Last week, we saw how understanding relevant data is vital to how I inform my gut instincts as an agent.

This week, let’s look at how data on historic neighborhoods informs my gut and how what I’m seeing in several “overflow areas” plays into it. Homes in historic neighborhoods are getting more and more expensive, and they will continue to do so as people who value those homes will continue to buy just outside the historic areas. Why? Simply because there is a finite number of them and more people want homes with that character.

So, over-time more people have renovated historic neighborhoods that neighbor the original historic neighborhoods. The supply increases.

This “spillover” dynamic has given us our 35 historic neighborhoods. Specifically, neighborhoods that were seen as “not ready for prime time” are improving right next to the current neighborhoods.

The first historic neighborhood in Phoenix was Roosevelt. Garfield, FQ Story, Willow, Encanto, Palmcroft, and others followed. People around them started saying:

Wait, we have older homes. We either don’t want to or we can’t afford to buy in the historic districts. Or, we believe our neighborhood is unique historically. Let’s apply for historic designation here.

The number of neighborhoods with historic designation has been increasing over the last 30 years, and very dramatically over the last 10 years. Because of my expertise, immersion in the data, and instincts, I know where the spillover is going to happen next. I’m seeing a lot of renovation in areas which you should not pass over for consideration when looking for a home.

Another thing to look for are the “historic-adjacent” neighborhoods. These may never get historic designation, but they benefit from their proximity to historic neighborhoods.

Example: the Woodlea and Melrose districts at 7^th avenue.

The northern of Woodlea is Glenrosa Ave. Technically, north of Glenrosa is not historic because not enough people maintained the original condition of their homes there and not enough people wanted it to be historic.  Homes in the non-historic neighborhood, are much more expensive and enjoy greater stability than they woiuld if they weren’t right next to the historic neighborhood of Woodlea.

What about the east side of 7^th AVe where the houses are very similar to the ones on 7^th Avenue? Unfortunately, they don’t have that historic designation to benefit from.

I’m seeing neighborhoods that were formerly avoided to some degree by agents, but we’re starting to see some good renovations.

Specifically, I’m seeing a lot of renovations in the listings west of 19^th avenue, south of Indian School, and as far south as Encanto. These have a lot of navy brick homes, which are hard to find and very sturdy. New home construction is too expensive and almost never brick. Brick is more stable, better for deterring termites. These were homes built in the 1940’s and 1950’s for the most parts.

I’m also seeing some nice renovations in the area of 24^th street and Thomas; also brick homes. In some areas it’s street by street, where one street is great—with a lot of renovations—and the next street isn’t so good. Another area where I’m seeing a lot of renovation is east of 16^th street, west of the 51 freeway, and south of Indian School. Even compared to a year ago, it’s improved noticeably. It’s happening in that area because it’s spilling over from the Coronado historic neighborhood (which is getting oversold: too many buyers, not enough houses), so people that aren’t finding things under $200,000 are pushing over to the 16^th street areas.

That area has been a little rough in past years, but you’re going to start seeing more and more renovations just outside of the traditional historic neighborhoods, because the historic neighborhoods are pricing higher. Classic supply and demand. You might consider looking into these 16^th street areas because of the action that’s going on there.

There are other neighborhoods further to the east that are going up in price as well, on the other side of the 51, going all the way over to Scottsdale. Give me a call if you’re curious about that.

Shoot, give me a call if you’re curious about other historic spillover areas you’ve got on your mind as well.

I look forward to talking with you. I can be reached at 602-456-9388

This week I want to talk about how data informs my gut sense. What does it mean when I talk about different types of ‘data’ in my posts? A hugely reliable source of my data comes from The Cromford Report.  The Cromford Report takes data directly from the Multi-Listing Service, which is the most accurate report of sales in Arizona. In this next graphic, you’ll see what the Cromford Index does. Two things you need to know about this chart on Phoenix for the last 30 days:  Above 100 and below 100.

