“For people who have been waiting to time their home purchases close to the market bottom, it’s time to start shopping,” said Dr. Stan Humphries, Chief Economist at Zillow on April 25.
Realtor.com named Phoenix the #1 top turnaround town for making the strongest real estate recovery to date for year over year appreciation out of all of the 146 MSA’s tracked by their system.
The extreme imbalance between the current supply of homes and the high demand continues, and upward pressure on home prices continue at a staggering pace with a strong, strong rebound off the bottom of last Fall 2011.
What happened to that shadow inventory for Arizona so many people worried about? It now lives with the tooth fairy and the easter bunny in never-never land…all a fictional fairy tale.
I’m part of the camp that last year never believed in much of a significant shadow inventory that would ever make much of an impact…and now see a strong recovery in process, with very limited shadow inventory remaining, I have a hard time understanding why people think or ever thought there was a big backlog of foreclosures… when the hard data for AZ loan delinquencies, outstanding notices of trustee sale, and completed foreclosures all point to the opposite.
Our foreclosure rates are still large by historic standards, but a drop in the bucket compared to past years and other states and also when considering our current supply and demand. The huge drop in delinquent loans not yet in foreclosure, which went from over 14% 2 years to now somewhere around 6.5%, points to the biggest source of drop in foreclosure inventory in my eyes.
Here’s the latest Cromford Report Market Summary for the month of May courtesy of Michael Orr
No relief is yet in sight for buyers as inventory continues to fall to even lower levels. Sales and pending counts are down due to the lack of enough supply to meet demand. With demand outstripping supply by a wide margin, prices continue to rise substantially each month.
“For people who have been waiting to time their home purchases close to the market bottom, it’s time to start shopping,” said Dr. Stan Humphries, Chief Economist at Zillow on April 25. As far as Greater Phoenix is concerned, it would almost certainly have been a better idea to buy a home sometime between February 2009 and December 2011, because by April 25, 2012 the average $/SF for monthly sales had risen to $94.56, the highest point since January 11, 2009. Shopping now will probably be much harder work than at any time in the past 3 years. However waiting is likely to prove even more problematic as prices are currently rising by about 3% per month and supply is still falling. The lowest monthly $/SF of all was recorded on September 15, 2011, so market timers who chose August 15 to September 14 to close escrow did the best of all during what will probably come to be seen as the longest buying opportunity of a lifetime.
Let us look at some basic numbers for April 2012 relative to April 2011. So for all areas & types across ARMLS we record the following:
- Active Listings (excluding AWC): 13,117 versus 27,052 last year – down 52%
- Active Listings (including AWC): 20,781 versus 34,594 last year – down 40%
- Pending Listings: 11,996 versus 13,326last year – down 10%
- Monthly Sales: 8,480 versus 9,452 last year – down 10%
- Monthly Average Sales Price per Sq. Ft.: $95.79 versus $83.61 last year – up 14.6%
- Monthly Median Sales Price: $137,000 versus $110,000 last year – up 24.5%
With prices fairly flat during the first half of last year but rising fast this year, the appreciation measurements are on their way up to eye-popping levels. The monthly average price per square foot is the more conservative measure, but already shows appreciation approaching 15%. We recall that monthly sales $/SF reached a low of $78.83 in September 2011. so if prices were to stay flat from now on we would be measuring appreciation of 22% by September 15 2012. With no relief in supply, prices are much more likely to continue to rise, so appreciation measurements of well over 25% are on the cards for the fall. The monthly median sales price is more volatile. The disappearance of vast numbers of low-priced REOs from the sales mix causes the median sales price to rise much faster than the average $/SF, so we already see appreciation almost reaching 25% when we look at median sales prices.
As prices rise, demand loses steam and more sellers are enticed into the market. This is the normal mechanism for a market to reach stabilization. Another would be for a fresh source of supply to arrive on the scene. New home builders are ramping up production, but from an abnormally low level, and they are unlikely to have much impact on the overall supply situation in the short term. This is particularly true when we are looking at active listings on ARMLS, since builders are not listing very many of the homes they sell through the MLS. The relatively low capacity of subcontractors to expand their skilled workforce will put a cap on how many new homes can be built. Another theoretical source would be for the banks to release their so-called pent-up “shadow inventory”. But since it doesn’t exist in Greater Phoenix to any significant extent, this source of supply will remain imaginary.
When you look at the overall active listing counts, the supply situation does not look too dire at first. We have 20,781 active listings in total on ARMLS. However, 7,664 of these are in AWC status so that brings us down to 13,117. Excluding those that are outside the Greater Phoenix area brings us down to 11,828. Excluding those priced at $250,000 or more takes us down to 6,106, and if we restrict ourselves to single family homes we see only 4,069. In the last month 5,443 such single family homes were sold, so the current active (not AWC) supply is only 22 days. One year ago those numbers were 14,036 active (not AWC) and 6,574 sold, so we had 64 days of supply, which was already quite tight. Two years ago we had 15,369 active (not AWC) and 6,236 sold, representing 74 days of supply. That was at the height of the buying spree inspired by the tax credit expiry. At no time since early 2009 has supply been excessive, although there was a worrying upward trend for 6 months in 2010 after the tax credit expiry. Now we are in a severe out-of-balance situation which is likely to last until supply starts to increase significantly.
The supply in the luxury market is also starting to decline, as it is in the active adult 55+ areas of the valley. However here it has not yet reached anything we would describe as out of balance.
The Maricopa County foreclosure statistics for April were:
- New Notices of Trustee Sale: 4,448 versus 4,487 in March – down 0.9% for the month
- Trustee Deeds Recorded: 1,739 versus 2,092 in March – down 16.9% for the month
As foreclosures decline it becomes more important to examine the home loan delinquency rate to see what is happening upstream of the notice of trustee sale. The Lender Processing Services Mortgage Monitor report for March shows that Arizona now has 6.1% of its outstanding homes loans delinquent by 30 days or more but not in foreclosure, while 3.0% are already in foreclosure. This compares with 6.6% and 3.0% in February and 7.1% and 3.0% in January. Clearly the percentage of home loans that are delinquent but not yet in foreclosure is dropping fast and is now not a lot higher than the long term average of 4.5%. In fact it has fallen by over half since peaking in February 2010 at 12.4% and this is a very important number to watch going forward. Loans in foreclosure remain much higher than the long term average of 0.5%, but if delinquency rates keep falling fast then loans in foreclosure must also drop significantly before too long.
Just a couple of years ago Arizona ranked third highest in the nation at 16.3% non-current loans (30+ days delinquent or in foreclosure) when the national average was 13.5%. Arizona now ranks 33rd among the states for non-current loans at 9.1%, well below the national average of 11.7%. In the last month Arizona fell another two places by dropping below the states of California and Washington and now ranks equal to Missouri and just above Texas. These changes go a long way to explain why we are entering a period of sustained recovery in the Greater Phoenix housing market.