I was listening to the news recently. They were siting the Case-Shiller index talking about what the average home price was in America. This always seemed absurd to me. You could tell me that the average temperature in America is 75° and that doesn’t help me plan a trip. So I got to thinking, it would be great to have a sort of one-stop shop where people could come in and talk to people like Jeannie Bolger, Mike Orr, or myself.
So this past Tuesday, that’s what I did. We had a room of about 25 people. Some were buying houses, some selling them. Some were investors, some realtors, some mortgage brokers. Some were just curious. Another reason I did this was because I just wanted my friends to have this information. I know the market. I work hard to understand the market. We’ve been fighting some of the same myths over the past three years and I wanted to clear the air.
I covered several things in my presentation:
- The home delinquency rate in America and in Maricopa County
- The inventory that’s currently out there
- Some interesting trends hidden inside the data.
Much of my briefing was based on Mike Orr’s Cromford Report. (Thanks to Mike Orr and Tina Tamboer for allowing me to share their work at the presentation and here as well.) I’m a huge fan of this report. If The Cromford Report were like the Grateful Dead, I would just follow them around everywhere, like a groupie. It’s very easy to understand, has helpful visuals, and is easy to digest. Mike is not only behind The Cromford Report, he’s also the director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.
Orr made this great statement, which he calls the Coiled Spring Theory:
The longer it takes for prices to respond, the larger prices are going to be.
I think that’s very true in the market right now. For greater Phoenix, the local average sales price per square foot, in just the last year, has seen a 30% increase in prices. Is that going to happen again this coming year? Quite possibly. And that has a lot to do with the number of homes left on the market, and where the next ones are coming from.
Before we get to that, let’s talk about delinquency. This is when people are simply late on their loans. They may foreclose. They may short sale.
I have heard the following phrase a lot over the past year:
We don’t know what the banks are hiding.
I like Mike Orr’s response to that. He says what they’re really saying is:
We’re too lazy to check.
It’s really easy to see what’s coming downstream from the banks. You can see it in several ways. First, by looking at the number of delinquency filings at the county courts. You can see who’s getting notices that they’re late on their loan and are in danger of being foreclosed. Second, you can see it in the number of trustee sales.
When you look at these numbers (see pictured graph, below), you see that Phoenix has no shadow inventory.
Below is another great snapshot of where we are.
Nevada is in a world of hurt right now. But things in Arizona are not what you have been hearing in the news over the last few years. It’s just not like that anymore for us. In fact, one of the reasons we saw the two big drops in Arizona (note the AZ drop-offs in the above graph) is that title companies got really good at processing short sales and they got us through that. So in Arizona, residential foreclosures are down.
If you want to see the big picture of why there is no shadow inventory, this next chart is a great thing to look at. I was saying it in Aug, 2011 (“If I have to hear another person predict a massive “shadow inventory” I’m going to turn green, and you wouldn’t like me when I turn green…) and I said it again this past July when I wrote about Countervailing Forces (you remember the graphic: two monopoly houses dueling with light sabers. I crack me up, sometimes.)
On this chart, that line on the bottom is the normal level at which people expect to see foreclosures in the market. There’s always going to be some percentage of people who should not have bought the house and now they’re upside down late on payments. The real interesting bit here is that based on this chart we can see that there are still going to be some things coming onto the market or those people are going to be short selling. They’ll find a way through it, but they’ll have a better chance at a better way through it then they would have three years ago.
Some people argue that I’m not looking in the right place. They’ll say,
All those banks are just holding onto their houses. They just haven’t been listed yet. You’re not seeing them in this chart.
Well those people will have to keep arguing, or holding their breath, until part 2 of this series on Get Your PHX Market Briefing. That’s when I’ll share how I answer those people and I’ll share some relevant and interesting insights about the inventory that’s actually out here in Central Phoenix.
If you would like to be part of a future PHX Market Briefing, please contact me at 602-456-9388.
[train photo: andrew_j_w] [modified with permission by Ken Clark]