Look at the two gauges on the left and right sides. Anything over 100 is a seller’s market. If the arrow is in the green, it’s good for sellers; red, it’s good for buyers. As you can see from the 30-day chart at the bottom of the graphic, the supply is really flat right now. That’s because we’re not getting a new supply of homes into the available inventory, which means it’s a seller market. Between buyers (the Supply Index gauge on the left) and sellers (Demand Index gauge on the right) you’ll see demand is pretty flat (in the yellow zone). In an ideal world, buyers and sellers are equal in getting what they want.

 Macro

This chart below is for Phoenix, for the last couple years.

You can see here, in the pink, that it became better for sellers in 2011. It’s at over 100, so it’s better for sellers. Since 2011, it’s been increasingly better for sellers, there was a little drop off at Christmas 2012, but then it’s popping up again. The long-term Crawford Index tells us that things have been getting better for sellers for a while –for much longer than the media was reporting.

Can I get any worthwhile information on just a month worth of data, or must I have a year’s worth of data to be able to offer any real value?

With the Crawford stuff, you have to look at the micro and the macro, balance them out, and end up with the gut feeling (many authors on decision making whom I’ve read say that the gut reaction is the more accurate than we might think). You have to be in the business and see lots of data to get that gut sense.

Micro micro

Check this out, we can look at zip codes also in The Cromford Index.  Isn’t that cool? This is a micro-micro example of using data. This data shown in the chart below is for $100,000 to $250,000 on Phoenix zip codes for 85003, 85004, 85005, 85012, 85013, 85015. This is SFR in Maricopa county. It’s a 6-months moving sales, and it’s really janky because there aren’t that many homes in that price range.  It’s a pretty small area for home prices.

I have used this kind of data in the past (3/26/10 – “Data is right. Media is wrong” and 8/25/09 – “Can I Say I Told You So?” to make my cases about I saw (based on the data) and felt (based on my gut instincts) was going to occur.

Was I right just because of the data?

Not at all. I took the data and used it to get the gut instinct. You’ve seen me put up images of supply, inventory, and demand, on this posts and in the past, and you’ll see them in posts to come, but what I’ve found is you use the macro and the micro data, but in the end you have to go with your gut.

Next week, we’re going to talk about data as it relates to up and coming areas. I can tell you now what my gut instincts tells me:

The micro data shows price increases, but I also know that people are getting priced out of historic neighborhoods, so they’re going next door. I know those neighborhoods. And not just from an aesthetic perspective, but from gut instinct.

Give me a call, buy or sell.  Go with your gut.

In part four, we discussed the different local credit unions and how their Health Savings Accounts work. Now, we’ll discuss how to select the best credit union based on brokerage account services.

A brokerage account is like a money market account, but from it you can buy stocks, sell stocks or buy mutual funds.So it’s like a health savings account except the money is for investment or portfolio items. Like an HSA, there’s a firewall. The reason – credit and the bank should remain separate.

For example, if you are on your  JPWellsComeriBank account online and want to look at your brokerage account, the website will open a new window and take you to that separate brokerage website. With Desert Schools Credit Union, they will personally connect you with a financial services company who will set up your account services, etc. You can set up your account on Desert Schools to make automatic bill pays to your brokerage account, as well. Though you still must login to the brokerage accounts from a different website than your Desert Schools website. The two businesses are separate, but they are more integrated on a personal level.

When I called Desert Schools Credit Union, I was directed to financial services, and spoke with a representative immediately. He told me about what they had, that he’d look at my portfolio, and help me get the changes set up from my national bank. Now, when I did this over at Arizona Federal Credit Union, they directed me to a woman named Stephanie. I left my number for her, but she never called.

From the perspective of a small business owner, credit unions are all  basically the same. They have the same fee structure and basically the same offerings. The thing that really differentiates one credit union from another one is customer service. If I own a business, I want my banker to be on the phone and someone who knows me. Why am I leaving JPWellsComeriBank? Because they’re a big anonymous bank. While the fee structure among different credit unions are nice, as well as the integration of health savings account, they’re not critical. The bottom line for me: What was their customer service like?

