Wednesday, March 2, 2011

Real Estate Trend Expert Tom Ruff's February 2011 Housing Report – Know Whose Numbers You’re Using

“Everybody gets so much information all day long that they lose their common sense.” - Gertrude Stein

A critic of mine recently claimed that I disagree with everyone and everything, to which I replied, “No, I don’t.”

More Information, Less Common Sense

You would hope by now that we know the difference between marketing companies and data analysts. Unfortunately, headlines draw subscribers to the news, and marketing companies, like Zillow and Realty Trac, are great at making headlines.

In the last month headlines describing our foreclosure market used the terms spike, surge, and vengeance, followed by stories that 70% of all mortgages are underwater. What did I report? Nothing.

The numbers were so boring in the last two months that they came in exactly where we projected them; writing something about them felt redundant. While the headlines were reporting drama, I was seeing the same old numbers along with a sprinkle of optimism. Other than that, it was just another month on the long road to recovery.

February Foreclosure Numbers

Let’s take a look at February’s foreclosure numbers and see what they tell us. We had 5,102 total notices of trustee’s sale filed, 4,860 of which were on residential properties. This was the lowest month of new filings since February of 2008, when the foreclosure wave was just gathering momentum.

Is last month’s decline due to a shortened month, fewer business days, or is it an ongoing trend? Year-over-year numbers will answer that question. From February 28, 2010 through February 28, 2011, we saw 81,414 notices filed; from February 28, 2009 through February 28, 2010, we had 100,481.

New notices are clearly declining: the yearly peak occurred on December 15, 2009 with 103,777 notices filed in the previous 365 days. Fewer notices mean foreclosures will have to decline…eventually. We still have a reservoir of 39,153, or loosely translated, a nearly six-month backlog of existing notices in the foreclosure process.

Since in the last 12 months we’ve averaged 6,784 each month, this backlog is equivalent to 5.7 months of notices. Actual foreclosures, or recorded trustee’s deeds, have been fairly consistent since the last quarter of 2008.

We’ve seen extremes on a monthly basis, like when new TDs dropped to 2,679 in November 2010 and when they hit their pinnacle in March 2010 with 5,452. The extreme troughs were always caused by a moratorium and the extreme peaks were caused by a moratorium ending; the numbers we saw in January and February were merely average within our current “cycle.”

The steady release we first described in early 2009 is still with us and will be as long as the reservoir of 39,153 still exists. In February we saw 4,460 residential foreclosures, which was exactly where we thought they would be.

On a side note, we must remember that the number of possible foreclosures is a finite number. It is not infinite; eventually we will return to a normal market. Historically, one third of all homes are owned outright; I would suspect that in these current market conditions where credit is tight and cash buyers are abundant, this percentage has increased.

Since the outset of the bubble bursting, we have seen over 150,000 actual foreclosures; this is a substantial correction. While sadly 150,000 homes have been lost to foreclosure, 150,000 houses have corrected their equity issues: harsh correction, but a correction nonetheless.

While the news has been of imminent doom for over two years, the reality is a steady and controlled exodus from the burning theatre. The total number of homes foreclosed on in 2009 was 47,071; in 2010 that number was 49,361. Hardly a spike, hardly a surge, hardly a vengeance; more like a steady and prolonged correction.

Looking at the first two months of 2011 and our existing inventory, we see that it would not be a stretch to see 2011 foreclosure numbers to repeat 2010’s. While the number of properties in the pipeline have again resumed their downward trajectory, the decline will not be sufficient to affect 2011 numbers.

Once, I joked about the Mayan calendar predicting the end of our current housing crisis. With another national election in November 2012, their prediction is looking more and more real to me. I have not yet found a Mayan to comment on my theory.

Cat Fight

In the realm of national real-estate transactions, it is difficult for me to imagine how you could 1) define real-state sales on a national level, 2) avoid making broad, sweeping assumptions, and 3) actually count these numbers with accuracy or pretend they are anything more than an estimation.

