Monday, May 16, 2011

Real Estate Trend Expert Tom Ruff's April 2011 Housing Opinion – Double Dip?

“There are as many opinions as there are experts.” - Franklin D. Roosevelt

In a recent book review in the Wall Street Journal, Trevor Butterworth describes how Dan Gardner’s book Future Babble asks, “How bad are experts’ predictions?” The answer: predictably bad. He remarks that a group of experts could predict the future hardly better than “a dart-throwing chimpanzee.”

So, if I want to call myself an expert, I have to be better. I immediately placed an ad on Craigslist: “Wanted—dart-throwing chimpanzee. Salary performance-based.”

The Double Dip and April Numbers

Recently a report from Clear Capital traveled through the news outlets announcing a double dip in home-sale prices. Case-Shiller on May 31 will report the same thing with the implication that home prices are falling and will continue to fall.

To put these reports into perspective, it would be equivalent to turning on tonight’s news and seeing a report trumpeting turkey as the perfect Thanksgiving dinner instead of seeing traveling tips for the upcoming Memorial Day weekend.

The double dip occurred in late November, not early May. April’s median resale home price was $115,040, remaining flat for the fifth consecutive month. The median home price in Phoenix is low—very low—but not falling.

Five consecutive months with a median resale price of $115,000 represents a broad and stable median price base. But the big story in April comes with the notices of trustee’s sale, the document which starts the foreclosure process.

The number of notices filed was the smallest number since December 2007; there were 4,200 new residential notices filed. Historically, this is still a very high number, but when compared to April 2009’s 8,574, you get a sense as to just how far we’ve come.

This April, Maricopa County saw more trustees’ deeds than new notices recorded. Fewer notices coupled with a steady flow of foreclosures and short sales led to a second consecutive month in which we saw a significant drop in the number of homes in foreclosure. In just the last 60 days, the inventory of residential properties in foreclosure has fallen 17.97%—from 37,533 to 30,790.

This is a strong and clear signal that our housing recovery is picking up steam. For you price watchers out there, remember: price will be the last thing to recover. We’ll talk more about this in a bit.

On the Courthouse Steps

Investors on the courthouse steps continue to gather in big numbers as they purchased 1,369 homes this month, or 30% of April’s 4,512 home foreclosures. While the number of home foreclosures remains predictably consistent—Maricopa County has averaged over 4,000 residential foreclosures per month for the last three years—the number of third-party buyers at auction has been steadily increasing.

When the foreclosure party kicked off for real in April 2008, 95% of all foreclosed home reverted to the lender. With a lower percentage of auction properties returning to the lender, April’s ending REO inventory was 19,265, down from March’s 19,861.

One opinion that all experts share is that distressed inventory and foreclosures have had an extreme negative impact on home prices. With a median price for normal sales of $149,000 and a median price for distressed properties of $85,200, it’s an easy conclusion to make.

What we haven’t heard much talk about: what happens to the median home price when the distressed inventory disappears? Let me put that another way—if distressed inventory declines as much the next two months as it has the last two, we’ll have to rebrand distressed inventory as opportunity inventory.

As our distressed inventory continues to fall, median home prices will increase, leading to fewer and fewer bargain opportunities. I believe, as early as next month, we’ll start to see that initial uptick. This is my opinion, and I feel pretty strong about it, but just to show I’m open-minded: we’ve placed a call to the bullpen, and the monkey is warming up his arm.

The Shadow Inventory Calculator

I have a new theory regarding shadow inventory and the numbers quoted by national reporting services. Reporting agencies know how to add, multiply and divide; my suspicion is that their calculators are missing the subtraction key.

For a long time I felt the companies reporting shadow inventory were just misguided; now I suspect their calculator is just wrong. As you can see, the calculator has no minus key; in its place is a second plus key.

I’m certain that the reporting agencies can count and add delinquent loans, active notices, and trustee’s deeds. I’m just not certain they know how to subtract properties from one category as they move into the next.

Do your own research. Go to any national site and simply look at the bank-owned properties and compare their information to what flexmls and iMapp show you. You’ll see an inordinate number of properties listed as bank-owned and available for sale, even though they sold months and sometimes years ago.

The Buyers by the Numbers

About once a year or so I’ll take a look at the buyers to see who they are and where they’re coming from. I’ve always believed that our housing recovery would be led by investors seeing a once in a lifetime opportunity and out-of-state buyers looking for that retirement or second home.

Here’s what April’s affidavits of value told us.

· There were 8,751 home sales

· 2,718 home buyers or 31% were from out of state

· The median price home (new and resale) for an out-of-state buyer was $124,500

· The median price home (new and resale) for an in-state buyer was $118,000

· 60% of out-of-state buyers purchased with cash

· 32% of in-state buyers purchased with cash

· 41% of all homes purchased in Maricopa County were cash purchases

· 69% of out-of-state buyers plan to live in the homes they purchased

· 79% of in-state buyers say they will occupy the home they purchased

· In April 2005, Californians bought 2,153 homes; Canadians, 38

· In April 2011, Californians bought 453 homes; Canadians, 540

· The top-ten list by state and the number of buyers: CA, 453; WA, 194; CO, 124; MN, 95; NY, 86; OR, 72; TX, 66; IA, 61; WI, 59

· 2 buyers from WV—more wanted to come, but vehicles broke down crossing Ohio

· Maricopa had a least one buyer from all 50 states with the exception of MS and VT

· The median price for investors was $71,250…. 24% of all sales... 69% paying cash.

Final Thoughts

Here’s a real shocker: Under a proposal released by our experts at the Federal Reserve last week, lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan. Hello, a monkey could have told us that.

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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