Thursday, July 15, 2010

Real Estate Data & Trends Expert Tom Ruff's July 2010 Housing Report - Foreclosures

“I call them like I see them.” - Anonymous

What do the Information Market and World Cup soccer officials have in common? We call um like we see um. Last week I received an email from a friend whose job it is to know Phoenix housing. The analysis flowing across his desk points to higher foreclosure numbers in the fourth quarter of this year; aside from our projections, the forecasts he was seeing were consistent. Regardless, I’m sticking to my story; I call um like I see um. In all fairness, I must report after my last eye exam, my Doctor looked at me and said, “How do you manage to get around?”

In the News:

We recently started tracking news stories about our housing market and cataloging them within a database. We hope to develop a plus minus scale and actually trend the news coverage, but until that task is complete I can only offer a few anecdotal observations. There is still a lot of negative press out there, but we’re starting to see the pendulum swing.

On the positive side in June we’ve seen multiple national stories declaring Phoenix real estate as undervalued with rent vs buying indicators strongly pointing towards purchase. Interest rates are mentioned often and trending downward with headlines of 30 year lows. Banks are reporting a turn in delinquency rates, mortgage bankers are seeing 2009 loans increase in profitability over loans made in 2008.

On the negative side we’re seeing underwater mortgages and strategic defaults gaining more ink. Federal programs to the layman are still confusing and suspect, new home sales reports and stock prices have turned downward with the expiry of the housing tax credit. Shadow inventory stories and the next tsunami of arm’s resetting still pop up but with less and less frequency. Job numbers are disappointing and SB1070 continues to bring national attention and lawsuits while stirring constant local debate with added concerns of population losses.

What are the foreclosure numbers telling us?

Through this month and next we’ll take a look at foreclosure numbers in general and see how they are trending. I will be presenting monthly and quarterly charts of notices of trustee’s sales, cancellation notices, trustee’s deeds and what we refer to as pending foreclosures. I’ll also be giving you some numbers regarding bank owned and government owned properties, as well as talk about the confusion amongst analysts. This month we will look at notices, cancellations, and pending foreclosure numbers and the relationships between them.

Notice of Trustee’s Sale:

If we look at recorded notice of trustee’s sale, this is the document in Arizona which starts the foreclosure process and is often times referred to as a pre-foreclosure, this is the beginning of the foreclosure process. The lender, through a Trustee has notified the property owner they need to bring their loan current or make other arrangements. If no action is taken the property will be sold at public auction. The notice of trustee’s sale sets an auction date; the scheduled sale date will be at least ninety days from the date the notice is filed.

The chart above shows the volume of new notices filed each month in Maricopa County, as you can see; monthly numbers tend to move up and down. If you look closely you will see the effects of Federal intervention in October 2008, the December/January holiday moratoriums; as well as the increase in numbers when these intervals end as evidenced in March 2009. This is the reason people reporting monthly numbers have such varying opinions; the monthly numbers, when viewed separately give very mixed signals and are difficult to interpret, kind of like the early stages of dating.

I imagine if we were to take a poll and ask the general public how these numbers have been trending the past year, their opinion would be the numbers of people entering foreclosure each month have been increasing. The correct answer, as displayed by the quarterly chart below, new notices peaked the first quarter of 2009 and has since been steadily declining. That’s right, 5 straight quarters of declining notices. I expect this trend to continue. Think of the quarterly chart below as a relationship, after the monthly high and lows of early dating you settle into a relationship, after six months of going out, you kind of know what you got.

If notices began decreasing in the second quarter of 2009, why did pending foreclosure increase through December?

That is correct, while new notices started declining in the 2nd quarter of 2009, pending foreclosures, the number of properties with an active notice, continued increasing through the end of the year.

One reason, the average number of days from the time the notice is filed to the time the property is foreclosed is approximately 180 days. The notice of trustee’s sale is a ninety day notice and some properties are foreclosed according to Hoyle, ninety days and out, but the average number of days between the recording of the notice and the actual trustee’s deed for all foreclosed properties is 180 days. So, if notices began declining in the second quarter of 2009, and it takes on average six months to actually foreclose on a property, it would make sense that the total number of active notices would peak in the last quarter of 2009.

We all know the story of the person who was noticed a year prior and the property is just now sold at auction. The number of properties in Maricopa County with active notices ended 2009 at 51,466 properties and ended June at 42,324. Current trends indicate this number will fall below 30,000 by year’s end. When the surplus of active notices is absorbed, actual foreclosures (Trustee’s Deeds) will finally begin their descent. We’ll look at Trustee’s Deeds and REO’s in depth next month. .

What do cancellations tell us?

Cancellations notices tell us a couple of things, short sales are consistently increasing, modifications are playing a factor, and Bank of America does not think the timely recording of cancellation notices are important. Again, if we look at cancellation notices on a monthly basis we’ll see some ups and downs. The extreme spikes are Bank of America/Recon Trust clearing the tops of their desks and catching up on paperwork. One daily metric we capture, a thirty day running total of all properties selling while in foreclosure, will give insight into the cancellation chart. In January of 2009 we had approximately 239 such sales occurring, today that number is 1230 and trending upwards. When these properties sell the active notice is canceled. The banks and the home owner and Realtor are now working together using short sales as a viable option to foreclosure, and, they’re getting better at it each day.

On a side note, all new notices filed each day are available within the iMapp system. A simple query and a simple export each morning will provide you with a file of all properties which had a notice filed the previous day. Of the 40,364 homes in Maricopa County currently in foreclosure, 8,983 or 22% are either listed for sale or are showing as a pending sale. There are currently 7055 active listings and 1928 pending sales with active notices within Flexmls in Maricopa County. Just like the new notices, when we look at Cancellations on a quarterly basis we see the number of cancellations showing an obvious trend. Part of this upward trend is do to the shear volume of notices filed, but beyond dispute, short sales are clearly impacting this number and can directly be credited with a higher percentage of notices of trustee sales being canceled.

This month we looked at two pieces in the foreclosure equation, new notices and cancellations. Next month we’ll look closely at properties that are actually foreclosed upon as represented by recorded Trustee’s Deeds. We’ll look at how these recordings are trending as well as the direction bank owned inventories are taking.

And now, a completely different but related subject:

Yuma Sun Link

The million dollar question involves jobs. While everyone is talking about immigration, our real focus should be on job creation. On June 29th Governor Jan Brewer signed an executive order creating a 34 member board of business leaders taking steps towards the creation of the Arizona Commerce Authority focusing tightly on economic development. Under Brewer’s plan, the governor will chair the authority but the day to day operations will be overseen by Jerry Colangelo. “I’ll use whatever means I can to sell our state and attract businesses and new companies,” he said. “And I want a tool box full of all kinds of initiatives, tax breaks, whatever it takes,'' Colangelo continued. “Because we have to bring ourselves back.''

One final note:

Huffington Post Link

Paul the Octopus has retired, but before his official announcement, he had time for one last divination. Paul was presented with two boxes containing food in the form of a mussel, one box marked with The Information Market logo; the other marked “The consensus opinion of experts”. Paul immediately devoured The Information Market mussel, totally ignoring the consensus opinion of expert’s mussel.

Contact Tom Ruff at The Information Market.

Tom is a graduate of the University of Nebraska. He founded "The Information Store" in 1982 and quickly became known as “The Source” of publicly recorded real estate data in Maricopa County. In August 2005 he formed "The Information Market" specializing in foreclosure data and housing studies. Mr. Ruff is an expert on publicly recorded data and is known for his monthly housing opinion which shares an inside and sometimes irreverent look at the Phoenix Housing Market. He is often quoted in local and national publications.

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