Last week we talked about the headlines on the state of real estate in Phoenix as reported by the news media. We saw that the problem is, no one can see beyond about 3 to 6 months’ time, which is why organizations often contradict themselves in their predictions. To really nail this issue we’ll look soberly at two final headline topics. To assist me is Tina Tamboer, from the always insightful The Cromford Report.

First up, Affordability:

Look at how fast and ridiculous these headlines occur.

August 13, 2013, Housingwire – “Only 69.3% of homes were deemed affordable.”

That’s actually a very good number. Between 60% and 75% is normal. If it’s much higher than that means that luxury is not selling. You have to have a certain percentage of luxury in your market. Day after day after day, you can see headlines about how horrible that roughly 69% is, but it’s actually a good number. ~ Tina Tamboer, The Cromford Report

August 14, 2013, DS news.com – “Housing Affordability Drops To 4-Year Low Ends Rates, Prices Rise”

To say that housing affordability drops to a four-year low makes a person feel like saying, “Oh my God, ‘We’re in a bubble.’ But when you look at it, we were in such crazy affordability. When 87% of all homes that sell are affordable to a family making the median income, that’s really high. That just means that there isn’t any luxury selling; that that $500,000-$900,000 market is dead. There was no jumbo financing available for anyone to buy that doesn’t conform to a conventional loan. So, as the jumbo financing came back in is when you see that luxury market start taking market share and then you see your affordability rate go down. People think it’s bad, but it just means that luxury is coming back.  ~ Tina Tamboer, The Cromford Report

August 16, 2013, Wealth Daily – “One Homes Aren’t Affordable.”

August 18, 2013, USA Today – “Housing Affordability Falls With Rising Prices”

August 26, 2013, NBC news – “Home Prices Across the US Defy Gravity.”

September 17, 2013, The Week – “Is Housing Affordability Going Down The Drain?”

Look at that one month spread between mid-August and September 17. The headlines have affordability just dropping down until they declare it’s going down the drain. Such dramatics. Seriously? Give me a break.

Here’s an example of conflicting headlines. Even on the same day. This is about interest rates.

October 1, 2013, US Finance Post – “Mortgage Rates Rise For The First Time In Three Weeks, October 1.”

October 1, 2013, Zillow – “30-Year Fixed Mortgage Rate Continued Downward Spiral.”

October 2, 2013, Mortgage News Daily – “Mortgage Rates Paralyzed By Uncertainty.”

So how’s the consumer supposed to gather their information online? Do you believe everything you read? If you see on the Internet it must be true, right? It’s hard to figure out what the truth is, among so much drama and so many differing opinions. Unless you’re knee-deep in this stuff every day it can become very difficult to figure out whether you should buy or not.

The answer is knowing what to pay attention to more than who and educating yourself.

That’s really the key.

That’s where the data comes in to help you on your individual level. For example, it’s true the data shows that payments today are similar to those in 2008. But it also shows that they’re similar now to 2003 levels. It’s just above $1000 a month. At the peak of 2005, you would’ve paid $1900 a month for a 2000 square ft. home, paying $375,000. Today, that same home is just over $250,000 and your payment is just over $1000 a month; which is just where it was in 2003. So actually, now we are at 2005 prices and 2003 payments. ~ Tina Tamboer

All the media talks about is that affordability is the lowest it’s been since 2008. They just didn’t go back far enough. If you go back farther, that’s where you see that we’re not in a bubble. We are not in a bad situation.

This chasm is what a bad situation really looks like:

The point of this graph is the comparison between where we were in mid-2006 and where we are now at the tail end of 2013. We’re not seeing anything very alarming. We’re coming back down to normal (blue rectangle) after a period of extremely unusual affordability.

If you want to buy or sell, and you want the truth in the headlines you’re reading, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

In my October Market Briefing, The Cromford Report’s resident expert, Tina Tamboer, talked about about the Phoenix housing recovery not being expected until 2015 “Memory Lane predictions”.