In wrapping up this series on credit unions, we’ve taken a close look at the difference, we’ve examinatined them in person, we’ve compared the pros and cons. I can sum up the most satisfying part of this process in one example which really captures the essesnce of why I left a big national bank for a local credit union.

The story goes like this:

I went into Wells Fargo to take out my money for the last time and the woman assisting me asked, “Why are you leaving us?”

“Two reasons:” I told her. “I’ve waited too long to put my money where my mouth is and I’m finally going to support a locally owned bank. When I use my money at locally owned businesses, 30% of my money stays in the local economy.”

“But Desert Schools doesn’t have very many ATMs …”

“Are you really playing the ATM card card?”, I asked her, “You know that doesn’t matter. I can just take money out from a cash advance at the grocery store.”

Her response?

“Oh, yeah, I guess so.”

So, there we have it. I thought this process would be longer and more difficult. In some ways it was, but in most ways it is really easy to mover your money to a locally-owned credit union and keep your money where your state is, so to speak.

Good hunting!

Part 3 ended with the big question, “What are the home builders doing?” I’m going to end my four-part market analysis with this answer and what they tells us as we’ve crossed into 2013 and heading into February already.

At the same conference that was put on for realtors by old Republic, where Mike Orr spoke, the home builders got up on stage. There were five of them and they had this total love-fest among themselves talking about how proud they were, “We’ve got this land out by the San Tans and were going to put like 8,000 homes on it!” And “yeah that’s right! And every one of them is going to have a pool!” They were really proud of themselves because they’re really starting to build 424 a month, 704 per month, 805 a month and they just saw a great future for themselves.

This is where they used to be. And this is where they are now…

Back when I was working for the State Energy Office. We were trying to convince home builders to put energy efficiency improvements in their homes and they were like, “Don’t bother us. We’re too busy.”

This is where they were in 2006. They built 60,000 homes in a year. Way too many for us to absorb.

I think what these guys are going to find, in the next two or three years is that they will never reach that old demand for “sprawl” housing.

Bear with me. I’m going to pontificate a little bit here. As the United States gears up its economy,

and China gears up its economy,

and Europe gears up its economy,

the price for auto fuel is going to go up. I think, it will reach over $5 per gallon, and that is going to affect home buying decisions.

One of the things I learned back at the energy office when I was there is that the price per barrel to get oil out of the ground has only gone up year after year. You may be fracking for natural gas and all that, but you don’t drive a natural gas car, typically, from Ahwatukee to downtown Phoenix, or from Avondale or the San Tans to your job.

So these guys are going to continue building out in the ‘burbs, but they’re going to find, as I have found, that people are less and less enthralled with the idea of living so far out.

So what will that do to home buying decisions?

I think you’re going to see those zip codes that we talked about before continue with an even greater price pressure upward. I think you’re going to see more desire for infill. Unfortunately,  the big developers sitting on the stands, congratulating themselves only want to do 1000+ homes. They’re not interested in doing a little infill project with six homes (which is about the best you can do in central Phoenix). They’re going to have a really hard time putting in new condos until we can continue selling off the ones we built at like $500 per square foot back in the peak of all this.

That’s going to make central Phoenix even more interesting to people.

This is the outlook that Mike Orr presented:

…Because more folks are finding reasons to sell to folks who bought before 2003 and they feel safe to put it back on the market. They’re going to add to the inventory…

…‘Cap Rates’ are their ability to make money off of these investments. So the investors will slow down as those Cap Rates fall. You have to ask yourself, is that going to put me in a situation where we are going to have less and less of a possibility for renters to find a place? We’ll talk about that, shortly…

…and they’ll do it…

Now this is my speculation, which I’m going to separate to make it even clearer that I don’t represent what Mike Orr has to say here.

I think that as you watch those historic neighborhoods that are a walking distance to the light rail (typically considered as between the 7’s; Seventh Avenue and Seventh Street), you’re going to see those prices continue to go up. That’s because builders are in the ‘burbs, not in central Phoenix and the inventory downtown is limited. Like Tempe, it’s landlocked. I think we’re going to see more of that.

Investors: the Cap Rates are going down, so if you’re thinking of investing, I think the window is closing for your potential to get an investment.

