Signs of Real Estate Recovery
There are strong signs of recovery in the Phoenix residential real estate market. The signs of recovery are apparent in the value of homes, the number/supply of homes available and the number of transactions. We are seeing the inventory of bank-owned homes decrease and the banks have become more proactive in promoting and successfully closing more short sales. Investors are back and purchasing Phoenix real estate. There are a large percentage of cash buyers purchasing and interest rates are at a historic low for those financing. Rental rates have risen and there is a big demand for single-family homes to be rented.
In 2010, real estate values dropped in value approximately 12-20%. This varied greatly based on factors; the price of the property, the area or location of the property and whether or not the property was bank owned, a short sale or a traditional sale. Data provided by the Cromford Report indicates that property values from the lower price points to the middle price points have stabilized and in many price categories have shown appreciation in 17 out of 22 price ranges tracked, showing depreciation in only five price brackets and the amount of depreciation in those categories is less than 3%. The number of transactions year-to-date are up as well, last year at this time there were 89,936 transactions and year-to-date this year they are 101,077. At the peak of the seller’s market in 2005 there were 106,129 transactions at this time of the year. This is a strong indication of the demand present in our market
We have seen a dramatic shift in the inventory of homes available for sale. In November of 2010, there were 39,600 homes available for sale. November of 2011, there are only 19,659 homes on the market. Demand for singl- family homes remains strong and the supply available has dropped in half. We currently have a 2.6-month supply of homes on the market. This means that if no new properties were to come on the market it would only take 2.6 months for the current inventory to be absorbed or purchased.
The banks have made a strong effort to work with homeowners to sell their homes as a short sale rather than taking the home to foreclosure. It is the best option for the lender and for the homeowner and the market in general. Buyers are having difficulty securing properties with the low inventory and high demand. In almost all cases buyers are encountering multiple offers on all of the good properties that come to the market and are experiencing bidding wars. This is especially true with bank-owned homes and traditional sales. Buyers tend to be more attracted to these sales because they can get a quick decision and close in a reasonable timeframe. When this happens, prices tend to go up. However in our market, the buyer’s appraisal is protecting them from paying too much for a property by coming in at market value or lower. Since the number of foreclosed homes has dramatically decreased, many buyers are now considering short sales as an option. Buyers are frustrated with the short-sale process because of the length of time and the uncertainty that is involved in buying a short sale but are going ahead and purchasing short-sale homes in order to get a home. In short sales, most agents only accept one offer and submit it to the bank. If a buyer has the time and patience to wait for an approval, they can get into a short sale. Investors are also purchasing short sales since they do not have the sense of urgency to close that an owner might. The number of “pending sales” has remained high due to the backlog of short sales that are waiting for approval from the bank for typically a minimum of 90 days. One strategy that is working for buyers that are desperate to find a home is to write backup offers on a short sale. The fallout rate is high on short sales so the majority of the sales don’t close with the initial buyer and the backup buyer can move into first position if they can wait. In most cases, by the time this happens the seller and the agent have a good idea what the bank is likely to approve and the process can go a little quicker. I recently took buyers out to look at short sales that had pending offers. Our goal was to write backup offers. Three out of the eight homes we looked at became available that day.
Interest rates are the lowest they have been since they have been in decades. Buyers can secure financing for less than 5%. The interest rate has a dramatic effect on the affordability of a home. A $300,000 home financed for 7% would be $1,926 a month, whereas the same home at 5% would only be $1,554 a month. A home can be financed for less than what is cost to rent a home. Rental demand has increased as a result of the number of families selling short or losing their homes to foreclosure. For most families, doing a short sale or experiencing a foreclosure results in some damage to their credit, making it hard or impossible for them to purchase a home at this time. These families are used to owning a home and are looking for nice properties to rent while they work on recovering their credit. We are also beginning to see loans available for borrowers with short sales in their credit history.
The demand for rentals makes it a great market for investors because home prices are still low and with the great interest rates allow for great positive cash flow on rental properties. It is a great time to purchase real estate and an even better time to sell real estate. The inventory is down and the demand is high. It is a fantastic time to sell and there are options for homeowners that may think they cannot sell because they are upside down in their mortgage. Call your real estate professional to consider what options are available to you to take advantage of this real estate market.