These are a combination of predictions that never happened or that were completely wrong. An example is the Phoenix housing recovery prediction you’ll see from this how much things change as we move forward in time. The January 31, 2011 prediction. According to ABC 15 coverage of the Phoenix housing conference, the 2009 recovery was predicted in 2012; in 2010, they predicted recovery in 2014; and then in 2011, they change it again to 2015.

Listen to all of these predictions that never came true.

Zillo.com said that housing prices were going to appreciate 6.5%, but it turned out to be well over 26%. On August 6, 2012 Case Shiller predicted that Phoenix area home prices would decline year over year in Phoenix but they didn’t change that to a decrease of 9.5% by the first quarter of 2013, followed by a no change, flap Priceline between the first quarter of 2013 in the first quarter of 2014. Not only did neither of those come true, in fact, Phoenix ended up being the number one city in Case Shiller’s own index in 2013. So not only did the first prediction not come true, but the second prediction of no change between 2013 and 2014, we’ve actually seen prices continue to increase with no stabilization of pricing occurring so far this year.

On May 8, 2012 Phoenix business Journal predicted that Phoenix home prices would fall 11% that year. None of these came true. The only one that came true was on May 3, 2012, when CNN money predicted that buying a home won’t get much cheaper. This is the only thing that was anywhere near correct. Super general and not helpful in the slightest.

Let’s look at some news quotes from years past regarding shadow inventory.

It was widely reported in 2011 that shadow inventory would take close to four years to clear. Just over a year later, MSN real estate, said, “Remember the Looming Shadow Inventory? Never mind.”

This next one is really hilarious: Forbes reported in April of this year that not only are we in a bubble, but also, we have shadow inventory. Never mind that these are two mutually exclusive things. You cannot have a bubble and shadow inventory at the same time. One drives prices down. The other is artificial appreciation. These are two completely different extremes.

Doubletalk, Bubble Talk.

All of these analysts are basically fighting amongst themselves:

CNBC – 30 April 2013, “Boost in Home Prices Doesn’t Equal Bubble”

CNBC – 1 May 2013, “Why the Fast Rise in Home Prices Doesn’t Equal a Bubble.”

Yahoo News – 29 May 2013, “Real Estate Euphoria: Is America in a New Housing Bubble?”

The Economist – 7 June 2013, “No US Housing Bubble.”

NuWire Investor – 12 June 2013, “Reports Show No Phoenix Housing Bubble.”

CNBC – 22 June 2013, “Housing Market: from Recovery to Bubble. Already?”

CNBC – 10 September 2013, “CNBC: We’re in Another Housing Bubble.”

Housingwire – 23 September 2013, “Experts: We Are Not in a Housing Bubble.”

The most credible source would be The Economist. NuWire is pretty good. CNBC is just trying to get eyes on their articles. It’s interesting to see how CNBC has changed their headlines between April and September. “We’re a bubble.” “We’re not in a bubble.” “Oh my God, where in a bubble.” “False alarm. No bubble.”

If we look at headlines from 2012 and 2013, regarding jobs and employment, you’ll find the same confusion confliction.

It just shows that we have a lot of confusing, conflicting headlines in the news media.

As a consumer who is not an expert in all of the different indicators, you don’t really know what to think regarding prices and appreciation. All of that can create insecurity in a buyer. Buyers don’t like uncertainty, so headlines like that can create a lot of skepticism. In truth, skepticism is a healthy thing. It keeps our prices from going too crazy.

The whole purpose of showing you these predictions is for you to see that people who do that much predicting this far in advance really don’t know what they’re talking about. The Crawford Report, however, gives what Tina Tamboer calls “headlights”:

If you feel like you’re driving at night in the real estate market, the Crawford Report just gives you some headlights to know if there’s a curve in the road up ahead. We don’t know what the weather is like in your destination. You can do some pretty good predictions on short-term level, but once you get past 3 to 6 months from now, you become a lot less accurate.”

Next week:
Affordability & Interest Rates Headlines recap and what The Cromford Report headlights show in the realistic next 3 to 6 months.

If you want to buy or sell, and you want my headlight view for the next 3 – 6 months in your desired location, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

The “Debt to Income Ratio” for FHA and even conventional loans is about to get harder to reach and you need to know about this.