Home buyers: the prices will continue to go up, though we don’t know where the interest rates are going to be.

Home sellers: when you look at the charts above, and you think, “Great! The prices are going to continue to go up!” But we think that interest rates are going to stay low for another year, but if you are a home seller and home buyers interest rates go up, their ability to buy your house goes down. You have to keep an eye on that. In other words, this might be a good time for you to sell if you’ve been waiting.

Mike Orr also said that we can expect a rush this month (January 2013). I want to say something about that. Typically, if agents don’t get their sales completed by August, September, or October, they’re going to have a really bad Christmas/Hanukkah. The reason is because it’s slow during the holidays. The last two years, I have hardly had a day off during the holidays because it’s just been so busy. I think Mike could tell you that we don’t expect to have a whole lot of free time, because it is going to stay busy during Christmas.

Having said that, what always happens is that people finally shake off the left over Christmas tinsel at the end of January and say, “Oh, yeah, weren’t we talking about buying a house back in October? Must’ve forgotten about it because of how Halloween and all those other goings on.” And then you get that big rush of buyers. I think that this drastic upward momentum they receive is going to continue until the end of January 2013.

Moving forward

I would love to see my friends and my clients and the folks who are supporting downtown and central Phoenix getting some good information. I have access to all of this data from Mike Orr’s Cromford Report and it can reveal so much.

Please tell me, how helpful you folks think this market analysis series has been to you? What areas would you like me to zero in on?  Are there listing conditions you’d like me to do some research on?

If you have questions about buying or selling your home, please call me at 602-456-9388. I can help.

Last week, I shared details of the actual percentage of the increasing value of homes in the downtown Phoenix historic districts between January 2011 and October 2012. This week, I’ll open it up to CenPho, still focusing on the historic neighborhoods. You’ll find this very interesting and informative…

The bold numbers are the percecentage of change in those areas that follow:

No Change

I believe that we have not seen much change in these historic neighborhoods because they are so small and unique. We just have not seen much turnover in homes here.

Ashland Place Historic District
Hoover, Vernon and Ashland Avenues between Central Avenue and Third Street

Alvarado Historic District
Central Avenue, Oak Street, 3rd Street and Palm Lane in Phoenix
Note: I have a great listing at 140 E Coronado, directly behind the Phoenix art museum. This is a great, stable neighborhood.

East Alvarado Historic District
Central Ave., 3rd St., Oak St. and Roanoke Ave.,

East Evergreen Historic District
McDowell and Fillmore Sts., Central and 7th St.,

Up to 15% increase
This is generally the same as those areas noted above. This is a relatively small area and there is not a lot of turn-over.

La Hacienda Historic District
Thomas Rd. and Earll Dr. between 3rd St. and 7th St.

15% – 24.9% increase
The change in these areas is a result of some really nice renovations of historic homes. You are not seeing the huge increase in prices, as with those areas further down in this post because these areas remained surprisingly stable throughout the recession –at least by comparison. These areas prove my premise: that historic neighborhoods survive shocks better than other neighborhoods.

Campus Vista Historic District
Osborn to Thomas, 7th Avenue to 15th Avenue.

Cheery Lynn Historic District
Flower St, Earll Drive, Randolph Road, and 16th Street.

Country Club Manor
7th St. Osborn Rd and Thomas Rd

Del Norte Historic District
Virginia Avenue to Encanto Blvd, 17th Avenue to 15th Avenue

Encanto-Palmcroft Historic District
Encanto Bvd, McDowell Rd., 7th Ave. and 15th Ave.,

Encanto Vista Historic District
Encanto Bvd, Thomas Rd., 7th Ave. and 15th Ave.,

Fairview Place Historic District
15th Ave., McDowell Rd., 18th Ave., and Encanto Blvd

F.Q. Story Historic District
McDowell Rd., 7th Ave., Roosevelt St. and 17th Ave.,

Idylwilde Park Historic District
11th St and 12th St. Weldon Ave. and Fairmount Ave.

Margarita Place Historic District
15th Ave and 16th Ave along Edgemont Ave.

Medlock Place Historic District
Missouri and Camelback Rds. Central and 7th Aves.

Melrose-Woodlea Historic Neighborhood
15th ave to 7th ave and Indian School to the canal

Oakland Historic District
Van Buren and Jefferson Sts. 7th and 15th Aves.

Pierson Place Historic District
Camelback and the Grand Canal Central and 7th Aves.

Woodland Historic District
Grand and 19th Aves. and Van Buren and Fillmore St

Yaple Park Historic District
The Canal and Indian School Rd., 7th and 15th Aves.

25% – 34.9%
Willo saw some terrible price drops, but really started coming back in 2011. I believe a lot of this prices increases in Willo became apparent earlier than those shown far below.

Los Olivos Historic District
Located along Monte Vista Road between Third and Seventh streets

Roosevelt Historic District
McDowell Rd and Fillmore St. Central Ave. and 7th Ave.

Willo Historic District
Central and 7th Aves. McDowell and Thomas Rds.

35% or more increase
These areas really saw a huge dump in prices during the recession. The Coronado neighborhood, for example, was priced incredibly high on a per foot basis before the drop and they saw a huge downturn. Garfield neighborhood is increasing for other reasons –can you say “ASU expansion?” Garfield is going to be an important downtown neighborhood in the coming years and everybody is jumping in on it. I just hope that those who are jumping in are actually renovating the homes and not just acting as absentee landlords.

Brentwood Historic District
McDowell to the I-10, 16th Street to the 51

Coronado Historic District
Virginia Avenue to Coronado Road, 8th Street to 14th Street

Country Club Park Historic District
Thomas Road to Virginia Avenue, 8th Street to Dayton Street.

Earll Place Historic District
Earll Drive and the north side of Pinchot Ave between 16th and 18th st.

Garfield Historic District
7th St. 16th St. VanBuren St. and I-10

North Encanto Historic District
Osborn and Thomas Rds. 15th and 19th Aves.

Windsor Square Historic District
Missouri and Camelback Rds. Central Ave. and 7th St.

Let’s talk about home sales trends, shall we? I hate to say I told you so (okay, maybe I don’t…), but According to Data Reporters Ryan Konig and Matt Dempsey at The Arizona Republic, the downtown Phoenix historic districts in 2012 saw a significant increase in median sales prices for single-family houses.

Which downtown Phoenix historic district areas  have seen the greatest increase between 2011 and 2012?

The Roosevelt District
Roughly surrounded by McDowell Rd and Fillmore St. Central Ave. and 7th Ave. in Phoenix. The shape of this district is like a perfect box.

Los Olivos Historic District
Located along Monte Vista Road between Third and Seventh streets

Villa Verde Historic District
Grand and 19th Aves. Encanto Blvd. and Monte Vista

Willo Neighborhood
This historic distric is located direct above the Roosevel Historic District. It’s roughly surrounded by Central and 7th Aves. McDowell and Thomas Rd.

So check this out. Those four histroic neighborhoods have seen a 25% to 34.9% increase in the median housing prices since 2011! Meanwhile, the east side of central, literally across the street, has seen how much incrase in home prices since 2011? Try zero.

The orange area is the sweet spot of this increase in prices for three of the historic neighborhoods: Willo, Los Olivos, and Roosevelt. Villa Verde is at the NW corner 19th ave/Grand ave.  It’s the same area I’ve been telling people for some time now not to ignore–“because there’s some good stuff going on there, stuff that’s going to explode in 2012″. Of course, I’ve been saying since late 2009 that CenPho is gearing up for a serious rebound.

So, I can’t read the future or anything. Don’t come asking me about which boxer to bet on. But I have a really good nose for where things are going in CenPho.

If you’re a buyer who wants to know about those cool little hidden places that my expertise tells me are going to do well, come talk to me. If you’re a seller, now is the time to think seriously about selling.

In future posts coming down the Get Your PHX pipline in 2013, I’m going to be tracking certain areas in Central Phoenix for you; for example, historic light-rail adjacent areas, and let you in on what’s happening to median home values  in these areas. It’s going to be an exciting year, 2013. Keep your ear to Get Your PHX and I’ll do my best to keep you in the know.

