Tom Ruff, The Information Market, sent out his October report for Maricopa County yesterday. As always, it’s well worth the read.
Subject: October Foreclosure Numbers
I went to Halloween party Friday night as Tom the housing analyst, I was asked by the host to leave, said I was scaring the guests.
OCTOBER NUMBERS: October’s foreclosure numbers are in and they’re full of lies, so many in fact that you would think they were running for public office. If you’re following foreclosure numbers closely, please keep this in mind as you read different reporting services. October notices hit their all time high with 8,503; 1,056 more than September. The lie, 874 of these recordings were new recordings on previously recorded notices. This is the first month we’ve seen a reportable number of duplicate filings. October numbers should have been closer to the “attempt to plateau” number we’ve described in past mailings, somewhere around 7500. Unique notices in October totaled 7638. Monthly cancellations jumped to 3516 nearly doubling September numbers, the reason, intervention. Think of this month’s cancellation notices as a child behaving badly and a parent yelling “timeout”.
http://www.azcentral.com/realestate/articles/2008/11/01/20081101foreclosures1101.html
If the notice numbers are skewed, and the cancellation numbers are influenced by factors outside the market, the relevance of the active pending number becomes debatable. Factor into the equation banks wanting to catch up on their workload while avoiding taxes and HOA fees and you have an active pending number, 27,874, which becomes a political campaign ad, relevant but questionable. The only remaining number in our foreclosure.xls file reports recorded Trustee’s Deeds, the lone honest sailor in the bunch, that’s because it’s based on notices filed at least ninety days prior, before all the rules changed. 4,587 recorded Trustee’s Deeds are still 4,587 foreclosures, bank owned inventories continue to increase.
What does this mean for November, notices should drop as Chase and Countrywide reduce and or eliminate filings. Cancellations will increase as the two companies have nearly 5500 current active notices which meet their criteria for modification. I don’t even want to try and project what will happen in six months when homeowners decide not to or are unable to qualify for their new agreements. Yada, yada yada. Each new month brings new questions, heck there are 700 billion questions we can’t even imagine how to factor. Our goal for November, grasp the new rules. The methodology used for spreadsheets up and into October which worked perfectly may be modified to more accurately report what’s happening, baseball just became cricket.
In the azcentral article mentioned above you may want to read a few of the comments, or then again, not. When you look at what’s best on an individual basis where the homeowner is unable to make their payments, modification is the answer, but what do you say to that neighbor with the same loan and same equity position who’s making their payment? I don’t know the answer, it’s just a rhetorical question. I believe modifications are the best solution for our market and should have started much earlier, however, I understand the opposing argument. Couldn’t we just apply the”don’t ask don’t tell” principle. Ignorance is bliss, knowledge becomes anger. I’ve interrupted the forereclosure.xls report for you… Let’s see what Michael Orr has to say, it’s like visiting Mr. Roger’s house.
THE CROMFORD REPORT
The good news is that MLS activity is still strong: sales are up 60% from this time last year and pending sales also up 60%. After a particularly strong September, due to people taking advantage of down payment assistance programs before they disappeared, October sales were some 16% below September. This is still quite respectable; about the same as in October 2002.
The bad news is the fact that the selling is dominated by the banks and the market is dominated by foreclosures. Banks are now selling almost twice as many homes as homebuilders. Among active listings: 65% are normal, 17% are in pre-foreclosure, 18% are already owned by a lender. Among October MLS sales: only 48% were normal, 10% were in pre-foreclosure (mostly short sales), while 42% were lender-owned.
We have a record number of homes pending foreclosure – about 28,000 in Maricopa county alone, although this dropped a little last week because the ex-Countrywide division of Bank of America canceled about 2,000 trustee sales. New foreclosure notices in Maricopa county are running at about 240 per day on average and we have a record number of homes being sold by the trustee & over 95% of these go back to the bank. We have a record number of bank-owned homes being sold to investors & owner occupiers and this is driving prices down sharply in areas where foreclosures are plentiful. On a $/SF basis we’re at an average of $107 across the valley based on October’s MLS sales, which is down 43% from the peak of $189 reached in May 2006. But remember this is just an average – prices have fallen much less in areas with few foreclosures and much more in some with higher than average foreclosures.
Some areas have been affected only slightly by the decline in prices – ZIP codes 85007, 85013, 85018, 85024 are particularly strong. Also, bank owned properties are relatively thin on the ground in Sun City, Sun City West & Sun Lakes. Some areas are much worse than average – ZIP codes 85009, 85019, 85031, 85033, 85035 for example. Bank owned properties dominate in El Mirage, Avondale & Litchfield Park.
Some outlying areas were affected strongly in 2006 and 2007, much earlier than Phoenix itself, but these are showing distinct signs of recovery now, e.g. Anthem, Queen Creek, Maricopa. Here supply and demand are in reasonable balance so the downward pressure on prices has eased. However a high proportion of properties listed are bank-owned or short sales. These are still areas in distress despite the stronger demand.
We forecast the market based on simple rules of supply & demand. Right now our biggest problem is over-supply. Developers built more houses than were actually needed. Investors purchased extra homes thinking there would be buyers for them. Demand right now is about 95% of normal, within a reasonable range. But supply is at 177% of normal. The main way this gets re-adjusted is for prices to go down. When prices go down, demand increases and the supply starts to get eaten away. This has already happened in places like Queen Creek – prices are way down, but although there is still a large inventory of unsold homes, sales volumes are very high. In fact Queen Creek is the third most active city for sales right now, after Phoenix & Mesa.
It’s still a great market for buying, as long as you have capital, good credit and don’t need to borrow more than 90% of the money. Bank owned properties typically sell for 20% to 30% below the normal market price, and so as long as you don’t mind fixing up the property and the landscape, you can find some real bargains. This is even more true in places where bank-owned properties are not too numerous and normal prices are still relatively high (e.g. Scottsdale, Fountain Hills, Paradise Valley, Cave Creek). We’ve seen prices at 40% to 50% below normal in some of these places. The drop in pricing has occurred while rental rates are stable, so it is easy for a landlord to find homes that will “cash flow”.
The future depends on a number of factors. Prices are still falling, but if more lenders cancel foreclosures like Countrywide did last week, then this source of supply will start to fall and the downward pressure will ease. Many people who are current in their mortgage payment resent other homeowners being helped by their lender. However preventing that foreclosure in your neighborhood is going to help stabilize your home price, so when others are helped you are getting indirect help too.
The market is in fact more healthy than it was this time last year. But the market cannot improve much further until we see the number of foreclosures drop and an easing of the over-supply situation. Home builders have cut way back on their new builds, so it is now foreclosures that constitute the most significant source of homes for sale. The financial companies therefore hold the key to the future health of the market.
SHOUT OUT: I want to give a shout out to the bright and talented people who are working hard each day within our city and state governments. Their efforts are to be commended as they do everything within their reach to help ease and correct our current housing crisis. As for our Federal government, the jury is out.
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http://www.theinformationmarket.com/
Cheers,
Tom Ruff
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