Monday, October 4, 2010

Real Estate Trend Expert Tom Ruff's "Real Estate & the Mid-Term Elections"

“Guard against the prestige of great names; see that your judgments are your own; and do not shrink from disagreement, no trusting without testing.” - Lord Action, an English historian

An economist and a professor walk into a radio station to do an NPR interview. When asked about housing, the economist explains that now is not the time to buy a house. When the professor is asked his opinion, he communicates that now is the time to buy a house. The sophisticated NPR audience members, after hearing both interviews, congratulate themselves for patronizing a radio station that clearly communicates with unbiased clarity.

Economist: Now not the time to buy a house.
Professor: Now is the time to buy a house.

The links above will direct you to the transcripts from September 11 on for a pair of interviews—one with economics blogger Eric Ritholtz, the other with Professor Karl Case, the inventor of the Case-Shiller housing price index. Their opinions are indicative of headlines today: falling prices versus unparalleled opportunity.

Mr. Ritholtz is correct; prices are falling, and they will most certainly continue to fall in the near future. On the other hand, how can you deny the opportunities available? Bargain prices are paired with historically low interest rates—it is easy to understand Professor Case and his belief that this is possibly the best time that he’s seen in his lifetime to buy a house.

If you’re a prospective homebuyer, heed the words of Lord Acton: do not trust, test. Gather information, call an experienced Realtor, check with a knowledgeable loan officer, and review your options. You don't need an economist from IHS Global Insight to confirm that "housing is as affordable as it's been since at least the 1970s" to buy a home any more than you need to dissuade you. Look around and gather information; only you can make the decision of what works best for you.

The 23 States

As reported by The Associated Press, Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents. Two other companies, Ally Financial Inc.'s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public.

The 23 states are Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin. How does this affect Arizona? I don’t believe it does. What separates Arizona from the 23 states mentioned is the same thing that separates a deed of trust from a mortgage: the foreclosure process.

The 23 states mentioned above are judicial states; their foreclosure process takes place in the courtroom where witnesses are sworn in, while ours take place on the courthouse steps where people simply swear.

September Sales Numbers

September numbers looked similar to those of August: sales volume was slightly up, prices slightly down, foreclosures flat, as REO inventories continue to rise. The median home price in Maricopa County fell for the fifth consecutive month, but at a slower rate than last month. The median price of a resale home, which we define as any single family residence or condo, was $122,500—down $1,400 or 1.13% from our August 2010 figure of $123,900. In September Maricopa County saw 6,653 affidavit of values recorded in which either a single family residence or condo was sold.

The 6,653 home sales we are reporting do not include government-exempt affidavits (HUD and VA sales), nor do we include third-party buyers on the courthouse steps. September 2010 sales volume of 6,653 was 16.85% lower than September 2009’s volume of 8001. September 2010’s median home price was $7,500 below the September 2009 median price of $130,000, a decline of 5.77%. It does not appear to be a coincidence that the $7,500 decline closely parallels the removal of the $8,000 tax credit.

That Next Big Ripple

Another quarter has come and gone as has the forecast of that next big wave of foreclosures that was looming on the horizon. As each new quarter concludes, the forecast for the next big wave gets pushed back another quarter. For those keeping score at home, the latest forecast I saw called for the next huge wave to come on shore just after the first of the year. It has now been two-and-a-half years since the foreclosure ball started rolling downhill in April 2008.

The 7,501 new notices filed in September would only rank 18th in volume out of the last 30 months. Since April 1, 2008, there have been 232,546 notices of trustee’s sale filed in Maricopa County of which 115,214 have ended with a recorded trustee’s deed. When we look at 365-day running totals, the number of notices filed in a one-year period hits its peak of 103,777 on December 15, 2009.

Today, the number of notices recorded in Maricopa County in the last 365 days stands at 87,747. On the other hand, the 5,134 trustee’s deeds recorded in September ranks 6th. Applying the same yearly analysis, we see that trustee’s deeds hit their highest yearly total of 57,126 on October 1, 2010. While fewer properties have entered into the foreclosure process, the banks have picked up the pace at which they are foreclosing.


As we mentioned earlier, REO inventories are rising. This has little to do with the slight increase in properties that are returning to the banks and a lot to do with a declining demand for foreclosed homes. A loose approximation tells us that of the 4,800 homes that are being foreclosed each month, 1,000 are purchased by investors, leaving 3,800 to return to the banks, while the market is only absorbing 2,600 bank homes each month.

Our current REO database is at 20,430 homes, a number which has increased by 3,569 in the last three months. Our REO database is increasing at a rate of nearly 1,200 homes per month. In the months to come, these bank-owned properties are putting and will put downward pressure on home prices, particularly on the lower end.

What this means in an election year.

National reporting services lag local reporting services by 60 to 90 days. When July, August, and September sales figures hit their charts, national reports can only get worse. If you thought the negative news was bad the past year, brace yourself. Case-Shiller, the gold standard of housing indexes, will move from stabilization to declining values just days before the election.

Taking a page from the Democratic playbook—never let a good crisis go to waste—the Republicans will hammer home the latest housing stats. The good news: the election will be over soon. After November 3, the rhetoric will fade away, and constructive discussions will move to the forefront.

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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