First, debt to income ratio is the ratio of debt you are allowed to take on (total debt) as a portion of your income. Your home loan is one part of this debt –also to include credit cards, other loans and car payments, etc.

If your overall household borrowing is at more than 43% when Friday, January 10th, 2014 comes, new lending rules established by the CFPB (Consumer Financial Protection Bureau) exactly one year prior (Jan. 10, 2013) will limit you from taking out a mortgage or refinancing an existing one.

This is HUGE.

How much harder will it be? About 14% harder for getting an FHA loan and about 2% harder for getting a conventional loan.

Right now, FHA borrowers can have a debt to income ratio of 57%. That will go to 43% in January.

Conventional borrowers can have a debt to income ratio of 45%. That will go to 43%, as well.

Let me say it again: This is a HUGE change.

Enter my good friend and frequent contributor to my quarterly Market Briefings, Jeannie Bolger, Sr. Loan Officer (Nova Home Loans, Phoenix):

“I would suggest homebuyers who are looking to enter the home buying market should get pre-approved NOW to see where they will fall in the qualifying ratio “Bucket”.  If their current qualifying ratios are 47% they are going to want to be pre-approved (not pre-qualified) prior to Jan. 10^th, 2014, otherwise they may be limiting the sales price of home they will qualify for.”

A Little Background
The Ability-to-Repay rule made it so that most new mortgages must comply with basic requirements that protect consumers from taking on loans they aren’t able to repay. Lenders are assumed to have complied with the Ability-to-Repay rule if they issue loans that meet certain requirements (including prohibitions or limitations on the risky features that harmed consumers in the recent mortgage crisis). Find the right lender, someone who knows what can and can’t be done with a given file, and you’ll give yourself a huge leg up.

Although the decision was made this past January, the adjustments to the rule weren’t known by the public until May 13th of this year, when it was first reported in a press release by CFPB. US News & World Report commented on the coming change on August 30th.

As I mentioned in my last post in this series about the illusions of real estate sites like zillow.com,  trulia.com, and realtor.com, websites like these do not have as many search description fields compared to the extensive search capabilities of our MLS.

               First, let’s talk about how buyers are affected

In MLS, a property could be ‘active’, ‘UBC’ (excepting backup offers), ‘pending’, ‘closed’, ‘expired’, ‘canceled’. The three websites mentioned previously, only show ‘active’, ‘pending’, or ‘closed’. To show how significant it is to be missing something like the indication of UBC, this typically indicates that the property is accepting back up offers on a short sale, which means you might inquire about  seeing the home.

Another great example is with the Multi-Listing Service, which has a time of more descriptions about what is in the property: for example, is a block construction or wood construction, does the home have any energy efficiency features, and if so, which ones?

               How sellers are affected

If you’re a buyer and you look Zillow.com to see what an estimate is of the value of your home, you won’t find an actual “estimate”, but in fact a word like “Zestimate”. This could be that they can’t call what they do an actual “estimate” legally, just like “Froot Loops” can’t say they have fruit in them.  Functionally, they just don’t have access to the MLS data the way we do and so their estimates of home prices must be constructed from other, less accurate sources. 

For instance, if you go to the County Assessor and see what they estimate as the assessed value of your home, that is not the same as the estimated price or market value. Their assessed valuation, in fact, is designed to be way off of what the market actually is. They are prevented by law from increasing their estimate of your home value too fast so that your taxes (which are based on that value) are not raised too quickly. So a lot of where these websites are getting their estimates of your home is informed largely by, if not based on, the local County Assessor’s office.

In fact, there is a page on the Zillow.com website that describes their estimates and actually says,

“[Our estimate] is not an appraisal”

“Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home.”

I’d give you the link, but there’s a lot of hobly-gobly-now-you-see-the-truth-now-you-don’t nonsense in the writing that’s hypnotic and designed to get you to ignore the man behind the curtain who’s actually short, timid, and uncertain of much of anything. Need more proof? Check out their ‘Data Coverage and Zestimate Accuracy Table’, where you’ll learn that 86.4% of their Zestimates in the Phoenix area are as much as 20% off the actual sales price.

