There was an increase in home prices for the fourth month in a row as of July around most of the nation. According to the S&P/Case-Shiller index, there was an increase in home prices month over month from April – July which is typical during spring and summer seasons. Of course, we are not in a typical market so even with an increase in home prices, most markets are still struggling to return to their levels a year ago.

Home Buyer Tax Credit

Notably, price increases during this time were also spurred by the June 30th deadline of the federal government’s home buyer tax credit incentive. It’s also noteworthy that foreclosure filings have been decreasing month-over-month and when that happens it contributes to an increase in home prices since distressed property sells for far lower prices than typical homes.

Consumer Confidence Index

Even the Consumer Confidence Index is a bit unstable and unpredictable right now. It did increase somewhat in July to 59.5, but then had a decline again in August to 45.2 followed by a minimal increase in September to 45.4.

Economists note that there are a variety of conflicting signals in the current market. Overall, they predict that with weak employment growth, global economic crises, and low consumer confidence overall, the housing market will still see some bleak months as the year comes to a close.

Phoenix Home Prices Still Declining

For those of us locally, home prices are in more of a decline than other states nationwide. In fact, Phoenix and Las Vegas were the only two places in the housing market nationally where prices actually declined in July. Compared to a year ago when Phoenix prices had declined 8.8 percent in the same time period.

So, when checking out the national market and price trends, we have to remember, that we are not among the “norm.” What that does mean however, is that Phoenix is still a great place to buy homes at very low prices.

What States Have the Best Environments for Starting New Ventures?

I have been watching Texas very closely and have been amazed by what they are doing all around. While Silicon Valley is dynamic for technology and holds the current tech crown there are pockets of entrepreneurs in every major city and region for a variety of industries. Such as Raleigh, Durham, Chapel Hill North Carolina, all of which have strong industry as well as a lot of PhDs.

Where in the USA Do Entrepreneurs Have the Edge Irregardless of Industry?

I’m thinking Texas, specifically Austin, Dallas, Houston, and San Antonio. Texas seems very pro-business, focused on international business, and understands taxing businesses is not the way to attract and retain industry. Texas also seems willing to do what it must do to win the competitive and ongoing challenges to attract and retain important corporations within its state. Interestingly, right across the border in Oklahoma the state is #5 for job creation in the country.

What Are They Doing Differently Than Arizona?

There is fierce competition nationwide among the states to bring in industries, and it appears that companies have their choice in where to go. States like Texas are reinvesting into K-12 and higher education infrastructure as well as competitive teacher pay compared to Arizona. The higher education element to have higher skilled workers attracts better paying industries and skilled workers who want their kids to attend quality schools.

Job Growth

Texas created 236,000 jobs last year, while New York state only created 70,000 jobs and they each have comparable state populations. New York also created many of these jobs to fill jobs previously cut in the finance industry. Texas has not been cutting jobs and has not had a brain drain like New York state. My only observation is that California and New York need to be careful not to rest on their frayed laurels. I’m curious, what does Texas do to compete and maintain the strong job growth? It will probably rest on their corporate-centric regulatory environment.

Caterpillar

Texas is working to get Caterpillar to relocate within their borders. They have been successful in stealing 1,400 jobs away from Illinois and the Rust Belt to Seguin, Texas to flex their muscles. Illinois has one of the highest corporate tax bases in the United States, and America companies must compete with the emerging nations as well as Europe. The world is flat, if there was no drug war violence in Mexico, those Caterpillar jobs would have went to a Mexican plant.

The Solution

Caterpillar is not the only company interested in moving. Boeing tried to move as well to escape the Union death grip. It seems there is a lot of corporate “Hope & Change” going on and companies are not just going to sit down and be intimidated by unions. The solution is becoming increasingly apparent: simply relocate to a state with access to major ports, a pro-business political environment, and a pro-business culture.

