Bloodhound News: How can you laugh when you know I'm down?

Ouch!

Home values for January are down substantially in the BloodhoundRealty.com Market-Basket of Homes. Average sales prices slipped by 2.31%, a little over $6,000, from $269,875 to $263,638. This is the first time average values have gone down for Market-Basket homes since December 2004.

No need to defenestrate just yet, though. Activity is fairly slow right now, and inventories are approaching 30,000 homes, about 5,000 more than a normal market in the Phoenix area. But the drop in values in January is more a symptom than a trend: A small number of homes sold at deep discounts, where most of the transactions we track closed at or near their asking price.

As an example, we represented the buyers in the sale of an owner-occupied home in Surprise. The original list price of the home was $262,200 and the recent high sale in that floorplan was $280,000. But the house had been listed since October 10, 2005. A previous contract had fallen through and the sellers needed to cash out to invest their proceeds in a home they are building in Goodyear. In consequence, our buyers got the home for $247,900, $14,300 less than the original list and as much as $32,100 less than the potential market value of the home.

Discounting, the ratio of sales price to list price, is up slightly since last month, and we averaged 47 days-on-market, up from 39 in December. In January 2005, homes were averaging 16 days-on-market, but in January 2004, market-basket homes were taking an average of 69 days to sell – at a deeper discount ratio.

What does all this suggest?

First, relax. We are going through a market correction after an extended boom. As you might expect, the homes that are selling at the deepest discounts are the ones that have been on the market the longest. Many of those homes came onto the MLS system well above a reasonable market price, which accounts for both their extended time on market and for the eventual deep discounts when the sellers run out of time.

Second, now is the time to buy. All Spring and Summer last year, people were racing around trying to buy homes. We had listings that drew dozens of offers, many hugely over list price. We told you then that it was time to sell – which of course almost no one did until it was already too late.

Now is the time to buy in the Valley of the Sun. There are plenty of houses to choose from, and sellers are very negotiable where they are not downright pliable. If there is a home you love, love, love and just can't live without, you'll pay what it costs and be delighted doing so. But if you can make your choice among a number of equally appealing options, you'll be delighted now and a whole lot richer in the long run.

Our fundamentals are as sound as they have ever been. We continue to add tens of thousands of new residents a year, along with tens of thousands of new jobs. Many, many homeowners in California will buy here in due course, either as second-homes, retirement-homes or investment properties. It would be wrong to say that the Valley has an unlimited growth potential. But it could be decades before the Phoenix-area stops growing.

Straight, No Chaser

How confident are we about the Valley's real estate market?

This confident.

If you follow that link, you will come to the web site we built for Houndswick, a home we are buying on North Central Avenue. This is a house that fulfills every objective we have for a home – and it's going to take everything we have to get it.

The fact is, the home is selling well under its market value. We're paying $875,000 (oof!), but it's worth $1,200,000 with minor cosmetic upgrading. The land alone – 24,000sf on North Central Avenue – is worth $1,000,000. We'll be adding 600-800sf of living space, and Cathleen intends to make a Mid-Century Modern masterpiece out of it. By the time we're done with it, it should be worth $1,500,000 or more.

All of this is still subject to final approval from the lender, so we may have to report next month that it didn't happen. Logan Hall of SallieMae Home Loans worked very hard to set this up with 100% financing. We would have loved to gloat about that, but, alas, it was not to be. Just now, it looks like we'll structure the loans like this: The first loan will be an 80% amortizing five-year fixed-adjustable hybrid. The 15% second loan will probably be an interest-only ARM with a one-year balloon. Of course, we'll retire the second as soon as we can to get the payment down to a manageable number.

There will be a party, of course – two in fact. We'll hold the house open after we close to show it off as it is now. And we'll have another open house when we're finished with everything so you can see what we've done with it. In keeping with the home's Mid-Century Modern vibe, Houndswick has a theme song, Straight, No Chaser by Thelonious Monk.

This will be our residence when we're done remodeling it. As with our current home, it will serve as the corporate office for our brokerage. But more than anything else, Houndswick is an investment. We bought low and we'll sell high. But even so, we're going to have to scramble to make this work – and everything is going to have to work out as we say it will.

How confident are we about the Valley's real estate market?

Confident enough to bet everything we have – and everything we ever will have – on it.

Take the long way home

The house we wrote about last month ended up selling in four days, record time for a luxury historic home in our current market. We are heroes to the neighbors. Even better, the buyer turns out to be a local-celebrity-to-be, so that Storied Home in Story will have even more stories to tell.

But we have other listings, and we have two good reasons for promoting them here: First, we want them sold. And second, we will help you with your closing costs in appreciation for your buying them. It's win-win-win all the way around.

These are our active listings:

Running down a dream home

After our last newsletter, Greg had email from Catherine Reagor of the Arizona Republic. It began like this:

what are you talking about? you are disputing pure hard data.

