There are two factors to pay attention to as we start 2013, the extreme drop in foreclosures, and which way inventory goes.
1. Foreclosures. This hasn’t really been in the news, at least not nearly enough for the importance it has on the future direction of Phoenix housing prices.
So far, through today, we’ve had approximately 1400 notices of foreclosure in January. We are on pace to have a 3rd month of barely over 2000 notices, when September was the first month in around six years that had less than 3000. This is a tremendous drop, so let’s think about the future impacts of this statistic.
After a home enters the foreclosure pipeline, in Arizona it takes a minimum of 3 months before it can be foreclosed on. In practice, it often takes a good deal longer than that as the banks very often delay the foreclosures repeatedly. Then, one of two final results can happen, the home is foreclosed on, and either goes back to the bank or to an investor at the auction, or the foreclosure is cancelled. It could be cancelled for one of two reasons: the homeowner catches up on the mortgage, or is offered a loan modification, or the home is short sold. Past data shows very close to half of filed foreclosures end up foreclosed half are cancelled. Of the cancelled ones, roughly half are sold as short sales. So, inevitably, 3/4 of the homes are going to wind up selling on the market, either as a short sale, a bank owned, or bought by an investor at the foreclosure market.
So why go into this much detail? Because, when you have 4000 notice of foreclosure filings a month, you can predict 3000 distressed homes coming on the market 3 to 12 months later. Now, as notice of foreclosure filings have dropped to just over 2000, we can expect roughly half as many distressed homes on the market the same time into the future. A drop of 1500 must sell homes a month, month after month, is going to be a very serious change to the supply side of the Phoenix market.
This effect has not really hit the market yet, due to the long time delays from the intial filing. But, unless foreclosure filings jump back up, as in immediately this year will clearly have alot less of these listings.
2. Inventory. Two months ago, In December I quantified what had been a very fast 50% rise in inventory in the Phoenix market. The rest of December reversed this trend, inventory dropped by a about 1000, then it started climbing in January. Right now, we stand at just under 18000 homes for sale, and 6500 sold through the trailing 30 day period. (Which includes Christmas and New years, so one would expect this to be slow 30 day period) Last year as spring unwound, inventory plummeted all the way down to 12,000 and prices climbed steeply. If we see any signs of inventory dropping, price increases will be strong this entire buying season through the end of summer. In fact, unless inventory climbs quite a bit form today’s numbers, prices will climb anyways, but probably not as fast. Historically over the past 4 years , whenever inventory has been under 30,000 prices have been on a rising trend, and that has even counted markets with far more distressed properties than today.
So, at this point, the two future looking statistics we can measure ,one points to a quickly improving market, and one is good but bares watching to see which way it goes.