So, I’m immediately suspicious when anyone comes out with a supposedly accurate number of national real-estate sales. Heck, even local experts have trouble counting the sales in their own backyard, so how could anyone count sales for the entire nation?

Imagine trying to reconcile all the different states and counties, some of whose real-estate data isn’t publicly disclosed—talk about broad assumptions. With those thoughts in mind, it was with great pleasure that I read a recent article in which CoreLogic criticized NAR. It was like I was watching a pillow fight between Kim Kardashian and Paris Hilton: not much substance, but really fun to watch.

Core Logic reported that sales totaled only 3.6 million in 2010, down 12 percent from 2009. By comparison, NAR reported that sales fell only 5 percent in 2010 after rising in 2009, and they were flat relative to 2008. CoreLogic said sales did not actually rise in 2009. Reowwwww!

First of all, CoreLogic’s implications aren’t exactly a revelation: NAR does have a reputation of extreme optimism. However, if we’re going to have a pillow fight, I want to be in the middle.

Though I can’t give my opinion on national numbers, I can chime in on the local front, and in reality, that’s all anyone really cares about anyway, what is happening in their hood. But, hey, it’s a pillow fight—I’ll find a way in.

Let’s use the Ruff counting method and see what Maricopa County numbers tell us. I’m going to count all sales involving single-family residences and condos in Maricopa County in the last three years. I’ll be counting any home sold with an affidavit of value, any A3 exemptions (sales from the government to non-bank, non-government entities), and also third-party purchases on the courthouse steps.

And oh, by the way, if a home sells more than once in any given year, it only gets counted once. Those are my rules. Let’s see what we get. Maricopa County in 2008 saw a total of 73,058 sales; in 2009, 97,221; and in 2010, 96,756.

Clearly, in terms of sales volume, 2008 was the worst year for real-estate sales, and the increase in 2009 was a dramatic 33%. The change between 2009 and 2010, however, was negligible: barely a half percent.

So, who wins this pillow fight? I do, because I’m in the middle of Paris and Kim, and we’re all swinging pillows.

Sprinkle of Optimism

One of the most dismal pieces I wrote was in July of last summer. Up to that time, I had seen steady improvement in the numbers, and I was counted amongst the optimists. The lingering effects of the tax-credit expiry were rearing their ugly head, and there was very little good news. I went from quietly optimistic to extremely pessimistic.

With sale prices declining, sales volume declining, notices of trustee’s sale increasing, REO inventory increasing, and the total number of properties in foreclosure remaining constant, the only thing I could predict with any accuracy was really bad news on the horizon.

My optimistic friends felt like I threw them under the bus. But I reported what I saw. CCR’s “Bad Moon Rising” jammed in my head: “I see the bad moon arising, I see trouble on the way.”

I don’t know how you transition from CCR to show tunes, but today the theme from Annie is stuck in my head: “The sun’ll come out, tomorrow, so you gotta hang on ‘til tomorrow. Come what may, tomorrow, tomorrow, I luv ya tomorrow.”

I’m starting to see a bottom forming: sales volumes are up year over year, new notices are declining, pending active notices are declining, higher prices are being paid by investors at auction, large hedge funds are taking a close look at our market and are prepared to hit the ground running.

As for Maricopa County median prices on resale homes; December, January, and February were all $115,000. REO inventories appear to have leveled. The numbers that made us pessimistic in July are the same numbers that are now making me optimistic. When I look in the mirror, my attitude says rock star, but the tune in my head says a little redheaded girl.

Final Thought

I will repeat one more time: Zillow and Realty Trac are marketing companies. Be careful when repeating their numbers or you may just come back in your next life as a parrot.

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.

2 comments:

  1. Thanks a lot Mr. Ruff. I am quite impressed by you after read your February 2011 Real Estate housing report. You are such a good Real Estate trend expert.

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  2. Nice quotes' “Everybody gets so much information all day long that they lose their common sense.” - Gertrude Stein, and I agree with it. Anyway, I enjoyed reading you meaningful post. Thanks for sharing.

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