Sept. 12, 2009: Are banks "warehousing" foreclosed homes in the Phoenix real estate market? If so, sooner or later something will have to give
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.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
Spread the word: Click here for a printer-ready version of this column.
Or: Steal this book: I've written over 200 of these real estate columns. They are consistently one of the most popular features on our blogs. Many of them are dated and/or entirely Phoenixocentric. But many others are timeless and generic. If you want to use any of my columns on your weblog or web site, feel free. Three rules: Don't change my text, credit me as the author and give me a link back to http://www.bloodhoundrealty.com/ with appropriate anchor text. Something like this, perhaps:
Am I link-baiting? You bet. The quid pro quo is free content for your site that pulls eyeballs and excites interest.<a href="http://www.bloodhoundrealty.com/" target="_blank"> Phoenix Realtor Greg Swann</a> suggested I share this with you:
