Housing affordability best ever since record keeping began in 1970 or is it?

I am not a statistics person.  I am not a math person.  However, if you take the median family income, combined with median home price, and the average interest rate, you get the “Housing Affordability Index”.  The index right now is the highest it has ever been in the history of keeping track of such things.  What does that mean?  Well, if you earned just under $61,000 annually, you could afford a home costing $325,500.  That is more than double the median cost of an existing home nationwide.  That is based on a 20% down payment and spending 25% of your income on your mortgage payment.

The index is configured differently for first time buyers:  their income is considered to be 65% of the national median, their homes are considered to cost 85% of the median, and they put down 10%.  Based on those figures, a first time buyer could afford a home costing $182,500, which is still well above the national median home price of $158,100.

All things considered, it is a good time to buy a home, financially, except that the lenders are not putting their REO properties on the market, so buyers are having to over-pay for homes in our Phoenix market.  Hopefully, the artificial inflation of home values will at least enable more homeowners to sell without having to resort to a short sale, so the inventory may grow with more traditional sales.

Thanks to Paul Parshley with Prospect Mortgage for providing the Housing Affordability Index information.

“Housing Affordability” is a relative term, however.  A Reuters article by Michelle Conlin and Melanie Hicken posted this morning in Huff Post Money tells the story of middle class Americans trapped in a housing dilemma where the cost of renting a property can use up to 50% of their income.  Sure, it would be cheaper to own than rent, but their ‘average’ credit scores are not good enough to get a mortgage with the new, tougher standards being used by lenders.

Nearly 40% of Americans are paying more than 30% of their income for their housing, according to the Census Bureau’s American Community Survey, which is above what most financial consultants recommend as the upper limit of what one should spend.  While it is cheaper to own than rent in virtually every major city, the Huff Post article claims the actual dollar amount loaned to purchase homes last year was the lowest amount in 12 years.  Part of that has to be because the cost of homes has dropped so much in the past 12 years, but to go from $1.4 trillion in 2006 to $404 billion last year is still significant.

The Reuters article quotes a recent Morgan Stanley report that shows the average credit score for a person who got a government backed loan was 762.  More than 60 percent of Americans have scores below 750, and subprime is considered any score below 660.  So although homes are more affordable than ever, and interest rates are lower than ever, homes sales dropped from April to May nationwide by 1.5%.

There appears to be a shift in the mindset of members of Gen Z, and they are not confident that they will keep their jobs, nor are they interested in being tied down by home ownership.  A job loss could cause them to need to move, and not being able to sell a home due to strict lending requirements for potential buyers or dropping home values is a corner they do not want to be backed into.  We have a generation of people who value travel, lifestyle, and upscale dining experiences over home ownership.  I don’t think that is necessarily a bad thing, but it will certainly change the face of home ownership in the future.

Who is the government selling large bundles of REO properties to?

Who is the government selling large bundles of REO properties to?.

Who is the government selling large bundles of REO properties to?

Last month, I saw a sale of a property here in Arizona for $2,613,694.  Now that’s not that unusual, especially considering the price of real estate in Scottsdale and Paradise Valley, two of the more pricey zip codes in the country.  But this sale was a 1068 s.f. single family home in Surprise, AZ, a modest suburb that has been relatively hard hit by the real estate recession.  I did a little research and found that the sale actually lumped a total of 17 homes into one purchase, and the seller was FK Emerald Homes LLC and the buyer was Colfin AI AZ I LLC.  Now I’m no detective, so I’ve not been able to find out a whole lot about either entity, but I did discover that another LLC named Colfin purchased $204,000,000 worth of non-performing commercial loans and assets from the FDIC in December of 2010.  To date, Colfin has purchased 506 properties in the Phoenix area, including a recent $7,390,000 package of 75 parcels in Maricopa and Pinal Counties.

The practice of selling off bank owned properties in bulk was discussed back in March in a letter written by the President of the National Association of Realtors addressed to the heads of the Federal Reserve, FDIC, HUD, FHFA, Department of the Treasury, and Office of the Comptroller.  NAR President, Maurice “Moe” Veissi, stated that financing for individuals needed to be made more readily available, as almost 65% of all investor purchases last year were all cash.  Many homes do not qualify for traditional financing due to repair issues, so the 203(k) rehabilitation program needs to be expanded so that buyers without the funds or expertise to perform repairs themselves can still purchase and repair distressed properties.

Mr. Veissi also stated that foreclosure alternatives needed to be streamlined, in order to keep homeowners in their homes and criticized the recent B of A plan called ‘mortgage to lease’ that would offer certain homeowners the option to sign their deed over to the bank and stay in the property as tenants.  Is that really the best solution for homeowners in a negative equity situation?  Or is it just a solution to lenders who have too many non-performing assets on their books and are trying to keep the level of their required cash reserves down?