Kenneth “Ken” Clark
REALTOR(r)
At Your Service!
HomeSmart
(602) 456-9388
Ken@GetYourPHX.com

While some of you will understand instantly what this post’s subject title means, others will get lost along the way if we don’t clarify some road signs.

That ‘FHA Anti-Flipping Rule Waiver’ stop sign is good through ‘Dec 31, 2012’. No California-stops, please. Thank you.

Before moving forward, let’s make sure we all understand the legal definition of “Property Flipping”:

A practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value.” ~ Housing and Urban Development / Fair Housing Administration (HUD/FSA)

(And for those who think flipping requires anything less than deep pockets and lots of hard work, the creator and star of A&E’s reality show, “Flip This House” has some great insight into the inevitable question: Is house-flipping as easy as it looks on TV?)

The stop sign was put in on February 1, 2010 by HUD/FHA. Before that, there was one of these:

What that meant was that prior to the February 1, 2010, HUD/FHA didn’t allow a home buyer to use an FHA loan when purchasing a home from an investor who bought the home, did repairs and renovations, then listed it for sale within ninety days of the original acquisition date. If you were a buyer with an FHA loan, you had to wait until the 91st day to make an offer on a flipped home sold by an investor.

This prompted investors to stay away from HUD owned homes, which had the kind of negative effects we’ve all seen with REO’s (bank owned homes) being abandoned for long periods of time, leading to vandalism, squatters, and reflecting poorly on the surrounding community. The rule was originally supposed to expire in Feb 2010, but with so many houses distressed and foreclosed the FHA waived the rule (video) to encourage home buying until Dec 31, 2012.

Because of the FHA 90-day flip waiver extension (full PDF guidelines), investors can now accept offers from FHA buyers within the first 90 days.

This has been an important extension because the goal of ‘house flipping’ is (of course) to sell the home as fast as possible and for as much as possible. This helps to stabilize home prices by allowing home investors to purchase HUD or bank-owned houses and sell them quicker, raise housing prices faster, removing all the negative effects of abandoned homes, and therefore turn the housing market around sooner.

Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.” ~ HUD.gov

Come Jan 1, 2013…

What lies ahead for the U.S. Housing Market…?

What about closer to home, say Central Phoenix? I’ve been writing about that very thing over the last couple months in my series ‘Get Your PHX Market Briefing’ based on my expertise in this area and with invaluable input from Mike Orr at The Cromford Report.

If you would like to be part of a future ‘Get Your PHX Market Briefing’, please contact me at 602-456-9388 or feel free to email me.

We found out in part 2 that While Prices Are Rising in Central Phoenix in 2012, they’ve risen most dramatically under $150,000. The high end properties of $800,000 and upwards have increased in price, but not nearly as dramatically. (Before I jump-in, I want to again recognize Mike Orr and Tina Tamboer for allowing me to share their work from the Cromford Report which is mixed in with my take that follows.)

The monthly average price per square foot in greater Phoenix in this chart to the left is very broad. Obviously, not every home is going to be at $100 per square foot, especially in central Phoenix.

Jump your eyes down to this little blue square in the center of the next chart, which will come up later.

 I’m going to be putting everything into the historical context of that square, which is Non-Distressed homes between 2005 and mid-2009 for Single Family Residences in Maricopa County.

In this next chart, below, which shows the price per square foot from 2001 to Aug 2012, try to ignore the $190 Close Encounters peak  and take a look at the far left line. That’s the 2001 price lines. They were basically at about $100/sf at that time. Again, this is for the greater Phoenix average per square foot.

Based on that, here’s my rule of thumb: “Did you buy your home around 2001 or 2002 or before that?” You’re probably going to be okay to sell now, because you’ve survived the worst of it. If you’re thinking, “Gosh, I could really sell my home now”, or if you know someone who’s thinking that, make sure you both take a look at your specific area, before making the leap.

I know. What a relief.