Rising Rents

The national recovery could be bad news for renters. According to the Harvard Joint Center for Housing Studies’ latest report on America’s rental housing, rental markets are tightening, with vacancy rates falling and rents climbing.  With little new supply of multifamily units, rents could rise drastically as demand increases. Regardless, affordability is likely to deteriorate further over the next few years as persistently high unemployment restricts renter income gains.

When job growth regains momentum, the number of renter households could climb quickly.  Given the long lead times needed to develop new multifamily housing, a sharp increase in demand could quickly reduce vacancy rates and put upward pressure on rents.  While this would be good news for owners and investors in rental housing, it would also fuel the intense affordability pressures, the study warns.

Rental Market & Job Growth

Even though market indicators signal the ending of the recession, the recovery may increase rent pressures on those still struggling in an environment of lethargic job growth.  We should still see growth in the amount of renters however, with the ongoing foreclosure crisis encouraging more renters.  The ability of renters to occupy single-family homes foreclosed on will be an important factor in maintaining the stability of distressed neighborhoods hit hard by the foreclosure crisis.

Although there appears to currently be a surplus of rental housing, this could change abruptly as the economy begins to recover and household formation among younger adults returns to a more typical pace.  An increase in demand could possibly override the available supply and push construction activity back up.

Purchases of Rental Properties Increasing

It seems one of the main things to consider moving forward is whether mortgage financing will be available to increase rental property purchases and investments. Even before the financial crisis, Fannie Mae and Freddie Mac were an important source of financing for both multifamily and investor-owned single family properties.  During the crisis, the GSEs (or government sponsored enterprise, which is a financial services corporation created by the U.S. Congress whose function is to enhance the flow of credit to certain sectors of the economy and make those segments of the capital market more efficient and transparent), along with FHA, accounted for the vast majority of new financing.  As Congress debates about what role the GSEs should play in the mortgage markets or whether they should be involved at all, policymakers really need to consider the major importance they have as a source of capital for rental housing.

Foreclosures

Foreclosures have been at the forefront of the real estate market, no doubt, but on the other side of distress is opportunity – for those who are able to take advantage of it.

In Phoenix there has been a steady flow of foreclosures averaging about 4,000 units per month and buyers are grabbing them up.  While bank owned homes make up a small percentage of active homes, they make up the largest share of sold homes – around 40% depending on the month.

Investor Role

Investors have played a large part in purchasing these properties, first as regular purchases and now at auction.  In 2008, only about 5% of the properties sold to third parties were trustee sales but that number has been gradually increasing for the last three years.  In Phoenix alone thus far for May, 2011, distressed home sales incorporated 63.3% of sales.

Pricing

Generally people are under the misconception that buying a short sale or a foreclosure will allow for a substantial discount on the listing price but this is often not the case.  The property has to be sold for what is considered a reasonable market value and that would mean in comparison to other homes in the area and would also take into consideration the condition of the property. 

Banks are out to recoup as much of the loss as possible on a foreclosure for their shareholders and investors.  For the most part the listing prices of bank owned homes are already discounted, that’s why they are having such a detrimental affect on traditional sales and the market prices overall. 

Distressed sale prices are closer to listing prices than regular sales at this point in the game.  In Phoenix from the beginning of 2010 to the end of the 1st quarter of 2011, while regular homes have been selling at 95.5% of the list prices, foreclosures are selling at almost 98% of their list prices.  This is happening in most other markets as well, not just in Phoenix.  (Note:  that this is considering the final list price, not the original list price).

Notably, in a highly distressed market buyers are a lot less likely to get a bank to negotiate on price than they are in a less-distressed market.

In some markets, banks are putting homes up for sale at well below the market value, which encourages multiple bids and average sale prices that are higher than the list price.  Various trends show distressed listings were more than twice as likely to sell for over list price than non-distressed listings.

Distressed Doesn’t Mean a Steal

So if you’re thinking about taking advantage of the distressed part of the market, you should consider that distressed doesn’t mean a steal.  Don’t expect to unrealistically negotiate.  And remember, the more distressed your market is, the better the banks are at pricing homes compared to their owner-occupied competition.  If you’re seeing a lot of distressed homes for sale in your market, chances of negotiating a better price with the bank are not good.

