Preliminary March 2009 Report
by Michael Orr

March 2009 was exceptional in many ways, almost all of them positive, which may seem surprising to some given the general housing gloom reported around the country. Those who have been reading these notes for the last several months will not be surprised however. The Greater Phoenix residential market is not conforming to the national pattern. It is on a completely different trajectory.

Probably the most surprising statistics are those related to pending sales. Anyone who wants to see the magnitude of the phenomenon should see the chart Pending Sales by Major City. This morning we recorded the largest ever annual growth in pending sales across the valley (all areas and types) – the first time ever this has moved over 100%. Avondale, Glendale, Goodyear, Peoria, Phoenix and Surprise all show all-time record highs in pending sales for single family detached homes. This means higher than 2005! The difference is that 2005′s buying frenzy was fueled by a shortage of supply, whereas the current buying is fueled by attractive pricing. The only major cities that are not really participating strongly in the overall growth are Scottsdale and Tempe, where pending sales are up, but not at exceptional levels.

What are these sales? Well, two thirds of pending sales are REOs. The banks are having little difficulty moving foreclosed properties to new buyers. REO average days on market for active listings have fallen from 227 in November to 117 today. Another interesting sign is that active $/SF pricing for REOs fell from $84 in mid November to about $78 at the end of January, but has remained in between $77 and $78 for the last two months. There is no discernable downward movement in the average $/SF asking prices for REOs across Greater Phoenix. Probably of even greater significance is that average pending list $/SF for REOs has also stabilized between $65 and $66 and has stayed within that range for three weeks now. Average sold $/SF has declined from $67 at the beginning March to $63 in early April, but remember that pending $/SF tends to be a leading indicator of future sales prices, with a 30 to 45 days time lag.

The latest March ARMLS sales figure we have for all areas and types is 7,550. It is normal for March to exceed February by a large margin, and there is no doubt that April will see further growth in this number. But to put this number into perspective, it is nearly 70% higher than March 2008.

The only really gloomy number we see is the number of new Notices of Trustee Sale (NTs), which hit a record high of 10,689 (for Maricopa County) in March. Some people are suggesting this indicates more carnage to come. We agree this is a depressing number, but would respond that we believe you should pay more attention to the number of actual trustee deeds (TDs). Remember that an NT is just a piece of paper, whereas a TD is a REAL foreclosure. What happened to TDs? They were at their lowest level in 11 months! And notices of canceled trustee sales were at a very high level of 3,168. Furthermore unrecorded trustee deeds currently stand at only 498. This is the lowest number we have seen for a long time. What can be happening here? Theories include:

1. The lenders are trying harder to work things out with their borrowers.
2. The government schemes to help borrowers are having some effect in slowing down TDs.
3. People with negative equity who want to move are stopping their mortgage payments to get the lender to agree to a short sale. They receive an NT but have no intention of being actually foreclosed. In fact they could pay their mortgage if they chose to, but if they did, the bank would probably not allow the sale of their home.

Certainly we can see it is taking longer to go from NT to TD and we strongly suspect a lower percentage of NTs are eventually becoming TDs. Don’t be fooled by the growth in the NT count or pending foreclosures. Our advice is to watch the TDs carefully.

Meanwhile the supply of REOs is becoming quite thin in certain spots heavily frequented by bargain hunters. For example, take Queen Creek 85243, in many ways the epi-center of the foreclosure crisis in the valley. There were only 79 active (not AWC) single family detached listings for REOs in this ZIP code yesterday, with 165 in escrow. There were 169 active at the beginning of February and only 128 in escrow. So there are 90 fewer active REO listings than 2 months ago and 37 more sales in process. This is a very strong REO market.

Lest you think this is an exception that proves the rule, let’s look at another foreclosure black-spot, El Mirage 85335. Here we find 164 active (not AWC) REOs when there were 255 at the beginning of February. Phoenix 85031 has gone from 159 on February 1 to 70 on April 1. There are many more examples and we shall be publishing a special report shortly.

We can see signs that the supply of very cheap REOs is getting sold off quickly. A trend to watch is the mid-price and high-end REOs where sales are much slower and the supply is not decreasing. It’s possible that these higher price areas may take much longer to turn round than the lowest priced end of the market which is giving strong signals that a price floor may be close at hand.

Median Price Change by ZIP Code – Sep 2008

Single Family Detached

Based on information from the Arizona Regional Multiple Listing Service between Jan 1, 2001 and Sep 1, 2008 © 2008 www.cromfordreport.com

Probably one of the most interesting findings from this real estate report is that while the number of home sales started decreasing in 2005, most of the median high sales prices occurred in 2007.

Monthly Sales Analysis - Scottsdale, Arizona

You can see that the number of Scottsdale home sales have improved a bit recently.  In September, we matched last year’s sales, and in October surpassed last year’s figure.  From these year over year charts, you can see the huge highs from 2004, and what we hope is our five year low in October 2007.  Seasonally, we are entering a slower sales period, so I do really hope this is a promising trend that continues moving forward.

I charted the REO sales percentage on a per city basis, and you can see that only one in five October home sales in the Scottsdale and Tempe markets were bank owned properties, as compared to three in five in some other outlying suburbs, such as Buckeye.  

One thing that I find particularly interesting with this data is that appears to be a relationship between the  percentage of REO (bank-owned) properties sold for a given city and the percent difference of the REO price compared to the overall median price.  This makes sense when you think about it.  The more REO’s sold, the more they drive the median price.  On the other hand, it implies that bank owned properties sell at at significantly lower price than non-bank owned properties, and I’m not convinced that this is always the case.

So the next question becomes, are there more homes in foreclosure in the outlying areas that are driving these sales?  To me, the answer is presumably yes, so I visited the Cromford Report to do a quick comparison of Buckeye and Scottsdale.

In the Buckeye market, it appears that somewhere between 25 and 30 percent of the properties on the market are the bank-owned properties. 

In Scottsdale, foreclosures appear to be less than 10% of the available market. 

What you will also notice in comparing Active Listings to Sales in both of these markets is that foreclosures are selling at a high percentage rate than are a part of the active market.  In my mind, the good news is that the foreclosures are selling and that this process is a critical part of balancing the market.  Granted, it may take longer than we like, but it is happening.

Thanks to Kris Berg at the San Diego Home Blog for sharing this fun, new mapping tool.

• Median home list prices are rising.
• The number of houses on the market is decreasing.
• The time to sell is also decreasing.

Still a buyer’s market, but for how long, as we head into the prime time season of great weather and winter visitors.

Call or email me if you’d like the compete report.

The following charts cover the past month, and data was collected from our local MLS service. Overall, you can see that it is still a buyer’s market, for all types of dwellings. 

Looking below at single family homes, we can see that in the lower (Scottsdale) price ranges of $500,000 and under, the market is looking very good, from a seller’s perspective.  And then it slows, as price increases.

Townhouse, patio homes, and condos are selling in the under $150,000 price range, but sales are not keeping up with inventory above that price range, and drop off much more rapidly than with single family homes.

For the past month, the $1 million and above price range has been less than sluggish, with only one sale.  With condos, the drop in sales actually starts with anything priced above $300,000.

So, if you are a seller with a home priced under $500,000 or a condo, townhouse or patio home priced under $150,000, sales may not be brisk yet, but they happening. And if you are buyer looking in this lower price ranges, be ready to take action, as you may have some competition!

Related Posts:

Phoenix area homes are selling in the lower price ranges

Scottsdale Home Prices: Skiing down hill, or not?

Scottsdale Real Estate: Still a Strong Buyer’s Market