Thursday, April 7, 2011
While searching for a quote this month to describe the boom and bust cycles of our local housing market—something along the lines of “the bigger they are, the harder they fall”— I found Christina’s quote.
Although it is quite lovely, it’s just not my style. House MD; on the other hand, says the same thing, but more to the point: “Sometimes, the bigger they are, the harder they kick your ass.”
A History of Boom and Bust
I thought it would be interesting to take a historical look at new home construction in Maricopa County. A simple summation of the assessor’s file is shown in the graph below, showing all homes in Maricopa County by year built.
As evident by the chart, we have a rich tradition of boom-and-bust cycles traceable to the 1920s. We can see the Great Depression, World War II, the recession in 1960, the oil embargo of the 70s, the recession of the early 80s, the S&L crisis, the tech bubble, the housing bubble, and the Great Recession.
Do our booms magnify our busts? Do the busts magnify our booms? My answers: yes and yes. You don’t predict the future by looking at the past; however, if I were a betting man, when our current cycle ends….well, you decide.
Are March’s numbers signaling the beginning of the end of our current bust cycle?
As we’ve discussed in the past, the market always overreacts in both directions. With the exception of the disciples of Timothy Leary, everyone now believes 2006 home prices were way too high.
Today, given the rate at which homes are being purchased, it finally appears the market is recognizing current prices as a bargain.
As we emphasized a few months back, with lower prices expect demand to increase, and when it comes to demand, March came in like a lion. There were 9,118 home sales in March. With only 398 new home sales, the demand was almost completely centered on resale homes.
Add in 1,311 homes purchased by third-party buyers at foreclosure auctions, and 10,031 previously owned homes were purchased—greater than March 2006’s 9,481, greater than March 2004’s 9,429, second only to March 2005’s 13,247, incidentally, the height of the boom.
Granted, the new-home market is dead, or as the chart above would suggest, resting. Little to no construction means that the number of existing homes is remaining flat.
As long as builders have to compete with the homes they built a few years ago—which have been coming back on the market as foreclosures—don’t expect new home construction to pick up this year, leaving demand focused squarely on the solution: reducing distressed inventory.
65% of all homes purchased in March were distressed properties. The median resale home price remained level for the fourth consecutive month at $115,000.
As the Cromford Report’s pending sales arrow is green and pointing upwards, April promises more of the same. Looking down the road, if present demand stays high, prices for existing homes will have to move upwards.
Encouraging Foreclosure Numbers?
March saw a couple of records fall. One we’ve already mentioned: the number of homes purchased at auction by third-party buyers. There were 5,003 residential foreclosures in Maricopa County: 3,692 reverted to the beneficiary, and 1,311, or about 26.2%, were sold to third-party cash buyers.
The smart money at auction, believing they are looking at a fleeing opportunity, continue to be aggressive with a strong rental market yelling in their ear, “Buy, buy, buy!”
Why do auction buyers think time is of the essence? Let me give you a couple of reasons. In March we saw the biggest drop in active notices ever, a nearly 10% drop. Active foreclosure inventory fell from 37,533 to 33,955, a drop of 3,658 properties.
Why are the numbers of active pending notices declining? We now have monthly trustee’s deeds nearly on par with new filings. In March we saw 5,692 new notices and 5,226 trustee’s deeds, leaving cancellations to hammer a way at the existing inventory.
In March, Maricopa County saw 3,582 residential cancellations. Looking a little farther downstream at the REO inventory, even with 3,692 properties returning to the banks, REO inventory declined slightly, from 20,076 in February to 19,861 in March. If we define the distressed property inventory as the number of active notices plus the number of REOs, our numbers are 33,955 plus 19,861, or 53,816, down from February’s 57,609.
Practicing for Twitter
Always late to the party and a little timid in the social-media fray, I’m thinking about entering the world of Twitter. What better place to send my many random thoughts that don’t make the cut to my monthly housing opinion? (And believe me, that’s not too high a standard.)
So, rather than throw them in the trash can, I just reduced them to a maximum of 140 characters. But before stepping on the real Twitter stage, I thought I’d practice.
A look at the city of Maricopa tells us that Bristol Palin may have known what she was doing.
The city of Maricopa showed 280 active REOs in October; today, 80.
There were 465 active short sales and pre-foreclosures in November; now there are only 210.
A little known fact: Mike Orr of the Cromford Report and Tripp Palin have much in common: they were both conceived in Bristol.
Just as the housing market was a snowball headed downhill in November of 2008, it will be looking up by November 2012.
After a harsh winter, buyers coming from Canada and the snow states accounted for 10% of all homes purchased in Maricopa County.
Look for Case-Shiller to report the double dip either the last Tuesday in April or the last Tuesday in May; this will be the same double dip Cromford reported in late November.
I was happy to see that our kidnapping statistics were found to be completely overblown. I’m no longer feeling insecure about my size.
My horoscope: “You could say something that you'll regret later due to your spontaneous outbursts of thoughts and emotions.”
For those following the DB streak, he’s still at bat, 38 and counting.
A 5 billion dollar expansion at Intel—that’s got to help housing, right?
From a friend: It will be interesting to see what the next 3-6-9 months are like, so much going on. The government keeps revising, imposing, changing, investigating, suing, and “fixing.”
The Sixty Minutes piece on Sunday explained the exact reason Arizona housing will recover faster than Florida’s. We’re a deed of trust state; they’re a mortgage state.
I’ve avoided this month’s newsletter like the plague. I can’t stall any longer; I have to go to press.
A Final Thought
A quick look at history tells us that before it was named Phoenix, the area we live in today was known as Mill City. Surely there’s meaning in that the life cycle of a mythical bird reflects perfectly the boom-and-bust cycles of our city. Phoenix has lived up to its name—much more interesting for everyone than a run of the Mill City.
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.