The market has slowed. Will it crash again? stay slow? begin to increase again?

MARKET LULL UPDATE:

Three months later, the data have changed enough that it is time to update this analysis. My responses will be specific to Phoenix, since I have access to all of Phoenix data, if you have real data from another market, feel free to share it.

Supply: as predicted, supply has increased. Today, Phoenix metro stands at 23,700 units for sale. This is up roughly 25% from a year ago, and has been climbing swiflty. Bank owned + HUD have held steady at roughly 1000 units, Short sales after plunging to near zero, are back to 1100.

Demand: 6000 sold in the past 30 days, a drop of 15% from a year ago.

Combined, this is a huge change. From roughly 2 months supply, we are now approaching 4 months, an amount likely to keep price increased muted for now. Fall-winter is always slower, and we had the government shut down last month, so it will remain to be seen if supply continues to grow into spring or not.

Positive factors:
Pending foreclosures dropped another 460 in October. We are now at historical norms and on our way to lower than historical norms of pending foreclosures. Clearly, this source of distressed inventory is going to disappear, and that will serve to somewhat mitigate the changing supply/demand metric. (4 months supply/demand ratio is very different if half of them are bank owned and they keep flowing into inventory, then when it is mostly occupied homes that folks can afford to wait to sell)

Foreclosure Filings
Foreclosure Filings: Arizona > Maricopa County
Foreclosure Inventories
Foreclosure Inventories: Arizona > Maricopa County

I count 1285 Notice of trustee sales for October, 830 cancelled sales, and 895 trust deeds (either back to bank or to third party)

Pending short sales have plummeted to 2700 from 10,000 at this time last year. Banks simply put, are not giving away short sales any more, and price wise, this is also a positive for the market.

Given all the data, in totallity, we have two competeing trends:
1. Increasing supply/demand.
2. the still high effect of distressed homes passing through the market, despite ever fewer of them entering the process. The data show clearly this is going to diminish further.

For a more granular example, I track 3 zips very closely that were hard hit by foreclosures, due to copious new home building in 2003-2006: 85042,85041,85040. I track them because I own 3 properties in the area. For newer single family homes, built since 1990, I have been tracking the number for sale uner $140K. Two years ago, it was in the 70’s, a year ago, in the 30 to 40 range. 5 months ago, it dropped under 10, and prices shot up by $20K or so in a period of a couple months. Today, there are 26. Of the 26, 10 are bank owned or short sale.

So, we see clearly, that in some areas and prices, distressed homes are still a serious price prediction factor. As these distressed homes further decline in number, I expect prices to increase DESPITE increasing supply. Of the remaining 16, 5 are short term flips. (homes bought cheaply usually as a short sale, painted etc and sold) As there are less cheap homes to buy from banks, these returning listings will also decline.

However, in the aggregate, the Phoenix market lull I predicted several months ago, is in place, and seems strong enough to generally last deep into spring and summer of next year. Perhaps all of next year.

By next year, I expect both short sales and bank owned homes to be a thing of the past, and prices will rise slowly even with 4 or 5 months of inventory on the market.

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What happens after the last short sale?

In the month of May, 9400 sales occurred in Maricopa County. Of those sales, I count 1190 short sales, and 915 bank or HUD owned homes. Distressed inventory made up fully 25% of all sales.

Foreclosure filings have been on a steep descent for quite some time now, down from a high of over 10,000 new trust deed sales filed a month, to 4500 a year ago, to under 2000 currently. In May, there were 1600 new filings, with 1200 cancelled sales, and 1000 actual foreclosures. These ratios have been relatively constant, so we can predict that roughly 40% or 640 eventual foreclosures were added to the future in those 1600 new filings, while 1000 actually occurred, clearly, an unsustainably high rate given the paucity of new filings. The actual number of homes in foreclosure dropped by 650 on the month, and is now poised to go under 10,000 for the first time in 7 years. It is nearly back to pre bubble levels.

It seems that banks have moved the dispossession of their troubled inventory largely from actual foreclosures to short sales. So, the short sale number bears watching as an important market statistic.

In July 2012, I first began tracking short sale numbers on the Maricopa County MLS, to document their numbers. At that time, there were 1101 active short sales, 10689 pending or under contract (UCB). Today, we find 630 active short sales, and 4560 pending or under contract. Short sales have dropped by 50% in less than a year. So, absent a sudden increase in short sale listings, it seems quite clear that we are going to see a steep drop off in both short sales, and foreclosures in the near future.

How will the market change, when short sale + foreclosure sales drop to less than 10% of the monthly transactions?

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Observations, and perhaps a surprise in the Phoenix data.

 

http://www.deptofnumbers.com/asking-prices/arizona/phoenix/

Well, Phoenix housing listed prices have been completely stable for two weeks. I count active inventory at 15931 today… so basically stable as well.

I have to admit, I am a bit surprised by this. Sales have come flying back, in my rolling 30 day count, I am now seeing 9000 give or take on the mix of business days/weekends in the count, whereas a january was around 6000. So, the entire mls has less than 2 months inventory, and in many price points, like single family homes within 25 miles of downtown, 3/2/2car garage, 150k to 200K, there is literally like 2.5 weeks inventory.

