (buy a bigger more expensive home) … DON’T! If your home is currently worth $300,000 with the current status of the housing market, you might be waiting for it to get back to $360,000. Unless you are upside down on a loan, please don’t wait. That $500,000 home you have been looking at will then be at $600,000 thus costing you $40,000 more after you sell your home. Buy now and you won’t have to compete with other buyers and you will have a seller more willing to make concessions.

Through the first quarter of 2008, the real estate market in Tempe, AZ has been somewhat immune to the impact of foreclosures – with average house values hovering at around $300k. But since March of this year, we have seen average property values drop in Tempe by $75k – a 25% drop in just eight months. What is going on with the real estate market?

The rapid appearance of distressed properties at the lower end of the housing market (which I would define as under $200k) is the main cause for this change. These toxic properties are “short sales” (properties that are worth less than the amount owed on them), foreclosures and pre-foreclosures. At some point, these properties will end up on the real estate market in a state of disrepair, having been vacant for months due to the protracted nature of the foreclosure process.

An analysis of these properties reveals where foreclosures have impacted property values on the real estate market the most. In all prices ranges in Tempe, these properties represent only 19% of the current market inventory (well below the average for the metropolitan Phoenix area which is close to 40%). But in the housing market of single family homes selling for less than $200k, the number of distressed properties in Tempe (as well as the Phoenix metropolitan area) is close to 60% of the properties for sale.

A year ago I had a list on my website of Tempe Deals. These were properties under $200k that could represent a potential positive cash flow for investors wanting to turn them into rentals. We updated that list every few weeks as these properties were sold. There were usually 4-6 properties on that list. A recent search on the MLS for the same bargains showed that there are currently 124 properties for sale in that category of which 65 are distressed properties.

At a recent presentation, Valley real estate economist Elliot Pollack indicated that the gap between bank-owned properties and private sales was consistently about $40K at the lower end of the real estate market. So property averages have dropped dramatically due to the huge increase in distressed properties that have been “dumped” on the housing market as they proceed through the foreclosure process. Homeowners who want to sell their properties in the same neighborhoods must drop their sales price to get close to the level of the distressed property inventory.

My own experience working with investors interested in foreclosures shows that these properties often need $20 to $40k in repairs to bring them up to the level of the retail housing market – thus the $40k differential between the retail and wholesale market values. Because of the condition of these abandoned foreclosures, they present a greater challenge for first-time home buyers. It is more difficult to get lenders to approve them, so most are bought as cash transactions by investors which keeps the number of owner-occupied homes down and increases the number of rentals in those neighborhoods. First-time home buyers are limited to the retail end of the market. Because of the distressed properties being sold in the same neighborhoods, appraisals tend to be low. Getting the property to appraise at the level of the loan becomes a concern and can hamper the success of the transaction.