Do we want to get back to over $190 per square foot, to that place where the UFO’s are landing on our mountain of Devil’s Peak? Heck no, not anytime soon. What this long-term context tells you is we do have a little bit of ways to go still. This is a great way to look at this to tell whether people are potentially underwater or those who are likely to be okay.

Next up: Median Sales Price.

We’re back to the little blue square I mentioned earlier: people who are potentially undewater from the 2005 to mid 2009 range.

When you take this median sales price, for single-family homes, all the way across the board, you can see it’s pretty obvious that during those years, for those people who are non-distressed (which is when we saw the big bubble and crash) these are the people who have not sold yet.

They’re potentially underwater, we don’t know for sure, but they’re not considered distressed or late on their payments.

So what’s going to happen with all of those? Are they suddenly going to find themselves in the market? Say, a year from now, when the prices get a little bit better for some of those people?

That’s going to be something that you’re going to want to watch.

I love this next particular chart. This tells you how much growth we have and how much potential you have if you happen to be an investor.

The long-term timeline with just general growth, year over year, (taking into account population, prices) is going to keep up at a regular pace.

This is a kind of equilibrium with a pretty good number of houses for sale that people will want to buy. This long distance in this chart is great because however long it takes us to reach that point, there’s still the potential for you to either buy something as an investment, and get some return on that investment, or buy a home and know that you didn’t buy it above what it should be worth.

Next, let’s look at greater Phoenix wide and then we’ll drill down closer into some specific zip codes. This is encouraging stuff. Okay, so look at this section listed as under $200,000.

Look at the price and notice that price per square foot has gone up 33% since August 2011. That’s citywide.

Now hop down to the next chart and look at the similar thing for greater Phoenix, between $200,000 and $500,000.

Drill down between $200,000 and $300,000, for just these zip codes, look at this huge 14% growth!

This speaks to a premise  that I’ve been pushing for a very long time: in central Phoenix, especially around the light rail and historic neighborhoods, prices dropped the least and will come back the fastest.

This is something to keep in mind as density continues.

And $500,000 and $800,000, in the same areas in the same zip code?

Look at this 18% growth!

That’s from the lowest point to where we are right now, that’s a good place to stay.

$800,000-$1 million? See below: The growth is 5%. Again, that’s in the Camelback corridor area.

“Under Contract” homes is what this next chart is all about. We’ll end today’s brief on this. It offers a lot of insight.

If a house is under contract, you don’t know the price at which the house is under contract for. It’s private information. Let’s say you go to the multiple listing service and look at the sales price of the house and its $200,000. The next day, it says it’s “pending”. It still says $200,000 but that property could have a contract for $215,000 or $190,000. You just don’t know.

But MLS does because agents must report it

It’s in the system. They can’t tell you what it is. But they can report an aggregate.

So when you hear “Under contract. Legally average list price per square foot.” That means that on this date, 10/1/12, everything under contract was under contract for an average of $93.88 per square foot.

Those hosues aren’t going to close for 30 days, though. So, when you look at this chart and see that right now it’s $93.88 per square foot, that’s the amount that is going to be realized, most likely, in the market 30 or 40 days from now.

If you’re following this chart and you suddenly see this line turn a different direction, you have a very good indication that 30 days from now, that may be what the market is going to start to look like.

That’s as much of a crystal ball, as I think you are ever going to see.

The thing that’s impacting all of these numbers, especially in places like the Camelback corridor, and those other zip codes, is new-home sales recorded, as in “What are the homebuilders doing?”

Great Question. In part 4 of our Get Your Phx Market Briefing, we’ll find out that very thing…

In part 1, I ended with an argument I often hear from people after I describe what a “normal foreclosure market” looks like. There’s always going to be some percentage of people who should not have bought a house and now they’re upside down or late on payments.

The real interesting bit we can see is that there will still be some foreclosures and short sales coming on the market. The argument I hear some people say is:

All the banks were just holding onto their houses. They just hadn’t been listed yet. You’re not seeing them in the charts and graphs you’re using as evidence.

