Tuesday, August 17, 2010

Real Estate Data & Trends Expert Tom Ruff's August 2010 Housing Report - Politics & Real Estate Recovery

Tom Ruff
Let's just replace "hail of shrapnel" and "scar tissue" with "string of pearls" and "raspberry scones".
Elaine, Seinfeld Episode Fatigues

Recently on Meet the Press John McCain referred to Arizona as “the number two kidnapping capitol of the world.” Maybe it’s because I’m a big guy, and I suspect big guys are harder to kidnap, but when I’m on the front porch talking with neighbors, being kidnapped is not a concern. Not once have I heard a neighbor say, “Tom, be careful walking down Central, they’re grabbing people left and right.” We might talk about the weather and agree it’s been a little warm lately, but kidnapping, never. Maybe it’s time we took our dirty laundry off the line and showed the world our Sunday best.

Don’t shoot the messenger, but you can grill the octopus.

The Information Market tracks housing numbers daily. Each morning we chronicle all publicly recorded notices of trustee’s sales, trustee’s deeds, cancellation notices and affidavit’s of value. From these recordings we maintain databases monitoring the existing inventory of bank owned properties as well as the number of existing properties having an active notice. We compile daily metrics showing 30 day, 90 day and yearly running totals.

Couple this analysis with Mike Orr’s in depth tracking of ARMLS (Arizona Regional Multiple Listing Service) data, and we’ll see changes before anyone else. Over the past year and half we’ve talked about a bumpy road, a price bottom, a slow recovery, a stabilizing market, year over year gains and now, just as other experts confirm what we’ve been saying, we become the first to break the bad news; the market in July showed weakness across the board.

Don’t shoot me, I’m just the messenger, but maybe it’s time Paul the Octopus met the grill. Just as we were going to press last month I started to sense a shift, the number of active notices had finished June at 42,324 continuing a six month trend of steady declines, by mid July this movement continued falling to 41,570, then; the numbers turned. July finished at 42,152, only slightly lower than where the month began; our beacon of good news was dimming.

The final sales numbers told a similar story, July median resale numbers down from June, $132,900 to $129,900 or 2.26%. July 2010 total home sales declined 26% from 2009; 9,234 to 6,843. While our year over year median resale home comparison was slightly positive, $129,900 to $129,000; one would expect August 2010 prices to fall below August 2009.

What happened?

Quite simply, demand declined across the board. Usually when you see a dramatic change in numbers the first place to look will be government programs, some plan will have just ended or some other initiative or law will be coming into play. In July, we may have seen the effects of both. The federal tax credit ended and SB1070 was scheduled to begin. There are two axioms in life, never talk politics and never talk religion, unfortunately, politics and economics are joined at the hip.

Let’s start with the home buyer’s tax credit. An extreme positive occurred on The Cromford Report on April 29th, pending listings peaked at 15,149. The impact of the housing credit was obvious as accelerated home purchases recorded in May and June. July sales were expected to fall, a parallel similar to the auto industry in the month following the cash for clunkers program. Will housing follow the same path? We’ll know in three months.


SB1070 was, by its sponsor’s own admission, written with the intention to make it so uncomfortable for illegal immigrants in Arizona they would no longer want to live here. If SB1070 has its desired results, our migrant population will immediately decline. Demand for housing is directly related to population. If the intended exodus occurs, it’s only logical home prices and sales volume will drop in the neighborhoods being vacated, but unlike Vegas, what happens in Maryvale may not stay in Maryvale.

Polls show 70% of the people surveyed support SB1070; I imagine if a similar poll were taken polling business owners and real estate investors we would most likely get an entirely different result. I know in personal discussions with friends they strongly favor SB1070, but when I’m speaking with business leaders and government analysts they have definite economic concerns.

Ask a real estate investor how he or she feels about SB1070. It won’t matter to them there are great properties available at bargain prices if their current rental properties are being vacated. SB1070 is a hot button; there is no common ground, whether its taste great or less filling, both sides are bunkered in.

In the next month we’ll be keeping a close eye on school enrollment figures and sales tax revenues to see if they indicate a declining population. In the months to come, you may want to keep an eye on the same numbers in New Mexico as well as Albuquerque housing numbers. That went well; I think next month I might talk about religion and the mosque in New York.

Our Fannie is growing.

If you are monitoring our foreclosure spreadsheet you will have noticed residential REO numbers in Maricopa County inching upwards since the beginning of the year. We define REO’s as any single family residence or condo owned by either a bank, mortgage company, Fannie Mae, Freddie Mac, FHA, VA or FDIC. We ended December 2009 with an REO inventory of 13,713; by August 1st this number had climbed to 17,814. While the number of REO properties has been increasing it’s the composition of the database that is most interesting. Bank and mortgage company numbers have remained flat while “government agencies” are showing notable increases.

By example, in the last thirty days we’ve seen the number of REO’s increase from 17,062 to 18,147. On July 13th there were 17,062 REO properties, 7,916 were held by Banks and 9,140 were held by Federal agencies. On August 13th banks held 7,939 while the government numbers increased to 10,208. Fannie Mae’s inventory alone in the last 30 days has grown 12.5% from 5,538 to 6,233. REO specialists tell me they are not fond of working with Freddie and Fannie due to more hoops and lower incentives, investors don’t like purchasing Fannie Mae properties due to deed restrictions.

Final Thoughts

The last month has given us very little good news. With sale prices declining, sales volume declining, notices of trustee’s sales increasing, REO inventory increasing, and the total number of properties in foreclosure remaining constant; in the near future positive news stories are going to be few and far between. If you want to read positive real estate stories about Arizona you have to look outside Arizona. I’ve seen stories from the East Coast, Canada, England, Australia and Asia referencing the Phoenix real estate market and what incredible bargains are available.

In February of 2008, I recall reading an opinion by Bob Bemis, CEO of ARMLS, where he talked about foreclosures and the collateral damage that would be done to individual credit ratings. The collateral damage Bemis forecast in early 2008 is a major contributing factor to what we’re seeing today.

In closing, I hate gloomy news, and prefer to end on a positive note. Just as 2005 is still fresh in our minds, 2015 will be here before we know it. What happens in 2015? The foreclosures Bemis spoke about in 2008 will leave credit reports. When jobs return, can you imagine the housing boom we’re going to have in 5 to 7 years as the millenniums enter the housing market, boomers retire to Arizona and the people who have lost their homes to foreclosure have their credit restored?

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.

1 comment:

  1. For an investor it is important to keep a check on Real Estate Trends. Watching the turns is very interesting. The market constantly changes and staying updated helps you in making a wise investment.