I have a short sale listing that’s scheduled to close today, so I’m inspired to take a look at the Scottsdale real estate market, relative to short sales.

In the chart above, you can see that Scottsdale short sale listing activity have been really consistent over the past year. With about 400-500 homes listed in the Active status, and another 300 with seller accepted offers (AWC), waiting for bank approval.

Looking below at the chart for the previous year, you can see that again the number of homes listed as short sales remained fairly steady, while the number of seller accepted offers increased steadily. If you recall, in 2009, a short sale still had significant stigma associated with it, while now, this type of real estate transaction has gained much more acceptance.  Banks have better procedures.  Agents are better trained.  Sellers are contacting legal and financial counsel, and listing their homes, understanding that the process could go very smoothly, or not.

Looking at Scottsdale home sales activity for January 2011 (below), it’s apparent that the market is still challenged.  Short sales & pre-foreclosures make up about 25% of the homes listed, while less than 10% of the homes listed in Scottsdale are foreclosures.  The remainder are typical transactions. 

Home sales are a slightly different story:

• 23% are short sales / pre-foreclosures
• 28% are lender owned (foreclosures or REO)
• 49% are normal sales

You can also see the big discrepancy in pricing normal sales vs. pre-foreclosures and lender-owned properties.  Normal sales are listed at an average of over $300/square foot and selling fore less than $200/sf.  Short sale, pre-foreclosures, and lender-owned properties are listed (on average) at $165-170/sf, while selling at much lower average rates.  $147/sf for short sales / pre-foreclosures. $129/sf for lender-owned.

This next chart is for the greater Phoenix area.  I’ve not been able to locate is specifically for Scottsdale yet.

Some pretty major changes across the valley over the past two years.

• Active short sale listings are up 33%.
• Pending listings (under contract) are up an amazing 210%.
• The number of short sales per month has more than tripled.  Looking at the increase on an annual basis, the number of completed short sales has increased by a factor of 5.
• The time to sell (days on market) has remained about the same, averaging about 150 days.
• The inventory (months supply) of short sale homes on the market has dropped remarkably, from 26 months to 10 month.
• Average and median prices have taken a beating, dropping from 28-34%.
• Listing success rate has doubled.
• Contract ratio has changed significantly, moving from a buyer’s market to strong seller’s market. 

  From the Cromford Report:  Contract Ratio indicates how "hot" a market is. It specifically measures the number of completed sales contracts relative to the supply of active listings. The higher the number the greater the buying activity relative to supply. If this number rises then it is a sign of growing contract activity and a positive signal for sellers. Conversely a falling number is a sign of a weakening market – either supply of active listings is increasing or contract activity is slowing, or both. In a balanced market for normal market segments, the value of the Contract Ratio is about 30. When it lies below 20 the market can be considered "slow" or a "buyer’s market". Above 40 can be considered a "seller’s market" and when it moves above 100 we regard this as evidence of a "buying frenzy". In high-end luxury market segments the normal level is lower, usually lying between 15 and 25.

For more information on Short Sales in Scottsdale:

• Scottsdale Short Sales: Always Read the Arizona Seller Advisory First!
• “I didn’t think it would be so hard to buy a house”
• Struggling Home Owners Need to KnowYourOptions.com

I haven’t done a market report on Scottsdale 85258, home to the “Ranches”…. McCormick, Gainey, and Scottsdale.  In January, I posted this same chart in the post: McCormick Ranch Real Estate – Least Distressed Area of Scottsdale.

A few changes have occurred in past ten months, while some metrics stayed the same.

What you will see when you compare now and then:

1. The percentage of homes on the market that are foreclosures or short sales remain under 25% and in approximately the same ratio, with more short sales than foreclosures.
2. The percentage of sold properties that are short sales or foreclosures are about the same, approaching 33%.  However, foreclosures now make up a greater portion of those sales.  Even more importantly, 67% of the homes sold today in this part of Scottsdale are traditional sale, with no bank involvement.
3. The biggest differences you will see are in price. 
   • Homes were being listed at an average of $200-300 per square foot at the beginning of the year.  Now, that range is $175-250/sf.
   • Sold prices are averaging in the $150-200 per square foot range, while earlier this year, they were $175-275.  The biggest change has been in the short sales.

