Monday, January 24, 2011

Real Estate Trend Expert Tom Ruff's January 2011 Housing Report

“Torture numbers and they’ll confess to anything.” Gregg Easterbrook

I can now empathize with the rescued Chilean miners, because after being trapped in a data-mining operation since late November, I emerged just last week via my own Phoenix capsule.

What did I learn after being confined in a data mine for over six weeks? Simple: no matter what type of mine entombs you, singing like Elvis really does help pass the time.

Six Weeks Trapped in the Mine

The intent of the data-mining operation was to create a database wherein comparable sales could be matched by transaction type. For example, if a third-party investor purchased a property at auction and later flipped that property, that investor would be able to look at the prices that third-party buyers are paying at auction and then see what those properties are selling for on the flip, giving the investor an apples-to-apples approach.

Below is a summation of December’s resale activity that was harvested during my recent mining operation. I think it’s interesting, and I think you’ll find it interesting, too.

December

TYPEOFSALE VOLUME PERCENTAGE DOLLARS SQFT PRICE PER SF AVG PRICE AVGSQFT
GOVERNMENT 2,314 28.0 6% $231,765,741 3,929,606 $58.98 $100,158.10 1,698
NORMAL 1,598 19.3 8% $436,705,251 3,243,677 $134.63 $273,282.40 2,030
DISTRESSED 1,505 18.25% $234,260,889 2,915,898 $80.34 $155,655.10 1,937
BANK OWNED 1,314 15.93% $199,764,403 2,491,724 $80.17 $152,027.70 1,896
FLIP 824 9.99% $126,460,493 1,538,353 $82.21 $153,471.50 1,867
3rd PARTY AUC 691 8.38% $74,801,371 1 216,641 $61.48 $108,250.90 1,761

While sales volume was up, median prices were down in December. Translation: lower prices mean increased demand. The much talked-about double dip finally arrived, as evident by December’s median home price of $115,000, which was 4.09% below our previous low of $119,000 in April 2009.

As the chart above displays, a high number of lower-priced government home sales had a dramatic impact on the median sales price. Transactions involving the federal government accounted for 28.06% of all sales activity last month, making up the single largest transactional category.

Since they accounted for the largest percentage of sales activity and sold homes for the cheapest prices, government sales negatively impacted the median price.

An interesting conclusion drawn from the numbers above is that banks are now getting the same prices for REOs and short sales. In our opinion, this is very good news for short sale buyers. You will notice in this spreadsheet that normal sales are $134.63 per square foot, which is much higher than what other reporting services say.

The reason my numbers are higher is because I break out flips. As the chart above shows, flips in December sold for $82.21 per square foot. Investors purchasing properties at trustee sales with a sell-and-flip strategy are buying on average $61.48 per square foot and quickly selling for $82.21.

Looking ahead to January, early numbers show more government sales in the mix, which means continued weakening of our median prices. Taking a quick look at foreclosure activity, in December there were 5,766 notices filed and 3,523 trustee’s deeds.

Now that the holidays are over and the moratorium has ended, expect January’s notices to be very close to those of January 2010: 6,762 notices, and expect January’s trustee’s deeds recorded around 4,800, slightly above 2010’s 4,452.

If 2011 first quarter numbers follow early 2010 numbers, expect the highest foreclosure numbers to hit in March. The holidays and moratoriums always inflate first quarter foreclosure numbers and inflate March’s numbers the most, just as they decrease the numbers in November and December.

Introducing Azbidder

From time to time when I see a new product come into the marketplace, I will mention it in my opinion piece. Like the kid in the early 60s who ran over from next door to announce his family’s new color TV, I’m pleased to announce to you the launch of azbidder.

For the sake of full disclosure, I must first say that the Information Market is participating, and we are working with azbidder’s creator, Dan Mayes. Mr. Mayes was a Senior Vice President for Walker Digital LLC/Priceline.com, where he was responsible for creating the financial settlement technology that forms Priceline.com Hotel Service.

With his latest effort, Mr. Mayes, a local realtor, created an online eBay style system for purchasing properties at foreclosure auction in Maricopa County. Through Mr. Mayes’ system, you or your client can bid “on the court house steps” from anywhere in the world; all you need is an Internet connection.

Looking Back

As I look back at the comments I’ve made throughout the past year, I realize it’s time to see what we got right and what we got wrong. While the number of times we were spot on are too numerous to mention—just bein’ funny, folks—my biggest mistake was that I underestimated the power of a government bribe.

It’s always been my methodology to keep an eye on the data and an ear to the ground. Prior to the expiration of the tax credit, I was not hearing many reports of first-time buyers; there was much more chatter about investors and their dominance.

Hindsight is twenty-twenty: looking back now, I see that the data clearly shows how both prices and volume were inflated as a direct result of the tax credit; at the time, this trend was invisible within the data. The lesson here: never underestimate the power of federal policy to make or break a market.

While I missed the impact of the tax credit initially, the fact remains that I have been and still am very bullish on the Phoenix housing market. Anyone who has followed my writings will know that in late 2008 I encouraged people “to get out and shop,” and in early 2009 I asked, “What are you waiting for?” followed by 2010’s “blood in the streets.”

For the past two years I’ve written time and time again about the opportunity that currently exists in the Phoenix real-estate market, and I still feel that way today. The people who had the courage to act in early 2009 are amassing empires by buying, holding, and collecting rental income, wishing they had more properties to meet the demand.

While on the other side of the street, investors living by the same mantra, “you make your money when you buy,” are buying and flipping and boasting to their barbers and hairdressers about the deals they are involved in.
Two of my friends visiting from Nebraska last week called and told me about the incredibly low prices they were seeing, and they wanted to know what I thought; so instead of golfing or climbing Camelback, they were headed to look at houses.

Through history we’ve heard of the shoe-shine boy giving stock tips before the great stock market crash in ‘29 and the retired investor talking about the steal he made during the RTC days in Phoenix after the Savings & Loans crashed.

We are living in the time after the crash, not the time before; Phoenix is now offering the same opportunities we saw in the early 90s. I haven’t heard anyone say, “Boy, I wish I’d have bought that home down the street in 2006 when I had the chance,” but I’ll bet you, ten years from now when they look back at this unique time in history…

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.

No comments:

Post a Comment