Meanwhile, foreclosure have plummeted, new filings are down 60% from last year. Even short sales are less numerous this year than last year.

Considering how fast prices had been rising, a couple of weeks of stable prices could just be statistical noise in the continuing uptrend. I wouldn’t expect price increases to stop with supply and demand still this out of whack.

So, I investigated further into what homes are being listed these days.

Analysis of the last 7 days listings:
short sales = 103
REO/HUD = 183
No special listing condition = 1618

So, I decided to look at the new non-distressed listings. I picked 10 random homes, not distressed:
1 flip
3 long flips (over one year between distressed sale and current listing, possibly investor, possibly owner occupied, I can’t necessarily tell which)
6 normal sales.

then, I decided to take a closer look at 150k to 250K, the starter home market in Phoenix.

I pulled 20 random non distressed homes:
1. short sale preforeclosure, owner/agent lying and not disclosing this fact in the appropriate part of the listing (hence it came up in my search)
2 new homes.
5 long flips
12 normal sales.

Obviously, 10 and 20 are too small of data sets to use as a survey, the error bound on statistics would be too high for any reliability, but it is a bit of a time consuming process, and I’m just trying to get a bit of preliminary data.

A couple of conclusions:

1. clearly, Phoenix prices have risen enough, that apparently a lot of people can now sell, who may have wished to sell for a while.

2. Even some people, investors or regular owners, who got smoking deals out of the crash in 2009, 2010, are going to sell now.

So, my conclusions from what I’m seeing, are that prices are likely to keep rising in the near to mid term, as supply and demand are still out of whack. But the market could be starting to enter a new phase. I’m not expecting the rapid price increases of the past year to continue, if i had to make a guess, i’d say about 10% more up generally through this selling season, with a possibility of more normal listings blunting the increases by late summer.

Obviously, with the volatility the Phoenix market has seen over the past 3 years, this an area by area phenomenon, and not all are going to act the same.

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despite tremendous price rises in Phoenix, all data points to prices rising more…

Phoenix inventory just dropped under 17,600 this morning. with roughly 8000 sold in the past 30 days. this is a new low for this spring, and continuing a trend of 100 less homes for sale per week.

Considering that in a normal year (been a while since we’ve had normal around here) inventory typically rises from January to April by 10 or 15%, This continued drop in inventory signals that the market is going to stay tight, with prices increasing.

And, more inventory is definitely not coming from foreclosures any time soon: there are precisely 2381 scheduled foreclosures in the next 30 days. Even as recently as a year ago, we routinely had 5000 foreclosures scheduled in the up coming 30 day period. Using historical data, 1/3 of these will actually foreclose, 1/3 cancel and 1/3 delayed into the future. So we will be seeing 50% less foreclosures then last year at this time, a reduction of about 800 distressed properties per month, and given the greatly reduced pipeline of homes in foreclosure, and notices of future foreclosure, this trend is not changing this year.

So, we have tight inventory, and much less distressed inventory coming than last year. Until prices rise enough that regular home owners are enticed to sell, or buyers quit buying, prices are going to continue to rise. The sign of that change will be rising inventory, and slowing sales, such as 4 to 6 months worth of inventory on the market, a figure we are a hell of along ways away from today.

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starter home analysis

Ok, so last night I did a little bit of digging into Phoenix area housing information:

First I pulled up all of the single family homes, 3 bedroon 1.75 baths, 2 car garage, built since 1970 inside the 101 and 202 loop roads. Basically, I wanted to look at starter homes, within commute distance of Phoenix, not either obvious junk, or homes 100 miles away.

I limited the price to under $200K.

There were 581 available.

Then, I changed the search to closed in the past 30 days. 909. What? we have 2/3 a month inventory of starter homes? that is ridiculously low!

My business partner has been trying to find such a home for his buyer for several weeks, and keeps telling me that “every non junk home gets multiple offers as soon as it hits the market.” Well, seeing this data, I can see why.

Prices are just going to keep rising in Phoenix, until such a day as the supply and demand change by a ton. A balanced market needs about 4 to 6 months inventory.

The other factor, is that in each of those statistics above, roughly 30% of the listings and sales were short sale and or bank owned. With foreclosures and notice of future foreclosures plummeting by over 60% from last year, and inevitably rising values will end slow the short sales, those sources of new inventory are simply not going to exist much longer…

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Just this afternoon, inventory dropped under 17,000 active sales here in Phoenix. While it isn’t dropping as fast as last spring, the fact that it is dropping makes a prediction of rising prices all this spring and summer that much more likely. 

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February: data stays positive, prices will keep increasing.

Wow, another month of radical improvement in the Phoenix housing market!

February saw only approximately 1900 NTR (Notice of Trustee sales) filed. This marks the first month since the crash began with less than 2000 notices…

Meanwhile actual foreclosures came in at a low 1100, and cancellations came in at 1400

So, we end the month with 600 less homes in foreclosure than we started.

Compare this to a year ago, with over 2000 foreclosures, and 4000 notices.

 

Meanwhile, inventory continued to drop, from nearly 1800 recently, to 17130 today.

ALL data point to Phoenix home price appreciation continuing on into the summer, and until this data changes…

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