This wave of foreclosures and short sales isn’t likely to disappear anytime soon, so if you’re thinking of taking advantage of it, plan your offers accordingly!

Should you rent or buy your next home?  It used to be a no-brainer but in today’s market, not so much.  Low prices make buying very enticing however, the concern that prices are continuing to fall keeps buyers guessing about what the price will be after they purchase.  However, there are some market signals that may help you decide.

Rents Are Increasing

Rental rates in many areas are rising – in fact, the foreclosure crisis has created additional demand on rental housing inventory in several ways.  First, former homeowners who lost homes to foreclosure now have to rent.  In addition, buyers in areas of foreclosures hesitate to buy and decide to remain as renters instead.  Not only that, but demographics alone indicate the number of renters will continue – between the baby boomers and the fact that a large percentage of people over the age of 65 rent, and an increasing number of immigrants, of whom 65% are renters, the rental market is growing fast.  Moreover, stringent lending guidelines have stopped even interested home buyers.  The result of all of this is a high demand for rental homes which creates a rise in rents.  This is just another sign to buy now with rising rents occurring along with home prices low and falling.

Mortgage Rates Are Increasing

Prices have been low for the last several years.  So have interest rates.  This powerful combination has allowed record highs for affordability for over 4 years now.  While prices do not appear to be going up drastically anytime in the near future, interest rates are unpredictable.  The consensus is that they may be at their very best right now and are expected to go nowhere but up and possibly be steadfast in doing so.  Rising mortgage rates are definitely a signal to buy now.

If Your Income And Career Are Stable For The Foreseeable Future

If you are fortunate enough to have these circumstances and are planning to stay in one place for a while (typically about 5 – 10 years), buying a home in these market conditions may be perfect for you.  This time frame should allow for some evening out of the foreclosure prevalent market that we’re in.  Lenders will want to see ample income and a good job history for buying a home.  If you’re in a place where you will be in your current job for a while and you don’t plan to move, you’re a prime candidate to buy a home!

You Know The Home You’ll Need Years Ahead

Best practice is to plan ahead and buy a home that will meet your needs 5 – 10 years from now,  not just the home you would need today.  Plan for a home based on your future plans.  Do you plan to have children for example and will need more space?  Or are you going to be an empty nester in a few years or going  into retirement?  In this case, you may not want a home with more than one floor.

Try to have a vision and plan for your future.  Buying a home is a big deal and you’ll want one that can carry you through the next 5 – 10 or even 10 – 20 years.  And it’s not a decision to be taken lightly so once you have your ducks in a row and you know where you’re headed and how you’re going to get there, contact a good realtor and a mortgage professional to help you buy the home of your dreams!

Reasons for Price Declines

An article based on Standard & Poor’s/Case-Shiller 20 city home price index released in January, 2011, reflects home prices dropping yet again in the nation’s largest cities and price drops are expected to continue as fewer people purchase homes and foreclosures dramatically increase.  Most experts expect these price declines to continue through mid 2011 with prices decreasing another  5 to percent on average.  The worst price drops are predicted to  happen in cities with struggling economies and the highest foreclosure rates such as California and Arizona.  Increasing  foreclosures pushed the median price for a U.S. existing home to $158,800 in January, the lowest level since 2002, according to the National Association of Realtors (NAR).  Simultaneously, sales climbed 22 percent from October and mortgage rates started to rise from record lows in November.  When you add to that the excess supply of homes on the market, even more price decreases are imminent.

Waiting for Buyers

According to Trulia, Inc., a company that tracks how many homes listed for sale in a city have had a price reduction while waiting for a buyer, sellers are still lowering prices to sell their homes.  In Arizona for example, Mesa and Phoenix have both seen enormous changes from year to year.  Both cities had a 28 percent score a year ago with Trulia, but this month they hit 43 percent and 42 percent, respectively.  In San Francisco, California, 29 percent of listed homes have had a price cut with an average price reduction of nine percent.  In Oakland, 25 percent of listed homes are cheaper than when they were first listed with the average price cut there at 11 percent.

