Evidence of Stabilizing Market
Agents in the real estate business have known for months that the market in the Valley has undergone a fundamental change. Among the comments I am now hearing are: “All of my listings are pending or sold”, “I can’t find a home for my buyers”, “My buyers are getting out bid out on every home they make an offer on” and “I am getting multiple offers on my listings.” Buyers who are actively looking in this market are well aware of this and know that the market is much different than it was just six months ago. In general, the public in not fully aware of what is really going on the real estate market at this point in time. When I explain the current state of the market to potential sellers, they frequently ask me: “Why am I not reading or hearing more about this in the news?” You soon will. On April 25, 2012, an article in the the Phoenix Business Journal reported:
“Phoenix home values are expected to experience the largest national gains in 2012.” … the report for the first quarter of 2012 predicted Phoenix home appreciation rising 6.5 percent between March 2012 and March 2013, the largest growth among the thirty major metros included in the report.”
Agents and buyers have known this for the past half-year or longer, depending which sub-market they are involved in. Buyers are making offers above list price and not getting seller’s to accept, even when their offers are above the list price. Cash is still king and cash buyers are securing properties from sellers because when a buyer is getting a loan, an appraisal is required. The appraisals have been coming in lower than the prices buyers and sellers have agreed on thus forcing sellers to either lower their price to the appraised price or causing the transaction to cancel. Since appraisals continue to come in at lower-than-expected levels in many cases, sellers are likely to be more attracted to accept offers that do not require an appraisal – those from cash buyers. Our current market has a very large share of investors and retirees who are cash buyers — almost 50 percent of the sales in the current Phoenix market are all-cash transactions.
We are starting to experience some of the same conditions we did during the run-up of appreciation rates several years ago. Among these conditions are: bidding wars for resale homes, drawings for new homes, buyers paying a price that is above current market value, appraisal contingencies being waived, buyers having to show proof that they have cash reserves to make up for any difference between the contract price and the appraised price and buyers “settling” for a home that is not ideal so that they can at least buy something.
The current inventory of available homes is low. The homes in good condition and priced right are receiving multiple offers. New construction is starting back up but these new homes are being absorbed very quickly due to the pent-up demand of a segment of buyers who only buy new construction and have had nothing to choose from for the past several years. Cash buyers are waiving appraisals and buyers getting loans are having to prove they have enough cash on hand to make up for any deficiency if the appraisal comes in lower than the price agreed upon by the buyers and sellers. Buyers no longer have the luxury of making low offers. If a buyer wants to get a home in the current market, they must be willing to write an offer as soon as the home comes on the market and give it their best shot up front.
Jeff Lucas, of locally based Lucas Group, reports on trends in the local real estate market. He says that the active number of listings on the market as of February 2012 are 17,596 compared to 35,500 last year at the same time– a decline of 50 percent. Seventy-seven percent of these current active listings are traditional or normal sales compared to 50 percent just a year ago. Short sales comprise 2,355 or 13.4 percent of the current market compared to 29 percent last year. The bank-owned properties (foreclosures) now total 1,622 or 9.5 percent of the market compared to 19 percent last year. In summary, it is significant to note that distressed properties (short sales and foreclosures) comprised 23 percent of the current market compared to 51 percent last year.
The Phoenix Business Journal article of April 25, 2012 quoted Stan Humphries (chief economist of a national online real estate tracking firm) saying, ”Clearly what’s happening in Phoenix is that demand is outstripping supply. Phoenix is seeing a lot of investor demand, a lot of second home and retiree buyers and a fair bit of international buyers.” He also stated that Phoenix is probably the best example of a hard- hit market that is showing signs of recovery. What real estate agents have known for months is finally being reported on in the mainstream media – that Phoenix market has undergone a fundamental shift, it has stabilizing and is now moving in a positive direction.