Finally, They Admit It!

The Arizona Republic this weekend finally admitted what we in the industry have known for a while: “Foreclosure homes are selling fast in the Valley as investors jump at the low prices, and experts don’t think the area’s shadow inventory will suppress prices further.” See the full article here.

They start out the article as they have so many before with talk of this “shadow inventory”, or the number of homes that are foreclosed (but not on the market) or that may foreclose soon because folks are late on their payments.

In previous stories they have used this looming menace to tell you to hide your kids, build a fall out shelter and stock up on duct tape. Over the past six months I’ve told you several things, most importantly the following: 1) banks won’t let the houses out faster than the market can absorb them, in order to protect prices, 2) the number of foreclosures have gone down steadily over the past 6 months and 3) foreclosed homes are selling faster every month.

Finally, they are telling us what I’ve been saying: those homes are selling quickly and they are gaining speed. In addressing why the “shadow inventory” of 92,000 homes is not a serious problem, they actually put it in to context this time:

“That’s because the rate of sales is as important as the raw number of homes. If sales are brisk, the homes are snapped up quickly, meaning they won’t lead to lower prices.”

They say that 92,000 foreclosed homes is 12 months worth of sales. That is about 7,600 sales per month. That is about right. And given the increasing speed at which they are selling, I think that is a little long.

Consider also that the “shadow inventory” in Phoenix is lower than in the suburbs, where all the explosive building 5 years ago made a housing glut. I’m seeing bidding wars over houses that are going under contract in weeks, not months.

Well, its great to see the shift. Watch now as the media shifts from the “woe is us” tone to the “signs of recovery” tone over the next year.

Not to ramble too much, but there is a lot to be said for trying to diversify our economy here in Arizona so this does not happen again. We were on the right road with renewable energy, but then it kinda just petered out! Check out this interesting article on the issue of economic diversification.