Get Your PHX Market Briefing, Part 2
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.
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