Mr. Veissi’s letter cited a WSJ article that estimates that 800,000 homes are being converted from owner/occupant to rentals every year.  That is not the way to stimulate an economic recovery.  The President of the NAR acknowledges the large “shadow inventory” that the largest real estate data source in Maricopa County, The Cromford Report, continues to deny even exists.  I personally researched a property for a client in a Chandler, AZ neighborhood, and saw over 90 lender owned properties in that neighborhood in the tax records, and yet we couldn’t find one single home listed for sale in MLS.  No doubt all of those homes will be bundled up for Colfin AI AZ I LLC and all of my buyers will have 90 fewer homes available to purchase, although I’m sure Colfin would be happy to rent to them.

The practice is also being used to stabilize and drive up the price of homes, and is causing a false panic in the market, as people bid prices up over current market values for fear of not being able to find a home.  The buyer of one of my recent listings had already lost out on 17 other properties over several months of searching and writing offers, and cried hysterically when she found out a cash investor had also made an offer on the same property.  Luckily, the seller chose to sell to an owner occupant, so this buyer finally got a home.  Inventories in many of our major markets in the Phoenix area are below a one month supply so this story is becoming the norm.

I hope the  bulk wholesaling of homes is brought to light in the national media and not allowed to continue to gobble up all of the lender owned homes that should be sold to individual home owners, or smaller investors who are often local builders and contractors who have been out of work for several years.  These contractors use their skills to renovate REO properties, which usually show years of neglect and abuse, and turn them into reasonably priced homes that appeal to first time home buyers.  Now that inventory is being sold off to a large company that is not even going to rehab the properties and sell them for a profit, but hold them as rental properties and collect rent from people who would rather be home owners.

Let me know what you think about this process and if it is the solution the large inventory of lender owned properties, or the beginning of another problem.

Phoenix Real Estate figures for April 2012

This week the latest ARMLS stats came out for the months of March and April.  The numbers show a 9.6% decline in the number of sales from April of last year, and that inventory has declined for 8 of the past 12 months.  The listing data can be misleading, as 20,676 listings are considered “Active” but 7,747 of those are Active With Contingencies, which means they have a signed contract in place, and are only accepting back up offers.  I know I don’t show my clients AWC properties unless it is their absolute dream home or they are looking for something very specific that only that house has (i.e. location, view, architecture) and they are willing to be in second position.  What that means is there are technically only 12,932 truly active listings in the Phoenix area.  That breaks down into various Months’ Supply figures, depending on the price range.  Homes priced between $30,000-100,000 have a 1.93 month supply, while homes over $300,000,000 have a 52.5 month supply.  Narrowing our focus to the most active part of the market, sales at $350,000 or below, there are a total of 15,661 Active listings, but only 54% or 8,526 are Active, and 46% or 7,135 are AWC.  So you can see there is a real shortage of homes.  What does this mean to the average homeowner?  If you are thinking of selling, now may be the best time in months to put your home on the market.  Families traditionally begin their home search when school lets out for the summer, and most people have vacation time coming during the summer months, which facilitates a home search and/or move.  If you are a buyer, this can be a frustrating time to search for a property, and you must be prepared to jump on properties within days of coming on the market, and expect to pay list price or slightly higher if the property is in good condition.  Many sellers are requiring buyers to waive the appriasal contingency or take the property in As Is condition in order to elevate themselves to the first place buying position. 

The April median sales price is up 6.2% from last month to $138,000.  This is due to the small inventory of available properties.  Pending foreclosures have been flat for the past four months, with the number now at 18,056, down from the all time high of 50,568 in November of 2009.  The percentages of distressed sales has changed as well with only 44% of transactions now distressed sales, down from the high of 74% at the worst part of the decline.  Another switch is that since December, short sale transactions have outnumbered foreclosures.  Average days on the market have also declined to 86, down from the high of 138 in February of 2008. 

The final piece to the rosy picture is that seasonally adjusted unemployment figures for March of 7.6% are down from March 2011’s level of 8,8%.  It is estimated that 40,300 new jobs were created over the past year. 

Elliot Pollach, April 23, 2012 For Immediate Release

This begs the question – will short sale lenders who have thousands of properties under contract awaiting short sale approval begin to realize that the properties are now worth more than they were when the contract was written, sometimes 6-8 months ago?  Will this lead to the lenders denying the short sale approval and opting instead for a trustee sale or countering back at a higher price?  I would love to know your thoughts. 

 

Hello world!

We have been working through the process of economic recovery in the Phoenix area for four years now.  It never ceases to amaze me how we think we know what is going to happen next, but we are usually wrong.  We thought homes were bargains in 2009 and now buyers from that period of time are upside down in their homes.  We have seen the beginnings of recovery with home prices, and especially in the inventory (or lack thereof) in our area.  One of the most interesting statistics I have heard in recent days is this:  There are five cities in the valley that had more closed transactions in the month of March than they currently have on the market.  Those cities are Avondale, Chandler, Gilbert, Glendale and Tempe.  One neighborhood in particular, Highlands at Arrowhead Ranch, has no active listings at all, and my recent listing sold before I even got it in the MLS system.

So tell me, do you think the current shortage of listings will continue or is it just an anomaly?