Phoenix Real Estate Market by Tom Ruff

Here is Tom’s latest article that shares with you the truth behind the Phoenix real estate market statistics, especially the greater Phoenix foreclosure statistics.  In this article, he also gets into the costs of walking away from your home. Pretty good stuff Tom, thanks for sharing.

Just a reminder, we have put Tom’s Maricopa Foreclosure statistics into a chart for your use.

“One thing in my mind which is critical is if you’re going to use a price index, you should try your hardest to get as localized as possible. Price and trend conditions differ dramatically within a metro statistical area. At the end of the day, the number one thing you should look for is data as close as possible to the area you care about.”

Andrew Leventis, Senior Economist, OFHEO

We have been compiling real estate data in the Phoenix marketplace for over 25 years. Coming from Nebraska, I like to use farming or football analogies, nothing strange, it’s just how we explain things.  My football analogies aren’t as good as they were in the nineties so I’m going to talk about farming. Real estate data to me is dirt, and we have our hands in the dirt everyday, just as we’ve done for 25 years. Working with data each day, everyday, I see stuff and know stuff and don’t even know why I know it but I do. There’s an old saying back in Nebraska, if you want an accurate weather forecast, ask the farmer not the weatherman, ask the guy who’s in the elements everyday and who’s livelihood depends on it.  Our data and analysis will give you the most current and best overall picture of what is happening today as well as give you a glimpse as to what you can expect tomorrow. Our analysis will give you a clear advantage making decisions or choosing a direction. If you have further questions, do what I do, contact an expert in your defined area or field.  When I get confused as to what the numbers are telling me, I talk to the lenders, I talk to the escrow officers,  I talk to the trustee’s  and I talk to person who’s job it is to talk to all of them, the Realtor. Much of what I’m about to say, came from that exact source, one extraordinary, knowledgeable and generous individual who prefers anonymity.

March’s Numbers are “who we thought they were”

Notices=10,689 Trustee’s Deeds=3,377  Cancellations=3,168 Active Notices=39,744

March’s numbers came in as anticipated, existing home sales were up and foreclosures were down. Now mind you, when we refer to foreclosures, we are referring to trustee’s deeds, not notices.  You’re going to see a lot of confusion among people reporting foreclosure numbers as new notices hit all time highs and the number of active notices continue to rise. If an analyst is only watching new notices and not viewing the entire process, they are going to make some very dire predictions. Up and until October 2008, the numbers of notices were a perfect indicator as to what could be expected in 90 days, then the rules changed, baseball became cricket. Washington became the banks’ bank, and followed their capital infusion with close scrutiny and motherly advice. What’s this mean? I know one thing is certain, banking conventions are cancelling their Vegas reservations and moving them to Washington.

Roosevelt Dam

Think of the current wave of new notices as the Salt River flowing into Roosevelt Lake after extended heavy rains. Think of the Federal Government as SRP (Salt River Project) with the ability to control the flow of these heavy rains as they leave Roosevelt. As we track scheduled sale dates and postponements, and chart them on a daily basis, we begin to see a similar pattern form.  In November, we saw pending sales cluster around the middle of November postponed to mid December, and then pushed back another month into January; finally 4000 properties were released and foreclosed in a two week period. This was the spike Arizona State University Realty Studies reported in their February’s housing numbers. Then, just like closing the dam gates, the new foreclosures instantly declined. Today, we’re seeing the same pattern forming again, February’s scheduled sales were pushed into March, and March’s scheduled sales retreated into April, now April scheduled sales are rescheduling in May.  We believe the pacing is by design with Washington controlling the levers, the thought being if you can keep people in their house long enough, they may decide to stay, and Washington believes people want to stay.  We’re clearly seeing a concerted effort and an organized plan. Obama supporters will cheer, as opponents will watch with a cautious eye. As for me, I don’t care who is right or wrong, I just want to see the economy improve and friends return to work.

More on the Plan

We have reports of at least 3 banks doing recon on pending foreclosures to see if they are vacant, if the homes are vacant; the banks proceed with the trustee’s sale.  If the home is owner occupied, the banks are attempting to work with the owner to modify the loan; and if the property is occupied by a tenant, the lender will try to locate the landlord and or work with the tenant. The banks appear dedicated to working with the home owner, my comments about the home owner will come later.

