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Arizona Housing Market Report April 2009 – Dramatic Developments
There are several key indicators showing remarkable developments in the market in just the last two weeks. It is clear the market is undergoing a dramatic and accelerating change.
Months Supply has dropped from 7.4 to 6.0 in just 14 days.
Pending Listings are heading into uncharted territory setting a new record almost every day.
March 2009 was exceptional in many ways, almost all of them positive, which may seem surprising to some given the general housing gloom reported around the country. Those who have been reading these notes for the last several months will not be surprised however. The Greater Phoenix residential market is not conforming to the national pattern. It is on a completely different trajectory.
Probably the most surprising statistics are those related to pending sales. Anyone who wants to see the magnitude of the phenomenon should see the chart Pending Sales by Major City. This morning we recorded the largest ever annual growth in pending sales across the valley (all areas and types) – the first time ever this has moved over 100%. Avondale, Glendale, Goodyear, Peoria, Phoenix and Surprise all show all-time record highs in pending sales for single family detached homes. This means higher than 2005! The difference is that 2005’s buying frenzy was fueled by a shortage of supply, whereas the current buying is fueled by attractive pricing. The only major cities that are not really participating strongly in the overall growth are Scottsdale and Tempe, where pending sales are up, but not at exceptional levels.
What are these sales? Well, two thirds of pending sales are REOs. The banks are having little difficulty moving foreclosed properties to new buyers. REO average days on market for active listings have fallen from 227 in November to 117 today. Another interesting sign is that active $/SF pricing for REOs fell from $84 in mid November to about $78 at the end of January, but has remained in between $77 and $78 for the last two months. There is no discernible downward movement in the average $/SF asking prices for REOs across Greater Phoenix. Probably of even greater significance is that average pending list $/SF for REOs has also stabilized between $65 and $66 and has stayed within that range for three weeks now. Average sold $/SF has declined from $67 at the beginning March to $63 in early April, but remember that pending $/SF tends to be a leading indicator of future sales prices, with a 30 to 45 days time lag.
The only really gloomy number we see is the number of new Notices of Trustee Sale (NTs), which hit a record high of 10,689 (for Maricopa County) in March. Some people are suggesting this indicates more carnage to come. We agree this is a depressing number, but would respond that we believe you should pay more attention to the number of actual trustee deeds (TDs). Remember that an NT is just a piece of paper, whereas a TD is a REAL foreclosure. What happened to TDs? They were at their lowest level in 11 months! And notices of canceled trustee sales were at a very high level of 3,168. Furthermore unrecorded trustee deeds currently stand at only 498. This is the lowest number we have seen for a long time. What can be happening here? Theories include:
The lenders are trying harder to work things out with their borrowers.
The government schemes to help borrowers are having some effect in slowing down TDs.
People with negative equity who want to move are stopping their mortgage payments to get the lender to agree to a short sale. They receive an NT but have no intention of being actually foreclosed. In fact they could pay their mortgage if they chose to, but if they did, the bank would probably not allow the sale of their home.
Certainly we can see it is taking longer to go from NT to TD and we strongly suspect a lower percentage of NTs are eventually becoming TDs. Don’t be fooled by the growth in the NT count or pending foreclosures. Our advice is to watch the TDs carefully.
Meanwhile the supply of REOs is becoming quite thin in certain spots heavily frequented by bargain hunters. For example, take Queen Creek 85243, in many ways the epi-center of the foreclosure crisis in the valley. There were only 79 active (not AWC) single family detached listings for REOs in this ZIP code yesterday, with 165 in escrow. There were 169 active at the beginning of February and only 128 in escrow. So there are 90 fewer active REO listings than 2 months ago and 37 more sales in process. This is a very strong REO market.
We can see signs that the supply of very cheap REOs is getting sold off quickly. A trend to watch is the mid-price and high-end REOs where sales are much slower and the supply is not decreasing. It’s possible that these higher price areas may take much longer to turn round than the lowest priced end of the market which is giving strong signals that a price floor may be close at hand.
Are we at the point where sales pricing turns round? Well, this is what a market bottom looks like. We are either very close to a turn round in sales pricing or all the data is conspiring to fool us.
Take your pick.
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