What is missing here are the number of sales that are being used to calculate these statistics.  I’ll be taking a look at those figures in the future.

For now, know that the McCormick Ranch is fairly stable, even though average home prices have dropped considerably.

Paradise Valley is a real estate microcosm.  Homes are much larger and median prices are significantly higher than anywhere else in the Phoenix area, including it’s neighbor, Scottsdale.

Commonly call “PV”, this city has irregular boundaries, that extend from Camelback Road on the south, to Shea Boulevard on the north.   The area is filled with acre plus lots, beautiful homes, and magnificent views of Camelback and Mummy Mountains.  Some homes border the Phoenix Mountain preserve. 

The city of Paradise Valley shouldn’t be confused with the geographical area to the Northwest that is home to the Paradise Valley School district.  This area is home to a number of private and charter schools, as well as sitting in mostly in Scottsdale Unified School District.

The number of homes for sale in Paradise Valley has been at an all-time high, but you can see that since April, there has been a drop of almost 20%.  In August, the number of listings dropped below 500, for the first time since October 2008.

One of the other changes occurring in the PV market is that time that the number of days of inventory (how long it would take to sell current home listings at the current sales rate) started has been decreasing since May of this year.

Paradise Valley has relatively few properties identified as short sales, and even fewer that are bank-owned (foreclosures). These properties however are impacting the local real estate market since they are being listed at significantly lower prices, around $300/square foot, as compared to $500/square foot for a typical listing.  When it comes to actual sales, short sales and foreclosures account for more than 25% of the sale in July.  Sales prices for typical sales are averaging almost $350/square foot, while short sales and foreclosures are selling at an average of $100/square foot less.

Taking a more historical look at the Paradise Valley sales price trends, you will see that the annualized average sales price per square foot has steadily decreased from $450 per square foot a year ago.  Comparing last year’s average sales price to this year’s (on a per square foot basis) shows that depreciation has been 19%. Recent trends, comparing last month to this year, do shows that depreciation is slowing slightly.

A few definitions (courtesy of the Cromford Report) that may help you further understand the charts above:

• REOs or lender-owned properties have already been through the foreclosure process and completed their trustee sale. These properties were sold by the trustee to the beneficiary (lender). In a few trustee sales (typically less than 5% at the moment), the property may be sold to an investor or wholesaler who is prepared to bid higher than the bank. These properties are not classified as lender-owned. The lenders use the ARMLS system quite heavily to market their inventory of homes and compete aggressively on price. At the moment we lender-owned properties constituting a significant share of the homes listed for sale, and an even large proportion of the homes sold.
• The Pre-foreclosure category includes those properties that have started the foreclosure process but have not yet had the trustee sale. We also include those which are being marketed in a short-sale situation, even if a notice of trustee sale has not been issued. In a full pre-foreclosure situation, the owner(s) have received a notice of trustee sale and the property is being marketed in order to try to sell the home before foreclosure completes. Many of pre-foreclosures are in a “short sale” situation, where the price asked is lower than the outstanding debt secured by the home. Such sales require the approval of the lender. A few may also (or instead) be the subject of bankruptcy proceedings and the sale may require approval by the court. We generally refer to all these situations as “distressed sales”
• Normal sales are those where the owner has the unencumbered right to sell the property without requiring approval from a lender, court or external corporation of any kind, and the owner is not a financial institution. In a normal market these constitute the vast majority of all listings and sales. The degree to which these sales become a smaller proportion of all sales indicates the level of distress being felt in the market.

That market was very different from today’s market.  Response time then was in hours and days, not weeks and months.  Short sales were virtually non-existent and foreclosures making it into the MLS were not that common either.

The question my client asked is a tough one. And, from what I’m reading from other Phoenix Realtors, I’m not the only one getting this question.

Can I submit more than one offer at a time? – Rod Rebello

Writing Offers on Multiple Properties – Jonathan Dalton

Ask the Broker: Is it legal to place offers on multiple homes? - Jay Thompson

The comments on Jay’s post show just how challenging it is for buyer’s right now.

My client just submitted her fifth offer to purchase a home, which is not all that many in this market. She was outbid on a several foreclosures. One short seller didn’t even respond to a full-price offer. And, this buyer is watching Phoenix home prices begin to increase in her price range, and she’s trying very hard not to panic. You can understand why she asked the question.

In the end, she opted to write one offer for the property that she really wanted.  There’s still something about real estate, where a house becomes a home.  And the look in her eye, as she walked through the door of the house, said it all. "This is where I want to live."  Multiple offers or not, that’s what real estate is still about for most home buyers.

This is one real estate statistic that we’d all like to see improve.  Pending foreclosures in Maricopa County (for all real estate property types) continues to increase, approaching 50% since the beginning of the year, January 2009.

You can see that the number of foreclosures remained relatively constant from 2002 through 2006, and then the steady increase started.  Momentum pick up between February and April of this year, and has slowed since then.  However, the total number of pending foreclosures continues to increase.

If you’d like to see a clearer view of the chart, just click on it.

Comparing Phoenix and Scottsdale real estate stats really is like comparing apples to oranges, but I’m going to do it anyway.

A few facts:

• Phoenix covers a much larger area, 517 square miles, as compared to  Scottsdale’s 184 square miles.
• Phoenix has more than 495,000 housing units, while Scottsdale has 116,000+ housing units.
• In 2008, home sales in Phoenix totaled 13,028, and 4,456 in Scottsdale.
• Year-to-date home sales (as calculated via the Arizona Regional MLS through 5/31/09)  in Phoenix were 10,298 and 1,901 for Scottsdale.

From the figures above, sales are up dramatically in Phoenix this year, and may surpass last year’s total number of sales, by mid-year this year.  Scottsdale may approach last year’s sales numbers by the end of the year, but it’s really too early to say.

Phoenix Real Estate

Phoenix Foreclosures (REO) made up less that 25% of the active listings, yet accounted for over 75% of the actual sales in the prior 30 days (from June 2, 2009).  Normal listing (not a short or REO) accounted for 40-45% of active listings, but only 10-15% of sales.  On the lower two bar charts, you can see that, foreclosures and short sales are being listed and selling at a significantly lower price, per square foot.  Average price for a normal sale is about $120 per square foot, as compared to an average of $55/sf for a foreclosure.  Phoenix home sales prices have depreciated about 45% since this same time last year.

Scottsdale Real Estate

Foreclosures make up a very small part of the homes for sale in Scottsdale, less than 10%, yet account for over 25% of the sales. Normal sales predominate the market (just over 75% of homes listed), and do account for just over half of the sales. Short sales are closing at a proportionately higher level in Scottsdale, too.

Listing prices for both REO and short sales (on a $ per square foot basis) are significantly lower than for a  normal home.  Sales prices of these normal transactions are being brought down as a result. While the average price per square foot for a normal listing is close to $350/sf, those selling are actually closing significantly less, at and average of $225/sf.  Both short sales and foreclosures are listed at an average of $200 per square foot.  Short sales are closing at an average of $175 per square foot, while foreclosures are closing at an average of $150 per square foot.  Home sales prices (again on a per square foot basis) are down about 22% this year.

Two Cities – Two Markets

Comparing home sales statistics shows just how different the current real estate situation is in these two neighboring cities. Phoenix homes prices are down dramatically, but sales are going through the roof.  In Scottsdale, there has been a slowdown, but prices have not been impacted as severely.

What both of these cities do have in common is that sellers are selling, and buyers are buying. Real estate is a local business, and it’s important to know what’s going on in the specific market at the time you are considering making a move. 

Ask questions. I’ll do my best to answer.

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.