Real Estate Market Recovering
Michael Orr is the new director of the Center for Real Estate Theory and Practice and the founder of the Cromford Report. The Cromford Report is the best and most accurate source for reliable information about the Phoenix real estate market. Orr has been running a website containing the Cromford Report for five years. Michael Orr scrubs the information in the Arizona Multiple Listing Service to make sure it is accurate and studies the numbers to explain the market conditions. In a recent interview with A.S.U.’s W.P. Carey School of Business, Orr shared his analysis of the current state of market.
Orr stated that although the public may not believe it, prices have gone up from 12 months ago. He reports an increase of 3 percent for single family homes, townhomes and condos and are continuing to see a increase. Because the single family home is the dominate product in the market, we are seeing an overall improvement. He attributes this to the low supply of homes available for sale as compared to the not-so-distant past when we had a surplus of homes on the market. Foreclosures have slowed down and now there is actually a below-normal number of listings available for buyers. This factor will lead to prices going up. He believes this is leading us to a recovery and that prices will continue upwards as long as this below-normal number of homes available for buyers exists.
Orr explained that today’s market is segmented and he categorizes his data when analyzing the market conditions. He explained that new homes are different from resale homes and the bank-owned foreclosures are different from government foreclosures. Once these segments were separated and analyzed many new things came to light. One of the findings was that new-home sales are strong compared to last year’s very weak numbers. He feels that our market can absorb the new homes being built. Most of the activity is in Gilbert and the southeast Valley. New-home sales were up from 333 in 2011 and we are at 496 so far this year. To give perspective, in 2005 the Phoenix area was selling 4,200 new homes each month.
The number of traditional sales has increased by 57 percent, these are normal sales from an owner/occupant to a buyer. He also sees investors buying homes to flip–fixing up and reselling for a profit–continuing to be strong segment in our market. Investors are also buying to rent for five to seven years. He sees short sales growing to 26 percent of the market in Maricopa County and 45 percent in Pinal County in the last year. On the foreclosure front, he separates the market into real estate owned by commercial banks from real estate owned by government agencies such as Freddie Mac, Fannie Mae and the VA. These are decreasing in number because of short sales and many of them are selling at the Trustee Sale to third parties and not going back to become REO properties. In 2008 about 3 percent of the foreclosed homes were sold to a third party and today that number is about 50 percent according to Orr so the banks are getting only half of the homes back.
Orr sees HUD homes as a separate group. HUD acquires homes when a financial institution takes back a property that was insured by the government that they do not want to sell, so they give it to the government to sell and they turn it into a HUD home. Orr said that HUD listings spiked and then dropped over the last year. Orr said these are the lowest priced homes and that HUD makes it easier for a home owner to acquire one. HUD will give an owner occupant the first shot at buying by not accepting offers from investor for the first 16 days of the listing. They also offer financing that will include repairs when necessary. There are approximately 200 of these listings a month compared to the peak of 600.
Orr’s research shows that about 3/4 of the buyers in our market are bought by those with an address in the U.S. Another ¼ is purchased by out of state buyers. The Canadian’s have been investing due to the strength of the Canadian dollar and the value.
He said that cash buyers have the advantage in this market over buyers borrowing due to the strict standards of the banks today. He sees lending easing up a bit because the amount of down payment as a percentage of the total value is going down and the credit score required to buy a home is coming down slightly. Cash buyers are about 41 perent of the market compared to a normal of about 10 percent. Cash buyers are getting offers accepted over buyers with loans because the fall out potential of a low appraisal or a buyer not qualifying. He sees that the amount of homes being purchased to be rentals is double of what it normally is.
Orr summarized his interview by saying the recovery has started, but that we are in the tentative stages. If we just focus on what’s happening in Greater Phoenix, then we’re definitely on the recovering trend right now, and the big change will happen when confidence starts to sprea– not only from the professionals. At the moment, you talk to Realtors and they can see this recovery and the investors can see the recovery too. When ordinary people realize that now is actually quite an opportune time to get a house at a low price and with low interest rates, then the market could recover at a more significant rate because we get more buyers coming into the market. That could get exciting. With the low supply, if we have more buyers coming in, the supply could get really tight. That’s how recoveries work, when the supply is so tight the people start bidding the prices higher.
Given the Arizona real estate market took a very hard hit we are seeing signs of recovery. This is the perfect time to buy a home!. It is a great time to get a home sold as well given the low supply available!. Don’t let this opportunity pass you by.