Let me say that again: 86.4% of their Zestimates in the Phoenix area are as much as 20% off the actual sales price.

This is one of the reasons you want to use a professional agent with access to the MLS. Well, like ME for instance!

If you want to buy or sell, and care about how you are affected as a seller or buyer, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

 

 

 

They say their information comes from MLS, so what’s wrong with using Zillow.com, Trulia.com, and Realtor.com?

The answer: LOTS!

True. Their data does come from MLS.

BUT…

(and that’s a big ‘ole ‘but’, indeed)

1) It’s delayed

2) Their search results is severely limited compared to MLS.

About that delay, delay, delay…

When you’re a realtor, you’re required to make changes in your listing within a 24-hour to 48-hour period after something has changed with your listing . Say the property goes from ‘active’ to ‘listing’, ‘listing’ to ‘closed’, or what was the final closing price?, and for all that kind of stuff, the realtor must update the MLS listing.

Here’s how it works for websites/companies like those listed above:

That information I just mentioned gets sent to all the companies who have subscribed to the MLS; companies like the three we’ve listed above. They pay all of the different local realtor associations around the country (for example, to the Phoenix Association of Realtors MLS) a subscription fee to get access to the MLS. BUT… it’s significantly delayed. You see, all of the MLS information that gets sent out from MLS goes through an “IDX Repeater”. That information goes out 24 to 48 hours after MLS has been updated.

You may not see that the house you think is ‘active’, is actually ‘pending’. This is the first way in which websites like Zillow, Realtor, and Trulia are inaccurate.

I’ve talked to agents who said that Zillo.com shows a house as ‘active’, when in fact, it hasn’t been active in six months. So when these companies  pay all this money to local MLS services to get this data for the roughly 6000 houses that close every month, the data is late. Way late. Later in effect than perhaps 24-48 hours sounds.

Realtors have a fiduciary responsibility to our clients.

Realtors can’t give up all of the information from the MLS to these other companies because  it could put our clients at risk in some cases. Some information pertains to gaining access to the home or information that could influence a price if known broadly. That’s why there has to be a delay. That’s the first reason the information coming from those kinds of websites is inaccurate.

Next week we’ll talk about the second reason the information is inaccurate: Search capabilities. I’ll give you specific examples of how your search results affect you as a buyer or seller. Like simply delaying information for a couple days, there’s much more to ‘search’ than what these sites are telling you.

If you want to buy or sell, and care about getting your information the second it’s a fact, please give me a call at 602-456-9388 or email me at ken@getyourphx.com.

We’ve noticed a serious slow-down in buying and selling in the last three weeks.  The exuberance of the first and second quarter has given way to tightened inventory in the third quarter, while interest rates climb.

The problem is that the rise in interest rates has scared a lot of people, even though rates are still really low.

I want to share these three graphs with you. The first is the movement in the 30-yr fixed interest rate. See that shift upward over this year? Its really only one percentage point.
 You can see more here:

http://www.freddiemac.com/pmms/pmms30.htm
http://research.stlouisfed.org/fred2/graph/?g=lHz

So, why the shock? Its like the effect that a dollar increase in gas has on driving: it makes people pause and think about their future plans.

Check out the other two graphs from the Cromford Report, below. They are of the 3-month and 12-month moving averages for homes in the CenPho area, which make up the majority of the sales ($100k to $600k). See how the price per square foot continues to rise in CenPho?

By the way, the higher interest rates I believe mean less chance of a bubble, which was slim anyway.

So, here’s the challenge and the opportunity:

1) If you want to be located in the central valley, you are in competition with people for a small supply of homes. The interest rates will cause a pause, but people will realize that 5% is still really low and they will continue to buy.

2) The opportunity comes in those homes where the sellers listed too high thinking they could make take advantage of that exuberance (which they don’t realize is gone). 

