The Phoenix real estate market is hard for a lot of people to figure out.  Tom Ruff and Michael Orr are not 2 of them.  Armed with the most accurate data available, an advanced understanding of statistics, and a humorous tone – they are shining the Phoenix real estate light on the rest of the world.  Please allow them the opportunity to shine by reading their latest housing report and sharing it with those you care about.

Subject: April’s Housing Report and Opinion

“Stuff is getting better, stuff is getting better everyday.”
Kevin Costner, from the movie The Postman

I found it refreshing this week; if only for a brief moment, to shift my focus from economic worries to a more relaxing reflection, a pandemic. I was happy to see the virus renamed; it really wasn’t fair to pigs.

Cromford calls the bottom

On April 2nd an article on Azcentral.com basically stated anyone calling the bottom of the housing market anytime soon would be a fool. On April 6^th, Mike Orr of The Cromford Report called the bottom, does 4 days translate into soon?   How does Mike know this, the answer, he’s got better stuff. A licensing agreement with ARMLS allows him to analyze daily MLS listings, sales and pending contracts. He also has access to daily publicly recorded sales and foreclosure data as well as the very best property address and zip code files available.  With the most current and precise data in hand he puts it through a rigid cleansing process.  From there, the data goes into his disciplined and insightful model and voila.  So you see, stuff is getting better every day. Now I know what you’re thinking, how do I get the good stuff? If you are an ARMLS subscriber, you can immediately go to www.cromfordreport.com, and sign up for your FREE subscription, the cost for non-ARMLS subscribers is $300 per year. Here’s Mike’s take.

Preliminary April 2009 Report

April 6, 2009 established a bottom for $/SF sales pricing across the Greater Phoenix area. This does not mean that prices will not go lower in certain areas – they will. But the overall average price per square foot put in a convincing low on April 6th and has been moving sideways to slightly up ever since. The increasing sales volume tends to reinforce the significance of this pattern. I would claim that the cities of Phoenix, Avondale, Gilbert, Mesa, Peoria and Queen Creek are making the best cases for establishing a bottom, while Chandler, Goodyear, Scottsdale, Tempe, Glendale and Surprise still have some work to do. Of course we need to continue to watch to see if the pattern strengthens or fades. The current readings for Pending $/SF suggest more sideways movement in the near term. Every city showed improvement in April over March with supply falling and demand rising. In some areas the fall in supply was breathtakingly swift. Pending sales rose yet again, actual sales continued their strong advance, and listing success rates climbed. To illustrate the change in the market since January, let’s look at Months Supply for May 1st vs. Jan 1st:

Avondale 4.4 (was 8.9)

Chandler 5.7 (was 9.1)

Gilbert 5.2 (was 7.9)

Glendale 3.2 (was 9.1)

Goodyear 3.8 (was 8.6)

Mesa 4.4 (was 8.9)

Peoria 4.9 (was 10.3)

Phoenix 3.4 (was 9.0)

Queen Creek 2.9 (was 6.1)

Scottsdale 14.3 (was 19.4)

Surprise 3.3 (was 7.2)

Tempe 6.7 (was 8.7)

I would consider an inventory level of 4.5 months as “normal” so we can see 7 out of the 12 major cities now have a “below normal” inventory judging by months supply. Let’s look at some basic sales numbers:

April sales (all types and areas) – 8,500 (includes 44 out of territory ARMLS sales, e.g. Payson, Prescott, Flagstaff)

Greater Phoenix Lender-owned Property sales – 5,629

Greater Phoenix Pre-foreclosure & Short Sales – 846

Greater Phoenix Normal Sales – 1981

So REOs still dominated the sales figures, but they are not as dominant as they once were. Among the active listings, REOs are declining quite fast – they now comprise about 17% of all listings whereas in early January they comprised 28% of a much bigger number. In fact, considered as a market segment, Greater Phoenix REO listings on ARMLS represent only a 1.3 month supply at their current monthly sales rate. Pre-foreclosures and short sales are becoming an increasing percentage of both listings and sales, although their listing success rate, having improved from 21% in February to 34% in April, still has a ways to go to rival REOs with their phenomenal listing success rate in April of 86%. As before, the majority of the sales action is concentrated at the affordable end of the market, but it has to be said that improvement in demand is clearly visible at almost all price ranges.

