photo credit: Frogman2212
What is going on with real estate? It’s just not clear.
Some Realtors and commentators are positive that we have hit bottom here in Phoenix. Others are not. I’m a bit more selective, thinking that some areas and prices ranges have bottomed out, while others have a ways to go.
On Monday, I completed a BPO (Broker Price Opinion) for a bank-owned property that I will be listing soon. The results were very confusing in that they didn’t follow the supply and demand curve that we’ve all been taught about in Economics 101.
In this particular case, I was comping a single family home with 3 bedrooms, 2 bath, 2 car garage, and a large (9000+ sf) yard, located in the Phoenix zip code 85029. Listing price will be in the $70-80K range.
I found that there were a shortage of homes on the market. Less than 2 months supply. What was a bit frightening is that prices in that area were still in a definitely downward trend.
Traditional wisdom says that when supply decreases, prices increase.
Then, this morning I read, “The Housing Market is about to Become Even More Oversupplied“. I’ve been reading about this W-shaped recovery curve, and haven’t been too convinced. But after Monday, my mind is definitely mulling over the possibility.
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I am in agreement with the W shaped recovery. Your BPO is a good example of what is happening in several of our sub-markets.
Do I see another bailout on the horizon?
I agree with the numbers in that there likely are a lot of properties just waiting to be foreclosed. However, I am not sure about the timing of ‘delivery.’
If anything we have seen in the past 4-6 months of the Phoenix real estate, we have seen an artificially stable market in terms of high buyer demand, increasing sales year-over-year, and stable inventory.
This kind of environment supports a notion that large banks and associated lending institutions can manage the ‘bad news’ of foreclosures on the market and their earnings picture by limiting supply. As well, if they put more emphasis on short sales and letting more of these succeed prior to foreclosure, then they can further manage their ‘inventory pipeline.’
The hardest thing for a corporation is to have wide swings in its current earnings picture and outlook. So, my concern is that there would be more emphasis on a steady management of the problem even if it protracts it. More broadly speaking, the lenders and banks may also perceive that it is better not to deluge the market at risk of creating more short sales and foreclosures, reducing the values attained for the properties, and creating possibly a second downturn.
I don’t think anyone across the Financial Sector or Federal or State Governments really wants a second downturn even if they know it draws out the pain over a longer span of time.
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