Strictly anecdotal — and I would be delighted to be wrong about this.
First, the inventory of the homes I track for investors has been rising slowly but steadily since mid-October. Not an obscene increase, but sales are way up as prices have wallowed in more or less the same place since last March or April. A lot of investors are calling “bottom!” with their cold, hard-to-come-by cash — and yet available inventory is going up, not down. And prices? In December, way down.
Then consider this: I have an REO negotiation going on in a condo community where the quantity of the one floorplan my buyers are interested in jumped 50% in two weeks, from 13 to 20 units just like that, all of them priced right or within shooting-down distance.
It seems to be getting easier and easier to get just the right deal for buyers. Even in overbuilt Phoenix, last summer and early fall played like a seller’s market, but by now it feels to me as though the table is swiftly turning.
And all of that leads me to wonder if we’re finally seeing the much-hypothesized, much-denied shadow inventory.
Am I seeing my own shadow, or is there something going on?
Russell Shaw says:
Something else is going on.
Fourth quarter is normally the slowest quarter for new sales. Sales have dropped off in October ever since I started in real estate in 1978. The back to school crowd (which *drives* the seasonal aspect of residential sales) is completely over by the end of September and October is normally a “slow” month.
Condos are a different matter. If your investor is paying cash they can buy them – at really low prices. As rentals, they are probably the best deal out there right now. Most condos sell with FHA financing. FHA financing has gone away completely for most condos and the rest of the lenders don’t want to touch them with a ten foot pole.
There is NO “shadow inventory” here. Honest.
http://agentgenius.com/real-estate-mortgage-economy/economy/the-shadow-inventory-shadow-gibberish/
January 26, 2010 — 9:24 am
Greg Swann says:
> Fourth quarter is normally the slowest quarter for new sales. Sales have dropped off in October ever since I started in real estate in 1978. The back to school crowd (which *drives* the seasonal aspect of residential sales) is completely over by the end of September and October is normally a “slow” month.
Prices for bread and butter single-family homes in Metropolitan Phoenix dropped by eight percent in December. This is not a seasonal drop-off. It may not be an indicator of a shadow inventory, but it is by far the biggest month-over-month drop since the market turned.
January 26, 2010 — 1:31 pm
Al Lorenz says:
We’re seeing more short sale and REO activity. We’re also a little town in a rural area. It may just take us that much longer to experience the issues!
January 26, 2010 — 11:57 am
matt mathews says:
Let’s add this to all that Shadow Inventory! This morning I read that based upon current data reports, More than 50% of all Loan Mods. are in/and will default this year. Principal reduction mod. will increase ten fold as the only remedy to stabilizing the market.
January 26, 2010 — 12:47 pm
Elizabeth Evans says:
Mr. Shaw and Mr. Swann are spot on about condos. “Conservative” cash offers for well-located but impossible to finance condos seem to be getting a positive reception in both the REO and the short sale markets.
However, I don’t see the increase in REO listings, especially in the under $110,000 range SFR’s in decent rental markets. I agree we had a sellers’ market until November thanks to the first time buyer/investor competition. After the rush, the pendulum swung back to the buyers until the pre-holiday inventory was depleted.
I expected an influx of REO listings after the holidays in the Phoenix markets I follow. It just hasn’t happened. Instead I’m seeing a lot of sellers wading back in with overpriced properties and a mix of short sellers ranging from the unrealistic dreamers to the desperate. More auction dates are being set and those short sellers are becoming more realistic as the trustee sale nears.
I’m curious about what property types and locations Mr. Swann is recommending to and following for his investor clients. From my “buy side” point of view, I’m just not finding a lot of the right product for my money.
January 26, 2010 — 4:32 pm
Greg Swann says:
> I’m curious about what property types and locations Mr. Swann is recommending to and following for his investor clients.
Here is what I like in a rental home, especially for semi-pro investors: Newer stucco and tile in near-in, built-out suburbs with good access to jobs, schools, shopping, entertainment and transportation. I’m very choosy about subdivisions and particular houses. I want homes that will rent easily and stay rented to premium tenants and will sell at a premium price to owner-occupants on resale. Cash flow is easy, right now, but appreciation is probably years away.
I have a searchbot running that identifies homes I might be interested in, and then I winnow down from there for houses I will actually look at. Out of those, I will recommend perhaps one out of ten to my investors. I don’t see any point in compromising on anything, just now, so if we can’t get the house we want at the price we want, we just keep looking. There is plenty of availability, so it’s not hard to get good properties right now. It was tougher last fall, but not terribly so.
January 26, 2010 — 4:49 pm
Russ says:
I guess that we could also call my experiences anecdotal as well, but I trust my ability to understand PHX area housing trends from what I hear and see in everyday life. Of course, combining that info with Maricopa County record searches is even more helpful. The evidence was screaming in Summer 2005 that owning a PHX house was going to be a value-diminishing experience for years to come.
Since much of that value is now gone, the dollar cost of these risks have also gone down.
But the idea that there is not a boatload of new foreclosures on the way is not in tune with reality. Every person whom I know that has retained their employment and retained their post-2000 purchased or post-2000 overly-refinanced PHX house has toyed with the notion of walking away from their loans in our non-recourse state. While finding an exact correlation would require a high amount of social research, I am certain that anyone who knows a walkaway is more likely to walk away themselves. “Jane X at the office was denied a permanent modification, told them to f off, and is now renting for half of her old payment.” And so on.
I will not comment on PHX condos since I never owned one, and everyone I know in the area lives in SFHs, either rented or owned. But I would imagine that the reduced availability of loan funding for low owner-occupant ratios and depleted association reserves would play additional roles for condos.
January 28, 2010 — 4:45 pm