Category: Sun City Real Estate (page 5 of 9)

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

With all this activity in the Phoenix real estate market, prices must be going up, right?

Wrong.

Sales prices for bread-and-butter single-family homes in Metropolitan Phoenix were down in June, July and August. They were up in May, and it looks like we’ll finish higher in September. But the net effect is to put average home prices right back where they were in March of 2009.

That’s right. We just worked our way through six very busy months, with the $8,000 first-time home-buyers tax-credit as a huge incentive to buy houses, but sales prices for those homes are virtually unchanged.

How can that be? Haven’t we heard about shortages of homes, about frenzied bidding wars? If you’re trying to sell a home right now, market activity can look like manna from the heavens. But if you’re trying to buy, what you’re seeing may look more like a plague of locusts.

But taking account of the bigger picture, none of that matters. The Phoenix real estate market is over-built, especially at the lower end of the market. The long-term systemic trend of prices is downward, and it will be for quite a while. Incentives like the tax-credit can stimulate activity, but until demand eclipses supply, prices will continue to deflate slowly.

When the tax-credit lapses, the pace of that deflation will quicken. If banks start to reintroduce foreclosed inventory at a faster rate, prices will drop even more. Arguably, we are two or three years away from reselling all of the homes that will have to be repossessed and resold by lenders.

And prices could be low and trending generally lower that whole time. New home builders are not able to compete in this market, so we’re not adding new inventory. But until the supply of foreclosed homes is fully absorbed, prices probably will not go up.

And even then, don’t bet your life savings on dramatic upswings. It took us a long time to dig this hole, and it could take a long time to dig our way out.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

When I was a kid, my Uncle Jack, my mother’s oldest brother, told me a story I’ve never forgotten. He was at a little county fair way out in corn country. Nothing special, just beauty contests for hogs, cheesy little rides and sticky, sugared confections.

Late in the day, the ice cream vendor decided to pack it in, announcing that he was giving away what was left of his inventory. People elbowed their way to the front of the crowd, so eager were they to get something for nothing. They walked away with the ice cream piled into their bare hands, rushing off to their cars, leaving a trail of melted drips behind them.

The lesson I took from my uncle’s story was that those folks didn’t really want ice cream. They were willing to get themselves dirty, and to get their vehicles dirty, just to have something for free. Most of them probably didn’t even eat the ice cream, and they certainly couldn’t have enjoyed it. Imagine trying to inhale a glutton’s quantity of chocolate-fudge-swirl before it melts all over your clothes.

Could that be what’s going on right now with the $8,000 first-time home-buyer’s tax credit? I happen to be carrying three listings that are undeniably “investor’s specials” — which means they’re a good buy, but they need a lot of work. Even so, my phone is ringing off the hook with agents trying to sell those houses to owner-occupants — folks with very little cash trying to get an FHA loan so they can buy a house, thus to get $8,000 in “free” money.

Do those buyers really want homes, or do they just want that free money? What will happen to the properties when the $8,000 is spent? Should we dial the clock back to 2006 to see if anything looks familiar?

Meanwhile, the National Association of Realtors is campaigning for even more “free” money to bribe even more otherwise-unmotivated buyers. The only thing that could make the deal sweeter would be a double hand-full of “free” ice cream.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

“You won’t believe the deal my buddy got on his house. He paid thirty cents on the dollar!”

“You’re right. I don’t believe that.”

“I’m not fooling with you. The house was worth $300,000, and he picked it up for a hundred grand.”

“It was worth $300,000 when?”

“Huh?”

“He got it for $100,000 in what condition?”

“Huh?”

“The house might have been worth $300,000 four years ago. And it might have been in great condition back then, too. What was the list price when your friend put the house under contract?”

“It was listed at $97,500. But the original listing was for $300,000!”

“I don’t doubt it. A lot of homes have been on the market for years. What kind of shape was it in when your friend saw it for the first time?”

“It was great! I mean, there were some holes in the walls, and some of the doors were missing. But it just needed some touch-ups on the paint. And the carpets were hardly stained at all!”

“What was the kitchen like?”

“Cherry! All it needed was a range, an oven, a dishwasher, a microwave and a fridge.”

“In other words everythng but the kitchen sink.”

“No, that was gone, too. But the counters and cabinets were in great shape, just missing a few knobs.”

“So some nice folks bought more home than they could afford during the housing boom. They couldn’t make their payments, so they put the home on the market for more than it was really worth, even back then. It sat on the market for four years, through a normal listing or two, through a short-sale listing, and then it finally sold to your friend as a lender-owned home. Is that about right?”

“You bet! He got a smokin’ deal!”

“Except he didn’t pay thirty cents on the dollar, he paid $2,500 over list.”

“Oh, whatever. Did I tell you about the trout I caught last week at Lake Pleasant? I swear, it was bigger than my arm!”

“Now that I believe.”

by Greg Swann

Sun City Real Estate Broker

Author website

Whether you buy this home as a residence or a rental property, you could not ask for a better location. You’re just two short blocks from the light rail station on 19th Avenue. And just beyond that is The Phoenix Spectrum Mall.

This house, 2040 West Missouri Avenue in Phoenix, is a rock-solid Phoenix ranch home, block construction. But it needs love — which is why it is priced so aggressively.

This home is offered at $104,995, a smokin’ deal. Call your agent to find out how to make it your own.

by Greg Swann

Sun City Real Estate Broker

Author website

Form The Wall Street Journal:

My wife and I have sold all of our four previous homes for more than we paid for them—sometimes a lot more.

We’ve been pretty lucky. We’ve never overpaid much for a house, we’ve always bought in good school districts and decent neighborhoods, we’ve lived in neighborhoods where prices soared during the real-estate bubble, and we’ve been hurt but not decimated by the bursting of that bubble.

When I constructed a very basic cash-flow model for our home-buying history—selling price minus purchase price, renovations and repairs—it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year. That’s when we sold our last home and bought our current one.

Then things got ugly. If we were forced to sell our current home, which I estimate has lost 5% or so of its value in our 10 months of ownership—despite the more than $20,000 we’ve made in improvements—our cumulative return over the years sinks to approximately 2% annually. And if prices keep falling in our northern New Jersey neighborhood, as is likely for a while, that return will shrink even further.

So do I regret owning a home? Heck, no. It’s not a get-rich scheme, and Americans never should have viewed it as one. Owning a home has given my family a series of anchors to cling to as we’ve moved around the country for my job. It’s allowed us to live in pleasant neighborhoods where it would have been tough to find a rental house. And paying down a mortgage is a form of forced savings, which should help us in retirement.

Columbia Business School’s Christopher Mayer, who has studied housing markets, says our experience with home-price gains is pretty typical. Home appreciation nationally has run about 1% above inflation over time.

The big price run-ups from the late 1990s through 2006 or 2007 were an aberration. The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.

Once you add in imputed rent and subtract property taxes, Prof. Mayer estimates, my 2% annual home-ownership return looks more like 6%.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

Is now the time to buy a home in Metropolitan Phoenix?

It depends.

If you plan to take advantage of the $8,000 first-time home-buyer tax credit, you need to get moving. If your loan hasn’t closed by November 30th, you won’t get the concession.

If you’re afraid of rising interest rates, you’re probably better off acting now. Mortgage rates cannot stay this low forever. When they go up, they’re likely to go up decisively and for a long time.

On the other hand, if your plan is to pay cash, and if you don’t have to move right away — you might be better off sitting tight. The same goes for all-cash rental home investors.

The mini-boom we’ve seen over the past few months was based in an erroneous belief that the supply of homes in the Phoenix area was limited.

This is untrue. The length and depth of our real estate correction is a consequence of our being overbuilt. There is no shortage of homes for sale, nor any shortage of bargain-priced lender-owned homes. And I think it is silly to bid up the prices of properties that are not in short supply.

The market is already flooded with available housing, and there is a three-year tsunami of short sales and lender-owned homes still to come. If there are enough buyers to absorb that supply of homes, prices may not go down further, or at least not by much. But for bread and butter houses, there is no reason to expect values to go up any time soon.

But there’s more. We are headed into a hyper-inflationary economy — which among other things transfers income from creditors to debtors. The money that you’ve managed to save will lose value over time, while the money you owe will be repaid from a progressively higher income.

The bottom line: Whether you take out a mortgage or pay cash, real estate can be a very strong hedge against inflation. Just by itself, that might be a good reason to buy a home sometime soon.

 
Further notice: I recorded an extended podcast about the state of the Phoenix real estate market, which you can find by clicking on that link.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

The “cap and trade” bill that passed in the House of Representatives last week contains within it the seeds of a national building code. It rarely rains in Phoenix and it rarely fails to rain in Portland, but both cities will build new structures according to the dictates of some Washington bureaucrat.