April  Foreclosure Numbers

April numbers came in as we expected, with the exception of cancellation notices, we had thought they would be slightly higher. The thing that makes cancellation notices hard to project is they are the step child of recordings, they get recorded when they get recorded. Unless someone protests, they kind of get tossed into the when it’s time to clean off my desk category. April’s notices were down from March, 10,689 to 9,092: trustees deeds down from 3,377 to 3,103: and cancellations down from 3,168 to 2,668. The number of active notices continues to increase totaling 43,171. Of the 3,103 properties sold at auction 331 were purchased by third party buyers. For the past year, nearly 95% of all properties foreclosed upon have reverted to the bank, this month, only 89.3% returned to the beneficiary, with 10.7% purchased by investors. Foreclosure numbers are funny, and if there is anyone who knows exactly what happens next they’re sharing adult beverages with Michael J. Williams, Kenneth Lewis or Richard Kovacevich.  Our interpretations the last few months have been based on what we’re hearing from experts in the field, and working off the presumption, if I were King.  Charts and graphs can’t presently paint a picture of what comes next, not when it comes to the new filings of notice of trustee sales and trustees deeds; that went out the window in October. I do believe if we are to get a glimpse as to what happens next our focus should not be on how the notices and trustee’s deeds are currently trending, but by revisiting the attributes of homes purchased or refinanced  between September 2005 and April 2 007, this is the time frame  from which the vast majority of foreclosures originated.  We have begun to take a look and will be making this part of my new weekly commentary within The Cromford Report.

Foreclose when you have to, negotiate when you can

It never made sense to me to flood the market with new foreclosures while existing REO levels were extremely high.  I think the banks learned this lesson, most likely the hard way.  As king, with REO inventory dropping rapidly it would now make sense to step up the tone of my negotiations with those currently in foreclosure.  I now have a pretty good idea what to expect from the market regardless of what decision I make, and I can now make an educated decision that is best for me, the bank. We’ve been in this market of high foreclosures and declining values for sometime now, and everyone is getting smarter. As king, I can now make decisions from a broader knowledge base, and I can now translate these decisions back into dollars and sense.  That said; don’t be surprised if Trustee’s Deeds increase in May, and if not in May, then June.

A tip of the Hat

Much of what you read in the national media regarding foreclosure data comes from Realty Trac, the purveyors’ of the shadow inventory theory. I remember Art Bell talking about shadow people on his radio show back in 2003, so when I first heard the term shadow inventory I naturally thought it was an imaginary count of imaginary homes where imaginary people lived. If you go to Realty Trac’s home page you will see an area called the Best of Realty Trac where they talk about shadow inventory, an interesting concept, but like the imaginary people above, no basis in fact. It was great to see Rick Kross, Town Manager of Queen Creek fight back and set the record straight. I think this will be the beginning of Arizona governments distancing themselves from national data sources when making local decisions. Thank you Rick Kross, I tip my hat.

A closer look at Realty Trac

http://www.dsnews.com/index.php/home/news_story/2885

“The RealtyTrac U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the quarter. Data is also available at the individual county level and MSA level for both Q1 2009 and March 2009. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the month or quarter, only the most recent filing is counted in the report.”

After reading the above article I learned several things I never knew, I didn’t know the three phases of foreclosure were, Default, Auction and Real Estate Owned. I didn’t know a Notice of Trustee Sale was an auction, I didn’t know an REO was where a bank repurchased a property; of course I’m being derisive.  How do I foreclose upon thee, let me count the ways, and even though I say I count them once let me count many of them twice.   Whenever I look at real estate statistics I always try to look inside the numbers and try and ascertain the methodology. When a company reports data or statistics without definition as to how they arrived, their numbers become meaningless. I would advise anyone giving stats to abide by this simple rule, let it be known how and why you drew your conclusions, clearly state your methodologies. In the case of Realty Trac, if the above paragraph does indeed define their methodology, I wouldn’t tell anyone, nada, zip. I’d just keep um guessing, nod my head and smile. God bless you Realty Trac, but Rick Kross got it right, your data is “patently false.”

Cromford vs Housing Doom

http://www.azcentral.com/12news/news/articles/2009/05/04/20090504housingbottom05042009-CR.html

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Thank you,

Tom Ruff