This from my Arizona Republic real estate column (permanent link):
Break out the champagne! Prices for bread-and-butter resale homes in Metropolitan Phoenix were up for the month of August! Hurray!
“Up by how much?” you ask. Well… Not very much, alas.
The average price for a three-bedroom, two-bath, stucco-and-tile American Dream home was $119,666 in July. In August, that number had risen to the lofty sum of — wait for it — $119,872.
In any other business, a difference like that would be written off as noise, but in real estate — hot dang! — it’s a bonanza!
Here’s what’s really happening: Banks are foreclosing on many, many houses, but they’re only dribbling a few at a time into the marketplace. In conjunction with added demand caused by the $8,000 first-time home-buyer’s tax credit, we’re seeing what looks like a shortage of available homes.
And yet, even in these straightened circumstances, prices are essentially flat. As an example, the average price for these homes was $121,898 in March.
One theory has it that the banks are releasing just enough inventory to maintain stable prices. That’s a satisfying explanation — given that it conforms to the observable facts — but who knows if it’s true.
Meanwhile, if the banks are in fact warehousing ever-increasing quantities of homes — foreclosed upon but not listed for sale in the resale market — eventually something will have to give.
Even though the banks might own those homes “free and clear,” there are still carrying costs associated with warehoused homes. Lawns must be mowed — or at least weeds must be chopped back. Roofing tiles will crack and break away, exposing the home to water damage. Pests of all sizes will invade the home, some to eat the wood, some to steal the appliances, the piping, the wiring — whatever is left undefended.
If we assume that this is true — that banks are acquiring foreclosed homes at a faster rate than they are releasing them into the resale market — then sooner or later something has to give. The banks simply cannot warehouse those homes long enough for the market to recover.
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