Drive along 19th Avenue in Phoenix and you’ll pass block after block of condemned houses. They were taken by the city for the planned light rail expansion, now delayed. The neighbors are left to fight off the kind of vermin vacant homes attract while they worry what that blight is doing to their home values.

In Glendale, the city government is doing everything it can to prevent the Tohono O’Odham tribe from developing its own sovereign land as a casino.

The essence of the freedom we celebrate on Independence Day is the free ownership of the land. The Hoplite Greeks fought and died to protect their own lands. The Roman Legionnaires fought and died because their farms were their own property. A Cincinnatus — or a George Washington — lays down his arms because being a dictator is nothing when you can instead be a freeholder in the land.

The essence of our freedom is the free ownership of the land, and yet everywhere we turn, private property is subjected to one law after another, and everything that is not forbidden is compulsory instead.

This is a grievous error. The men who become Brownshirts or Klansmen or Khmer Rouge — the men who make up murderous mobs — are men without land. It is the husbandry of the land — each man to his own parcel — that most makes husbands of us, that sweeps away our willingness to live as brigands or rapists or thugs.

By robbing the private ownership of the land of its meaning, the state is, by increments, robbing its citizens of their humanity. No one burns down his own home, nor his neighbor’s home. But when the time comes that we all seem to own our homes only by sufferance, none of us will have anything left to defend.

 
Further notice: I posted an audio tweet on this topic, as well.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

So we started with a $7,500 tax deduction for first-time home-buyers.

But that didn’t juice the real estate market enough, so we bumped the number up to $8,000 and made it a full-blown tax credit. If you owe $8,000 in taxes next April, your slate is wiped clean.

But even that didn’t juice the the real estate market enough, so this week Republicans — the alleged party of fiscal responsibility — proposed bumping the tax credit up to $15,000 and making it available to everyone — including billionaires.

How cool is that? You buy a $150,000 house, you get 10% back when you file your taxes. And you can file an early return to get the money now. And you can even finance the tax credit now and pay it back when you file your return.

You can’t — quite — use the tax credit as your down payment, but that “reform” can’t be more than inches and hours away. And a $15,000 down payment on an FHA loan buys you a $428,500 house.

Unfortunately, that’s more than the FHA limit for metropolitan Phoenix, so that limit will need to be “reformed” as well.

Paying people to buy houses would be insane if we actually had the money to back up our promises. But, since we don’t, these “reforms” are the mark of true statesmanship.

I’m helping an ambitious young couple buy their first home right now. We’re late to close, a common enough situation.

They just had their second child, an event mere bureaucracy cannot delay. Their baby boy — his name is James — is sweet and beautiful, healthy and smart, a perfect specimen of incipient humanity.

They’re taking the $8,000 tax credit, of course, as they should. The government doesn’t become less insane if you shoot yourself in the foot.

But it is sweet little Baby James who will pay for that tax credit, and for millions of others, and possibly for millions more at $15,000 a pop. Our economy runs on theft — and we’re running out of people to steal from.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

There was a time, just a few years ago, when the residential real estate industry in Phoenix worked like a well-oiled machine.

We were all using the same court-tested paperwork — all the same way and all according to the same standards of care. Realtors knew what to expect of each other, and our arbitration systems made sure we could trust each other.

No more. We’re back to the days of wild west real estate, where every critical detail is negotiated verbally and where every promise is as sound as a three dollar coin.

It’s not the banks who are at fault, at least not directly. Every purchase contract for a bank-owned home will be rewritten by the bank, but lenders are keeping their promises, even their verbal promises, on foreclosed homes.

Short sales are another matter entirely. Many agents handling short sales are scrupulously honest, letting buyers know exactly where they stand and keeping everyone up to speed.

But there are agents who treat short sale listings as an undisclosed silent auction, submitting every offer to the lender and not informing buyers they are being pitted against each other.

So you wait six weeks to six months for a response from the bank, only to learn that the property will be sold to someone else. The upshot is that short sales are not a viable option for anyone who needs to move by a specific date.

That’s a worst case scenario, but in this little mini-boom we’re going through, we are once again seeing some of the worst practices from the boom years.

For example, the bidding wars you’ve read about are carried out by means of the Multiple Counter Offer form. Each buyer is invited to make a better offer, without knowing what the other offers are, without knowing how many there are, and without knowing if the other buyers are even still in the game.

