Real Estate Prices Going Up
It is finally being reported in the mainstream news media that real estate prices are going up in the Valley. This is old news to anyone in the business or who closely studies the numbers. The market has stabilized and is in recovery and showing strong signs of market improvement in Arizona as compared to other states that were hit just as hard when the real estate market crashed.
The increase in price could be an indication that the market is stabilizing and/or recovering, however it is a direct result of the economic laws of supply and demand. The supply of active homes on the market in the Arizona Multiple Listing Service, MLS is at an historical low. In the first quarter of this year the number of new listings on the market was the lowest it has been in the last 10 years. In June, the number of active homes on the market for sale was 12,614 as compared to June of 2011, when there were 23,600 homes on the market– a 47 percent decrease in the supply of homes available. From January to February this year, the number of active listings on the market decreased by 700 homes. It dropped again in March by 1,600 homes; again in April by 1,800. In May it declined by an additional 1,100 and 500 again in June. This adds up to a decline in inventory of 31 percent since the beginning of the year. The number of equity sales, (homes being sold where an owner, not the bank, owes less than the market value of the home) is now 84 percent of the active listings on the market. Short sales are 7.5 percent of the market and foreclosed homes and HUD homes comprise less than nine percent of the market.
The numbers for pending homes (homes with accepted contracts waiting to close escrow) is up to 19,333, due to the large number of pending short sales that take months to process and close. They remain sitting in the pending status while the bank is in the process of approving them. The breakdown on homes that are pending is 29 percent equity sales, 60 percent short sales, and 10 percent are bank-owned or HUD homes. Many of these transactions do not result in a successful close of escrow, due to the buyers getting inpatient during the long process and dropping out or the bank simply not approving the short sale and foreclosing on the home.
The number of homes that have sold is also down due to the low supply. There are not enough homes for the amount of buyers in the market. Year over year, the number of sales are down by 14 percent. Equity sales have increased since last year from being 35 percent of the market to 56 percent now. The short sales that have sold this year is 26 percent of the sales versus last year when they were 20 percent of the homes that closed. Today the bank-owned/foreclosed homes are only 15 percent of the homes that have closed compared to 39 percent last year at this time. Equity sales have increased due to the large amount of investor activity in our market. Many of these traditional/equity sales are investors flipping homes; (buying them and then fixing them up to re-sell them for a profit). These homes that are bought to flip never make it to the retail market because they are being bought directly at the trustee sale by investors. The percentage of cash buyers in the market is a strong indication of the extent of the investor activity in the market. Almost 50 percent of all transactions in our market right now are cash. We are seeing an increase in the number of short sales that are successfully closing because the banks are getting better at processing, approving and closing them, causing a decrease in the number of homes that are actually being foreclosed on, and going back to the banks to become REO inventory, (real estate owned by the banks due to a foreclosure).
A trustee sale is done when a lending institution is foreclosing on a home. It usually takes place at the trustee/attorney’s office or at the court house steps. At the trustee sale, the home is offered to the highest bidder in an auction, and is sold in “as is” condition to only cash buyers. If there are no successful bidders the home goes back to the bank as real estate owned, REO. If this happens, the bank lists the home for sale on the retail market to potential buyers. Most of the homes offered at trustee sales are now being secured by investors who are buying to flip or rent. This has also contributed to the lower supply of homes available to buyers on the retail real estate market. Investors are finding the prices at the trustee sales increasing to a price point that does not allow them to make a profit by doing a flip. Typically homes sold at the trustee auction are sold at the lowest end of the market, but they are currently selling at retail market prices.
In February, a home sold as a short sale in a popular mountain side neighborhood for $200,000, a similar home just sold at trustee sale for $246,000 in June. Buyers in the market are willing to pay more than asking price for homes because they are experiencing frustration with the difficulty in attempting to purchase a home in this environment of scarce inventory and high competition. Appraisals are beginning to come in at fair market value and reflecting the conditions of the current market. In the beginning of the year low appraisals were holding prices down. Cash buyers do not require an appraisal so given almost half of the market has cash has contributed to prices rising.
Buyers and sellers who have been sitting on the fence should take notice. We have hit the bottom and are on the way up. Prices are still very low, comparable to 10 years ago and interest rates have never been lower. The supply of homes available to buyers is low and the competition is getting homes sold and the prices are rising. Buyers are waiving inspections and appraisals and are willing to pay above the market value to get a home. It is a fantastic time to buy and to sell.