This update is a tale of two evident trends, increasing inventory, and a very quickly approaching drop in foreclosed homes entering the market.
1. Increasing inventory. From the absolute low of 12,500 or so homes for sale in the very early summer, to today’s 18,200 figure we have seen a 50% increase in inventory. Before anyone miss concludes this as high inventory, it is still down 14% from a year ago, and in terms of sales, has barely nudged past 3 months inventory. That is still a low inventory number historically, but it is enough higher than the earlier 1.5 months inventory that it will likely blunt price increases going forward. I would expect basically stable to slowly increasing prices based on supply and demand at this point, but the supply trend bears watching.
2. Foreclosure pipeline emptying. November saw approximately 1100 more homes leave the foreclosure pipeline than came into it. The numbers were (approximately) 2200 new notices of trustee sale, 1700 trust sales, and 1600 cancellations. We start December with approximately 10,100 homes in Maricopa county scheduled for foreclosure. For comparison’s sake, last year at this time there were over 20,000 homes in the foreclosure process. Clearly, the foreclosure rate must drop in the near future, it is mathematically impossible for the number in the pipeline to go below zero! In fact, even in normal times before the bubble, there were always a few thousand homes receiving foreclosure filings, though in a rising market, most are sold for a profit before the foreclosure deadline.
Over the past 3 months, roughly equal numbers of homes are foreclosed on, as see the foreclosure cancelled. Also, over the past 3 months, we have seen an average of 2500 new notice of trustee sales filed. If that continues to be the rate, one would expect roughly 1250 foreclosures a month as a steady state, and given the minimum 3 months between the filing of NTR and a foreclosure, plus usual delays, around 8000 to 10,000 homes in foreclosure at a time. So, in the very near future, the influence of bank owned (REO) homes on the market must fall some more, unless NTR filings increase.
In a more detailed examination, I have been tracking the numbers in three south Phoenix zip codes: 85040, 85041, and 85042. On august 1st, there were 738 homes in foreclosure in those three zips. Today, Dec 1st, there are 452. The drop in just the month of November was 100. These three zip codes have been and continue to be very heavily impacted by distressed inventory, yet clearly, in the very near future, this impact has to lesson if these trends continue. The foreclosures will simply run out. I own three investment homes in this part of town, and that is one of the reason I study these zips in detail. I have been tracking inventory of single family homes for sale, built since 1990, with a garage, and under 140K in those same zips. It has bounced around between 20 and 35 for the past 4 months, though it has suddenly jumped up to 47 recently. This sub group represents 25% of all homes for sale in these zips, and since prices are at the low end, it seems fair to say that it represents at least a similar 25% of all foreclosures in the zip. Currently, 22 of the 47 homes for sale are short sales or foreclosures, and a further 10 are flips of short sales or foreclosures that happened in the past year.
32 of the 47 homes are the direct result of distressed sales, in the past 12 months! So, if distressed sales drop by 50% or so in the next few months, my contention is this market will change and change a lot. There simply will be less cheap homes for sale, and even if sales rates drop (currently running in the mid 50’s per month) I would expect prices to increase, without the continuous stream of vacant distressed homes coming on the market. I’d like to sell one of my homes there, but given this analysis, I’ll keep it another year, and re-evaluate at that time!