Fannie Mae Prediction

Fannie Mae, the largest mortgage-finance company, forecasts home prices will fall further this year and sales will jump.  Discounts on foreclosed properties are eroding the values of other homes, making houses more affordable and opening the market to more people.  An ongoing increase in sales may signal a bottom in values as prices fall to levels buyers can’t resist.

Tax Implications

Prices are falling again after fluctuating in 2009 and 2010 because of the federal tax incentives for home buyers.  The credits cost $16.2 billion in tax revenue, according to the Government Accountability Office in Washington.  One opinion has it that the tax incentives are why we are seeing such dipping prices and that without the tax credits, prices would not have been so unstable because they would have decreased straight to a bottom and we would be in recovery by now.

Worse Than The Great Depression?

Prices have fallen for seven straight months currently and are 31 percent below their 2006 peak, according to the NAR.  The decline has exceeded the 27 percent price drop from 1928 to 1933, the worst years of the Great Depression, said Stan Humphries, chief economist of a Seattle-based real estate data company.

Existing home prices which are measured on an annual basis, will likely decline an additional 2.2 percent in 2011, according to Washington-based Fannie Mae. The median price for a new home may drop 2.4 percent, the company said in a February forecast.

Housing markets struggled in the fourth quarter of 2010, despite lower interest rates and fewer foreclosures.  There was a major decline in first-time home buyers with the elimination of the first-time home buyer tax credit and increases in investment and second home property purchases.  One poll reflected 61% of agents nationwide reported having more sellers than buyers in their local markets. 

Only 32% of the agents polled reported a predominantly buyer-heavy market at the end of 2010.  Homes definitely stayed on the market longer during that period with fewer buyers driving up sales prices.  In fact, 89% of agents revealed that properties sat on the market for 60 days or more and more than 20% said they showed homes on the market for over 120 days!  Quite a change from the housing bubble we experienced in the earlier part of this decade when there was a much more balanced real estate market between buyers and sellers and typically the average time a home was on the market was between 30 and 60 days.

Housing Prices Still Falling

Phoenix home prices have continued to fall.  In addition to lower prices in the last quarter of 2010, 87% of agents reported a good supply of homes in their market.  This is no surprise as a lot of property development took place during the housing bubble earlier in the decade.  You add that to the large number of people who lost their homes in a distressed economy more recently, and it’s no wonder we have a surplus of available homes and at lower prices.

If rates are lower than they’ve been in a long time, available homes are at a surplus, and the prices are right, who wouldn’t want to buy right now!?

Here’s the thing, real estate has no magical properties as an asset class, despite people believing it does on occasion.  When they do, a bubble is formed which subsequently pops and everyone gets hurt as we have overtly and unfortunately experienced these last few years.  As mentioned above, those that know the markets well (the investors) are taking advantage of this market – as they should.  And tax credits being revoked are only one factor and they certainly don’t dictate the market alone.  This is a buyer’s market folks!  And who wouldn’t want to buy in Arizona?  Conditions are perfect!  Prices dropped 8 percent the end of last year and have now fallen for five months in a row.  With projections of continuing foreclosures (which drive the declines), prices will surely remain low only strengthening the buyer’s market in Arizona.  And considering that Arizona boasts some of the best weather nationwide and a wide variety of attractions and resorts, who wouldn’t want to live here?

Now is the time to buy!  Check out Show Appeal Realty for varied lists of the best deals on Arizona real estate.  Beautiful homes with a plethora of amenities for the right price.  Feel like you don’t know enough about investing in real estate?  Contact Nuff Said Enterprises, LLC, a real estate investment group that offers a myriad of investment strategies for the Phoenix Metro Area.  Whatever you do, Don’t miss out!  The market will inevitably turn around eventually and when it does, don’t you want to be on the winning end?

