Is the REO bubble over in Phoenix?

Is the REO bubble over in Phoenix?

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Mike Orr loves his numbers, even more than I do.  Last week he published an interesting article on “shadow inventory” on his subscription site, www.CromfordReport.com.

While I could add my two cents to Mike’s analysis, I think he’s done such a thorough job that I’ll include the full article.

Shadow Inventory?

Some analysts have written about a so-called “shadow inventory” of lender-owned property. They speak in dark tones of an ominously vast number of properties which have been foreclosed but are not being marketed. The banks are supposedly hoarding these homes to avoid flooding the market. The implication is that when the banks finally unleash these properties onto the market we will be overloaded with supply.

This is palpable nonsense.

Let’s look at why the shadow inventory is relatively insignificant:

First, we need to establish how many properties have been foreclosed but not yet sold to a third party. It takes much time and effort to establish this, particularly because government entities are not required to file an Affidavit of Value when they deed property. They get an “A-3″ exemption. However Tom Ruff of the Information Market is up to the challenge and has counted all the trustee sales, searched for subsequent sales to third parties, accounted for all the A-3s and produced a spreadsheet of shadow inventory counts by ZIP code within Maricopa county. There are a total of 18,386 homes within Maricopa county in REO status.

How many of these are in the ARMLS system as of this morning?

  1. 5,213 are active
  2. 7,170 are pending (i.e. in escrow)
  3. 477 are temporarily off market (in many cases because multiple offers are being negotiated)

Thus there are 12,860 accounted for. So the “shadow inventory” of REOs not currently being marketed through ARMLS for Maricopa is 5,526. No doubt many of them will be listed in the next few weeks.

Is this number likely to cause a flood? Absolutely not. This represents less than 1 month of supply based on the current rate of purchase of REOs through ARMLS (which is 5,556 as of today). In fact if this is the only new supply, the inventory of active REOs will fall over the next month, just as we expect. The trustees would have to increase the rate of their sales substantially to keep up with the current market demand for REOs.

So is the vast hoard of shadow inventory hiding in Pinal county? Well to be honest we can’t count REOs with such accuracy in Pinal due to the delays in recorded documents becoming available. What we can say is that in the ARMLS system this morning, among the lender owned properties:

  1. 549 are active
  2. 951 are pending
  3. 40 are temporarily off market

Thus there are 1,540 accounted for and we know the current monthly sales rate is 779. It would appear that Pinal’s supply is about 10% of Maricopa’s and Pinal’s demand is about 13% to 14% of Maricopa’s. As a result we would estimate that shadow inventory in Pinal is about 550, representing about 3 weeks supply.

So we can conclude, at least for Greater Phoenix, that shadow inventory is a fake issue.

QED

(By the way, the RealtyTrac analysis of these shadow inventory numbers seems to be flawed. They appear to have excluded pending and temporarily off market MLS listings in their analysis and only counted REOs listed “for sale” (active). Thus we believe they may have over-estimated the shadow REO inventory across the whole country.)

What I can add to Mike’s commentary is that:

  1. I have one lender-owned property that is not on the market yet, but will be. I’ve already been approached about its availability, but do not have a price yet to share.
  2. Most of Phoenix area REO properties that I have listed and are now under contract have received multiple offers.  It’s been the norm, rather than the exception. For the most part, properties are selling very close to list price, or over.
  3. And just this past week, I called on a new lender-owned listing in Pinal County.  This foreclosed property had been on the market 4 days, and the listing agent said she had 15 offers, 10 were cash, and the highest offer was 30% over asking price. 

Times – they are a changing.

 

Home strippers hurt neighborhood house values

Home strippers hurt neighborhood house values

missing-air-conditioner I’ve been working with a bank since the first of the year listing bank-owned properties around Phoenix and Scottsdale.  According to some of the other professionals that I’ve worked with (namely locksmiths and contractors), I’ve seen the best and the worst of how prior owners treat their property.

Two weeks ago, one of the homes in the small community I live in was scheduled to go up for sale at the courthouse steps on Monday morning.  On Friday afternoon, two trucks showed up, with what I would speculate were “professional home strippers”.  Neighbors watched helplessly, as these people proceeded to remove the air conditioner, hot water heater, all the interior and several of the exterior doors, most of the plumbing fixtures, most of the window coverings, the carpeting, as well as all of the kitchen cabinets and appliances.  Police were called on site several times, but said that there was nothing they could do about it, since the property was still in the hands of the foreclosed homeowner.

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On Monday morning, as I rode by on my bike, I saw one of the guys out on the lawn, and I told him that what he was doing was a Class 5 felony.  He turned to me and told me that “the police were out three times this weekend, that they didn’t do anything, and there’s nothing you can do about it.”

I was steaming.  So were my neighbors.

And, I was very glad to see this article in the Arizona Republic this week:

FBI cracks down on foreclosed-home strippers

A task force led by the FBI has targeted distressed-property owners who rip out cabinets or lighting and plumbing fixtures to sell as the banks foreclose on their homes. Five people have been arrested by the FBI Mortgage Fraud Task Force.

Plus, contact info with the FBI was included.

Julie Halferty, supervisor of the FBI Mortgage Task Force, said that home-stripping thefts can be reported to the FBI at 602-279-5511 or to px_cashback@ic.fbi.gov.

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Besides the FBI efforts, banks reclaiming homes may also go after the prior home owner.  I was contacted by a law firm, inquiring about the status of one of my bank-owned listings.  They wanted detailed information about how much damage had been done to the home, as well as what had been removed, and indicated that they would be going after the homeowner if the dollar value reached a certain threshold.

So, now my neighbors sit and wait for the bank to come in an assess the damage,  and decide if they will do any repairs before they put the house on the market.  Whether they do or not, the sales price of this home which was in upgraded condition before, will not be something that will benefit any of my Sandpiper neighbors who are or may be selling their homes in the next six-twelve months.

It’s a shame.

Friday Fun

My brain has been so full of real estate that it’s been difficult to write about.  I dug through my archives for this one.

It is fun, and I will get back to real estate writing soon. Thanks for the mini-vacation!