(Much of my briefing is based on Mike Orr’s Cromford Report. A huge thanks to Mike Orr and Tina Tamboer for allowing me to use their work at my presentation and share it here as well.)

To answer those naysayers, let’s look at the “REO” (which is another way of saying “foreclosed property”, not a band who heard it from a friend who heard it from a friend…). The REO then is where the bank has already repossessed the house and is putting it on the market directly. This chart below is REO and includes everything sold between 2007 and 2012. The big blue Pac-Man looking thing on this chart is sales sold through MLS; in other words, 131,000 homes.

(graph, above)
“Sold wholesale” means some big investor bought a bunch of homes at one time. According to the chart, there are only 961 in escrow. When people talk about where to find this mythical crop of homes held back by the bank, you would find them in “Not yet listed.” Well, that’s a whopping 3,047 –not what I would call a wave of foreclosures.

Supply is down, but it’s also increasing.

This is a very interesting thing. Look at this next graph. If you look at December 2010 (far left) all the way into the future, you see a huge drop in supply. Homes being sold by Housing and Urban Development (HUD), the tiny sliver on top in gray, are few and far between and get a ton of offers when they come on the market.

(graph above)
The last two colors on the chart are short sales (light blue) and normal sales (darker blue).

You can see from this same graph that things are moving back up a little. Does that mean that we’re going to get back up to 35,000? No, because you’d have to have the same kind of event that put us into the recession to get back up to those numbers.

Let’s take that same thing, single family residential inventory, and look at the distressed sales.

It’s declined 77%.

That’s in terms of the active distressed listings. For those who don’t know, AWC means ‘Active With Contingencies’. Look at that chart again. See how it’s called “Distressed SFR Inventory (Excluding AWC)”? This means someone has an accepted offer on a short sale, but they’re waiting for their lender to say it’s okay to precede and close on that property. Let’s break it down a bit.

Look at the far right side of the same chart. There are 1,923 Active Distressed homes. It’s a huge decline. But this is the interesting part. Notice the top right corner of the graph, where it breaks down the percentages of the different price ranges listed.

Rather than do each price point, one at a time, let’s look at the combined total, the 81% of homes that are under $300,000. If you make another chart and take out the HUD homes, the REO’s, and the short sales, and compare those to where the normal sales have been…

…there’s basically no change since November 2011.

So what does this U-shaped area represent? I’m speculating here, but in my professional opinion, the normal sales coming back on the market comprise two types of sales: A) People who bought before 2003 or 2004 (so they are able to sell their house, get their money back, maybe make a little bit of money); or B) People who bought a house in 2008 or 2009—which was my advice to people at that time—and now they flipped it, or renovated it and put it back in the market. Those people are adding to the inventory.

The rebounding economy and stronger job numbers, plus incredibly cheap houses, are why–in this next graph–we went from a 3.7 month supply of homes to a one-month supply of homes. By “month supply of homes”, what is meant is that if you shut off the tap and prevented homes from being put on the market, how many months would it take to clear out what’s on there? In this case, it would take us one month to get from a 3.7 month supply of homes to a one-month supply of homes.

This is more drastic than, say, above $1 million homes, but all of this brings me to one point: single family homes that are affordable for most working families will continue to increase, in price and in value, in 2013. That’s even with the increase in inventory that we’ve seen here at the end of 2012.

Prices are rising. This is pretty obvious. You’ve probably heard it in the news. What wasn’t reported on the news, however, is that the rising prices in the last year are only happening at the low ends, under $150,000; far more than they’ve occurred at the high ends. Where’s my evidence? What do I draw from this conclusion? What should you conclude from it?

Stay tuned for Get Your PHX Market Briefing, part 3 where we’ll find out!

If you would like to be part of a future PHX Market Briefing, please contact me at 602-456-9388.

JUMP TO PART 3 OF THE MARKET BRIEFING HERE.

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.

Phoenix was well above the USA average in 2009 and 2010 for the number of delinquent loans or foreclosures. Today, we’re below USA average. We’re number 38.

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]

JUMP TO PART 2 OF THE MARKET BRIEFING HERE.

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