Show Appeal Realty Lending Market Updates regarding distressed property market, GFE & HUD 1, FHA Appraisal Requirements, & Tax Credit:

Below is a quick reference of recent changes that are effective as of now and those that will be in the months to come

• Effective December 23, 2009- FHA released a notice that Borrowers are eligible for new FHA mortgage if they pursued a short sale agreement on his or her principal residence or a short pay off when refinancing their home as long as there were current on their mortgage and other installment debts for the proceeding 12 months at the time of the short sale of their previously owned property and the proceeds from the short sale serve as payment in full. There are some overlays to prevent current home owners taking advantage of the lower market so please contact your lender regarding.
• January 1, 2010 – New RESPA good faith estimate and HUD 1 settlement statements have gone into affect. Both the good faith estimates from lenders and HUD 1 settlement statements from the title companies have changed. They have been revised to be more similar so the borrower can better understand fees and cost for a transaction on both documents. Once a property has been defined for the borrower and an application has been taken for the borrower a good faith estimate from the lender must be given to the borrower within three days. There are lots of changes and guidelines to the new good faith estimate and if you would like more details on this on how this will affect our future transactions please contact your title professional and loan expert regarding specific transactional details and then call me with any questions.
• February 15, 2010- FHA appraisal requirements will change and fall under the current appraisal requirements for conventional loans. This means that after Feb 15th all new FHA loans will need to have appraisals through appraisal management companies contracted through the banks.
• April 30, 2010- First time home buyers and move up home buyers must be under contract on a primary residence home to submit for home buyer tax credit.
• June 30, 2010- All contracts written on or before April 30th 2010 must be closed in order to submit for home buyers tax credit.

Please let me know if you have an questions or concerns over the above updates. I am not a lender or CPA, however these are very important details to know relating to the lending environment and buying real estate in Arizona in 2010.

The Phoenix real estate market might be starting to find a long trough in home values. This means two things:

1. Home values are starting to stabilize
2. Home values are going to remain stagnant for some time

I believe the market is in the initial phases of finding a so called ‘bottom’ and we could be on the cusp of seeing home values starting to stabilize. In some of the hardest hit areas of the valley where prices have fallen 70%, properties are selling fast with multiple offers. There are many investors and secondary home buyers that are paying cash, which is helping the appraised value of comparable properties. Also, if lending will loosen up a little bit and find a happy median between two extremes, we could really start to see more qualified buyers enter the market.

On the flip side, there are a lot of homeowners that are under water and are in preforeclosure. I believe this trend will continue for another 16-24 months which will more than likely keep any appreciation of home values at bay.

For first time homeowners, it is a great opportunity to take advantage of a $8,000 credit from the Gov. If you are an investor, cash flow is back for rental properties, but requirements of a minimum of 25% down is a little hard to swallow.

A key factor for many secondary home buyers and people looking to upgrade is to take advantage of the low interest rates. With so many dollar bills being printed, it is only a matter of time before inflation sets in and interests rates begin to creep up. I would expect this to happen by 4th quarter 2009 and into 2010.

Yes, it’s that time of year again here in the Phoenix Valley for the real estate market. Our market typically (the key word here is ‘typically’) starts to pick up in early to mid March as temperatures consistently start to hoover in the mid 70′s to low 80′s.

Am I seeing increased activity right now? Absolutely! It was been a busy past two weeks as buyers are starting to get off the fence and take advantage of the depressed market. This is especially true with bank owned foreclosures and short sales. I think this trend will continue through the spring, however the real question is if it is sustainable?

I am encouraged by what Bernanke said on the recession ending in 2009, Citigroup being profitable in the first two months of 2009 and also I’m starting to see the Obama foreclosure prevention plan limit the number of homes being foreclosed on. The first place these foreclosures show up is at trustee sales and lately the inventory has been slim with a lot of postponements. It is a simple supply and demand issue for prices to start going up…and if the supply is dropping and the demand is increasing, then prices will find the bottom.

Lastly, I think the Phoenix real estate market will start to recover before a lot of other areas in the country. This being because our market started declining before a lot of other markets (late 2005) and we now have builders that are not in play anymore as well as a consistent population increase…all good things.