High Notices

Now that we’ve explained the lower number of actual foreclosures, let’s take a stab at the high number of notices. I’ve heard reports of neighbors telling neighbors they haven’t made payments for months and the banks have done nothing, well, I think that is changing. The banks placed a moratorium on notices in late 2008 as a gesture of good faith saying we’ll work with you, I believe they are now filing notices in an attempt to motivate the homeowner into cooperating with their efforts to assist. We’ve all heard stories of home owners stopping payment to motivate the banks, well; it’s that goose and gander thing again, the banks are now saying let’s file the notice just in case negotiations break down or the owner abandons the property, we’ll have the paper work out of the way, and if we have to foreclose, we won’t be delayed.

New daily tracking…..

Each day we keep an eye on opening bids, the current leading indicator as to whether or not a property will be sold at auction. If we are correct in our assumption, foreclosures are following a pattern of controlled releases, a noticeable increase in opening bids will give us the first clue as to when the next controlled release will begin.

March has always been a bellwether month

In our 25 years of compiling data, we have always considered March a bellwether month. March will normally tell you how the summer will trend all the way through August.  Don’t ask me why, it’s just one of those things you notice after 25 years. March is telling us sales volume is up and continuing to climb, the rate at which median home prices are falling is declining, clearly signaling prices are approaching their much anticipated bottom. In our 25 years the number one leading indicator of near future sales has been interest rates and interest rates are at historical lows. Investors, particularly California investors, are returning to the market. Foreclosure cancellation numbers are catching actual foreclosures; don’t be surprised to see April’s cancellations exceed April’s foreclosures. Notices have continued to rise, but again, I think the high current notices have more to do with the moratorium than the market, nonetheless, the numbers are significant and are a constant reminder we’re not out of the woods yet. I’d be a fool to say I’m not aware or not concerned with nearly 40,000 active notices, and as the 40,000 active notices remind us, we still have many unanswered questions; namely, will the designed Federal strategy work? I say, it has to.

The Article I’d Like to See

I told you I’d get back to the home owner before I left, here I am. Why hasn’t anyone written the article, the cost of walking away? I’ve heard story after story about the new neighbor next door buying the same house for $100,000 less, yes we know. I’d like to see the story on the person that could afford the payments on their home but chose to walk away. Now that they’ve walked away, let’s have them explain the real costs, not the instant $100,000 dollars they supposedly saved. I can think of a few expenses they’ve incurred, but like Yogi said, “It ain’t over til it’s over.”  I don’t think we’ll know whether it’s a good decision or bad decision for years to come. Let’s see, they’ve already paid, moving expenses, rental deposits, security deposits, fees and deposits to move cable, phone, water, electrical, gas and possibly a storage unit, not to mention the time, inconvenience and aggravation of moving. These are just a few of the expenses that come immediately.  Now, what about tax time and no mortgage deduction, how much more will you pay in taxes, and now that prices are beginning to bottom, you may have to factor in missed appreciation, we’ve forgotten about that the past three years, historically that is the trend.  Car insurance with a weaker credit score and missing homeowner deduction will definitely go up. Hopefully your credit cards won’t get kicked to a default rate. What if home values turn around, and they most certainly will, I can guarantee with a foreclosure on your record, even if you can qualify, you’ll get to pay higher interest rates. And those moving expenses, you get to pay them all over again. That perfect credit rating whic h afforded you more benefits than you can imagine, will be like Elvis, it’s left the building. Need I say more, the grass isn’t always greener on the other side of the fence? I’m not saying you’re making a bad decision, I’m just saying think it though. Talk with the bank, see what can be done, try and meet them half way.

Pricing Strategy

From  the cromfordreport.com, the $/SF list for pending REO sales is higher than the $/SF list for monthly REO sales, translated, if you’re hoping to buy a bank owned property, you more than likely will be paying more than the list price. Please feel free to share this, and or pass it along. If you would like to be added to our mailing list just send your request to info@theinformationmarket.com and I will put you on our list.  In the same regard, if you would like to be removed, just say so.

Thank you,

Tom “Farmer” Ruff