3) If you are thinking to sell, keep an eye on interest rates, but don’t get wedded to them. The tight inventory will have more of an affect on sales success, but if they continue to rise, it could dampen the market.

Please let me know if you have other questions.  I can help you buy or sell your home. Please give me a call at 602-456-9388.

The summer is turning out to be a good time to buy. Unlike the late spring, sellers are a little more realistic about prices. However, we expect activity to pick up in September, as people come back from vacation and begin listing their homes in larger numbers.

I’m going to shamelessly lift some comments now from Mike Orr of the Cromford Report about Listing Success Rates, because its a good way to think about what is selling out there right now:

“One of the statistics listing agents like use to set seller expectations is the Days on Market for sold listings.  They use it as a guide to show a homeowner how long they should expect to wait for their property to sell.  The downfall of this measurement is that a property could come on the market at the beginning of a seasonal slowdown (like July or August) and all of the sold DOMs would be recorded during the busy Spring and early Summer months.  Obviously during those months the DOM may be shorter due to the heightened buyer activity that occurs every year at that time, so DOM is not necessarily a good indicator for future marketing times in this instance.  Conversely, if a property is being listed in January, all of the DOM measurements would be for the slow Fall and Winter.  So therefore, not a good indicator for future marketing times during the busy Spring season. 

An alternative measurement to consider is the Listing Success Rate.    This measures the number of properties that sell during the month vs. cancel or expire.  It can be measured by city, price range, dwelling type and transaction type.  The chart below tells us that in the month of July, of all the properties that came off of Active status 79% closed escrow while 21% cancelled or expired.  This is a high success rate, in a normal market it falls between 60%-70%.  It is also a significant improvement from May of 2011 where 36% of all properties that came off the market cancelled or expired vs. selling.”

In short, if you are listing over the summer, expect to be on the market longer, but know that your success rate is still, in historic terms, probably going to be relatively high. See below

If you are starting to look or list, call me at 602-456-9388 if you want more insight and information.

In order to gauge a correct ‘supply and demand’ temperature for today’s Phoenix, it’s important to understand how far we’ve come.  (If you missed last week’s post, be sure to read part 1 of this series to catch up on the new definition of ‘supply and demand’).

Our market is a lot more complicated that it was in 2004/2005. Today, you do need a job to get a loan. It’s far more important than it was in 2005 when loans were as easy to get as raising your hand in class.

The nation’s unemployment rate had soared to over 10%. Maricopa County’s employment rate this past January? 7.1%. It then went down to 6.5%, then 6.6% and now we’re at 6.5%. Tucson is just a touch behind us at 6.7% unemployment.

Our biggest areas of growth are leisure and hospitality.

Because most of our losses were in leisure and hospitality, this is a good thing. A lot of the losses were in the construction and tourism industry when we went through our unemployment. Those industries are now in the top three and haven’t been since 2011.  ~ Tina Timboer, The Cromford Report.

Education and health services were one of our top growths in 2011 and 2012. So now construction is starting to pick up, as is professional business services.

We’re one of the fastest-growing cities in the nation for bioscience (“Arizona bioscience sector adding jobs at four times the national rate“) and high technology. The average income in these sectors is $85,000 a year, an increase of 15% since 2011. As you see we have a lot of good things happening here.

We’ve had 30 companies either relocate or significantly expand their business out here – and 10 within just the last year; big ones like State Farm, Union Bank. ~ Tina Timboer, The Cromford Report.

These things we’re talking about are a big part of the macro view on the issue of supply and demand here in Maricopa County. It’s the why we know that home prices will continue to go up in the foreseeable future. How is this happening? What winds shifted (or are shifting) that is drawing businesses to expand or migrate here? How do we account for those 30 companies migrating here in the first place? And because they are coming here, why do we still have such a shortage of properties?

That’s right. Next week!

To buy or sell with the our city’s macro view in mind, please call or email me at 602-456-9388 or ken@getyourphx.com

[‘now and then’ photo by Melody Ayres-Griffiths]

The average website visitor reads from a screen at 180 words/minute. I’ve already used 15, so I better get to the point of the matter. Which is this:

The only thing that really affects our supply and demand of homes in Maricopa County is people going out of, and people coming in to, our County. ~ Tina Timboer, The Cromford Report

That’s right, folks. Migration.

There used to be other things that affected supply and demand (and we’ll get to those in part 2 of this market analysis) but not any more. Some of you are looking to buy. Some are looking to sell. After you hear what I have to share with you, you may want to rethink your plans. Or, you may find your plans are confirmed by what you learn.

Some of you may want evidence that what I’m about to tell you is certifiable and trustworthy. I’ll tell you. It’s because it comes from The Cromford Report. For those who’ve not been following my blog posts for long, you don’t know how much I admire this report. If The Cromford Report were touring like The Grateful Dead or Phish, I’d follow them around. If Ben & Jerry’s were looking for a new flavor, I’d suggest they call it ‘Cromford’. Don’t just take my word for it. Listen to what Tina Timboer, the absolute Guru of all things Cromford, has to say:

Prices will continue to go up in Maricopa County for the foreseeable future.

How do we know this? Because Michael Orr, the founder of The Cromford Report is an Oxford educated mathematician. Because he is the Director for the Real Estate Theory and Practice of ASU. Because he personally cleans up all the public record data for ASU’s Real Estate department. Because The Cromford Report does not buy/sell property, but is solely an analytical firm. Michael Orr puts together all the data at The Cromford Report. Nobody knows the real estate market better than Orr.

Let’s get back to supply and demand. You’ve been hearing a lot about interest rates and you want to know what the long-term trend will be? How will interest rates affect buying/selling homes? Next week, I’ll share what Tina had to say about the macro view on the issue of supply and demand here in Maricopa County and how we know that prices will continue to go up in the foreseeable future. Yes, because Michael Orr said so, but more importantly, it’s why he says so.

Trust me, you’ll nod your head and think, “That makes perfect sense. I should look at the macro view more frequently before I hear the news tell me the Case–Shiller Home Price Index says homes are selling for X amount nationwide. Which is just like saying the average temperature in the country is 76 degrees, but golly it’s 110 degrees in Phoenix!”

Exactly. Come back next week to hear what the supply and demand “temperature” really is in Phoenix and why.

To buy or sell, informed and with confidence, give me a call or email me at 602-456-9388 or email me at ken@getyourphx.com

  [migration photo:  Billtacular]  

This time last year the summer sky was overcast and the rain was on it’s way. This last week, we got over 117 degrees and there’s a 10% chance of rain, but I don’t know that I believe it will actually happen. A year ago this week, short sales were all the rage and the Mortgage Forgiveness Debt Relief Act allowed you to avoid paying taxes on mortgage debt forgiven–but that ran out at the end of 2012.

Speaking about the end of the year, we’re in the second quarter now and that Q4 time from October through December will be here before you can say “Jimmy Crack Corn”. As the old-time realtors say, “Them be the slow months. Might as well kick up your heels and sit for a bit”.

But as I find myself thinking about the end of the year, I can tell you in my experience that last Halloween through New Year’s was all work for me in the real estate business. People were buying and selling through me last Q4 like there was no change of the season.

What “they” say is supposed to happen is that people stop buying or selling houses because the holidays just creep up on them and they get distracted. They say the market slows down after the summer and maybe you can negotiate a better deal during the holidays or Christmas. That has definitely not been the case for me in the last three years.

Look at previous years in the chart below. You’ll see this is generally true; especially around Thanksgiving. In the first chart, you’ll see the last nine years. Some of them drop off drastically, but come back around February.

In the second chart you will see 2004 and 2005 compared to 2010 and 2011. In ’10 and ’11 there was a little drop around November, but then we just picked right up again.

In other words:

ONE: Don’t assume the end of the year is going to be slow. Selling or buying? Take advantage of the active market during the summer months.

TWO: It’s been hectic the last two years. We have every reason to believe it’s going to be hectic this year, too.

THREE: If you want to buy or sell, Summer, Q3 or Q4 or beyond, give me a call at 602-456-9388 or email me at ken@getyourphx.com.