That's the logical fallacy known as the Appeal to Authority. There may be some underlying numbers justifying the article we had objected to, but we have not seen them, we made a point of saying we had not seen them, and we elucidated our reasons for supposing that some or all of the numbers cited were essentially made up.

At considerable length in email, we challenged Ms. Reagor to document her numbers. So far she has not. This does not mean her claims are necessarily bogus – absence of evidence is not evidence of absence. But we've been in management for a long time, and numbers like 25%, 30%, or – best yet – 30% to 35% – these set off our BS detector. Real numbers based on a real accounting of real phenomena look like this: 24.67%. Obviously, a tight number can be just as fake as a loose one, but people who have actually made a real accounting of real phenomena will not express their results as a range of round numbers.

As we demonstrated in the December issue of this newsletter, we know we are being lied to in the Republic's coverage of the real estate market, we just don't know how often, by whom and to what end. In December, we showed you that someone had lied in reporting the ephemeral tragedy of the Mahlerweins. Either they themselves lied in talking to Ms. Reagor, implying that their problem in obtaining a home in Tempe was a matter of "unaffordability" when in fact they were using the income of only one spouse to qualify for a home loan. Or Ms. Reagor, fully cognizant that their failure to qualify in Tempe was the result of their using only half their combined income, chose to omit this essential fact in her account of the grave injustice of "unaffordable" homes. We have entreated Ms. Reagor to tell us who was the fibber, so far to no avail.

But wait. There's more.

On January 25th, Ms. Reagor wrote an article about a price reduction on an estate property owned by U.S. Senator John McCain and his wife, heiress Cindy Hensley:

The Valley's luxury home market is cooling, like the rest of the market. A year ago, there were 145 homes priced at $500,000 or more for sale in Phoenix. Now, there are 1,341. Houses were selling in days last year, but now, it's taking an average of six weeks. McCain and his wife, Cindy, want to downsize.

As nearly as we can determine, every single number in that paragraph is either made up or non-verifiable. Quoted below is email Greg wrote to Ms. Reagor trying to pin these numbers down:

Where are these numbers coming from?

Did you run $500,000+ listings a year ago? I have no idea how you could do this today, post hoc, for any date in the past. In the MLS system, the finger moves and having writ...

Now, there are 1,341.

There are 927 active listings in Phoenix, right now, at $500,000 or above. That includes everything, single-family, town/patio homes, condos, lofts, horse properties, etc. Allowing for Active-With-Contingencies, which most Realtors would not do, the total is 972. Adding in homes that are Sale Pending, which again most Realtors would ignore, we get 1,152. Where did the 1,341 number come from?

Houses were selling in days last year, but now, it's taking an average of six weeks.

You have conflated the luxury home market with the home market at large, even though the subject of the paragraph is luxury homes.

These are the sales figures for homes in Phoenix $500,000 and up, comparing December 2004 with December 2005:

        

More houses sold in December 2005 for slightly less money on average in a lot fewer days on market. Virtually everything you said in that entire paragraph is either wrong or extremely doubtful.

As you might expect, we have not heard back from Ms. Reagor explaining the scientific rigor undergirding her numbers.

It doesn't actually matter, since the overall premise of the article is even more bogus than then presumably bogus numbers used to defend it. Arguing from the particular to the general only makes sense if the particular instance is in fact typical of all the other instances. The Hensley family homestead is not representative of the market as a whole, nor even of the market for homes selling for $500,000 or more. There are a certain few estate properties in North Central Phoenix with which it might be compared, but none with which it is actually comparable. What we can say with reasonable confidence about multi-million-dollar homes is that they will probably take a long time to sell (ahem) and they may undergo significant price reductions (ahem again). What we have are to-all-appearances specious numbers used in the defense of an incontestably specious argument.

However, Ms. Reagor's article was picked up by UPI, so the Valley's real estate market was fallaciously slimed nationwide. That oughta count for something...

Where the jobs are

All of which is not to to say that we hate every number we find in the Republic. This article, derived from data collected by the relentlessly pencil-pushing Federal government, sings a tune we never tire to hear:

Despite not even being among the 10 most populated areas in the country, metropolitan Phoenix led the nation in absolute job gains from December 2004 to December 2005.

The seasonally unadjusted figures from the federal Bureau of Labor Statistics confirm the Valley's status as a growth market not only for new residents but for new jobs as well.

The region added 83,200 jobs to its economy over the year, topping the Washington, D.C., metropolitan area's 81,600 jobs.

Somewhat remarkably, the Census Bureau reported last year that metropolitan Phoenix was only the 14th most populous metropolitan area in 2003, while metropolitan D.C. was the 7th-largest region.

That means the Phoenix region created more new jobs than even such metropolitan goliaths as Los Angeles, New York and Chicago.

Of course, every silver lining comes enshrouded by a cloud: Presumably some of those newly-hired workers are schoolteachers with bad credit, and we all know what happens to them...

Oh, that's right – they get rich buying and selling real estate...

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