Observing The Phoenix Market, Spring and Summer 2013

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.

filings-month-png

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.

Advertisements

About robertoaribas

Math professor, Realtor. 12 years of buying, selling, investing and managing rental properties. rock-climbing and salsa dancing. robertoaribas@gmail.com
This entry was posted in Uncategorized. Bookmark the permalink.

2 Responses to Observing The Phoenix Market, Spring and Summer 2013

  1. Rob says:

    Very good blog, I have been following Patrick.net for a while now. Patrick.net is interesting but definatly a little negative toward home buying. You site follows what I have seen. We tried to buy in early 2011 but still had a short sale to work through. We are now about ready to buy but everything we looked at in early 2011 is now as you noted earlier 30-50% higher than in early 2011. We now can no longer afford what we want and would have to settle. We are not happy with that thought. I am curious as to your thoughts on Moodys giving a rating of just over junk on the rental backed securities “scheme”. Will this influence companies like Colony American to leave the market? I cant beleive they were actually going to stay in the market long term vs. securitizing and bailing…..I am sure you know what I am refering to but here’s a link that explains it better than I can.

    http://www.newsmax.com/StreetTalk/investors-foreclosed-rental-securities/2012/07/23/id/446199

    On 01/18/13 Moodys gave it a tick over junk bond, what effect do you think this will have on the market and pricing trends?

    • Hello Rob.

      Let me make a couple of comments to this. First off, never before in history have we ever had large investment trusts deciding to buy homes individually, assemble them into large groups and manage them as rentals. This has never really happened before, on the scale I’m reading about today. So without a doubt, that is a positive thing for housing prices, as it is demand for homes, and removes many homes from the market for years. People have postulated that they may crash the market later, by all selling at once, but I view that as wishful thinking, as investors will have the ability to wait, if the market won’t bear their sales.

      So, to your question, what does it mean, if they can’t securitize the rents? Well, that will be one source of money to keep buying homes. As nobody has actually done this yet, I would view that not as a negative for the market, but rather as a positive that doesn’t happen. We would still be where we are today. The real question is, how much money is flowing into these investments? Even without securitization of the rental stream, if enough investors simply invest in these funds/companies, they will continue buying.

      right now, it is very hard to find a safe company stock or bond that is paying any significant return. I haven’t really looked, but I’d be surprised if you can even find 5%. So let’s call 5% a very respectable after expenses return. In many markets, even factoring in everything: paying a management company, repairs, taxes, insurance, vacancy, etc. 5% return would still be very easy to do. Many of these companies will streamline and bid in bulk on many of these services, for example, I have met real estate agents managing entire portfolios for a salary, for some of these entities. A normal investor would pay an agent at least 10%. Likewise, I’ll bet they get plumbers, painters, handymen on salary as well.

      Well, an investor/stock buyer could get 5% income on the investment, and a share of home appreciation when the market increases, and the homes are sold at some date in the future. . I don’t see that as the hardest sale today, given the alternatives for cashflow investing.

      Time will tell, but I find no other way to vies this, as positive for the market, at least putting a floor under lower tier home prices.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s