I can’t imagine a situation less fair to buyers. This is the kind of opacity we can expect efficient market systems (read: the internet) to fix going forward.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

If there’s one thing we can say we’ve learned from the housing bust, it’s this: The worst conceivable stewards of financial assets are bankers.

At every step of the real estate market’s retrenchment, the bankers have been right there, on the spot, ready to make precisely the wrong decision — days, weeks or even months late.

Can’t make your payments? Put the home up for sale. Will the bank honor an offer short of the amount owed? Maybe. Maybe in six weeks, maybe in six months. Will the buyer still be there when the bank finally responds? With prices declining by thousands of dollars a month?

So the bank has to foreclose on the home — at an imputed value far lower than it could have had from the short sale. And then it must list that home for sale at a still lower price.

But don’t waste your time looking for evidence of prudence or even simple greed in a lender-owned listing. The home will be filthy, with fixtures and smoke alarms missing. The kitchen range will have been stolen, thus to assure that the home is not accidentally sold to an FHA or VA buyer.

If the bank inadvertently approves a purchase contract for the home, it will do everything it can to avoid recouping even a tiny fraction of its losses. First the bank will attempt to savage the deal by completely rewriting the contract. And everyone involved in the process will be insanely overworked, so that even the simplest question will occasion a two- to five-day delay.

Absolutely nothing will be done to address even deal-killing defects. But because the decision chain is so convoluted, negotiations over problems will drag on for weeks or even months. That way, when the deal falls apart, as many do, the bank will be able to relist the house at an even lower price.

I wish I were making this up. I want to deride bankers as being clowns, but that’s unfair to the clowns. They produce wealth, rather than destroying it — and they dress better for work, too.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

Do you feel an insatiable urge to rush right out and buy a house?

There’s a reason for that: You’re being conned into thinking there is a shortage of available housing, when the exact opposite is actually the case.

Maybe conned is too strong a word. Are you begin misled? Are experts and pundits themselves misled? Are we all of us suffering under a mass delusion, an amplified species of wishful thinking?

Here’s what’s really going on: Last fall FannieMae and FreddieMac, along with some of the bigger private mortgage banks, declared a moratorium on new foreclosures.

So for four months, homes that would have been foreclosed on sat on the sidelines of the real estate market.

And for those same four months, inventories of already-foreclosed homes declined. In March of 2009, for example, a total of 7,621 listed homes were sold in the Phoenix area, of which 5,066 — two thirds! — were lender-owned homes.

That sounds good doesn’t it? Even better, as I write this, only 7,607 lender-owned homes are listed as being Active in the MLS database. That’s just a month-and-a-half’s supply. Happy days are here again!

Not quite. That Fannie/Freddie moratorium on new foreclosures ended on April 1st. In the first three weeks of April, there were 2,460 new lender-owned listings. And there are still two years of foreclosures in the pipeline.

What we’re seeing is a Fool’s Gold Rush. The perceived shortage of housing is an illusion, an artifact of a normal number of buyers competing for an inventory that seems to be declining rapidly. It isn’t. Instead, even now the inventory of lender-owned homes is surging.

If you need to move, you need to move, and interest rates are amazingly low. If you want to bite the bullet and move up, now might be a good time.

But even if we see a month or two of stable or even rising prices, there is an echo-bust in our future as buyers catch on to the artificial nature of our illusory housing shortage.

by Greg Swann

Sun City Real Estate Broker

Author website

The other shoe drops:

The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers.

Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February’s total, RealtyTrac reports today.

One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country.

The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program.

Much of March’s activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again.

This is not the end of the world, but reports of the real estate market’s immediate resurrection may have been exaggerated.

Put another way: This does not mean the Phoenix real estate market is not going to find a bottom, but it does seem to imply that, once it does, it’s going to stay there for a while.

Buying a residence with plans to stay put for five years? It’s hard to argue with today’s interest rates.

Buying a rental home for cash-flow now, putting off any hopes for appreciation for the next few years? You’re probably okay.

Buying to fix and flip? Guard your upside and get it sold fast.

Buying to fix and hold, either as a residence or a rental? This may be the best bet of all right now.

Selling a home? Don’t play games. Price it to the market and get it sold. If your home is not showing, the price is too high. If it’s showing but not selling, unearth the deal-killing defect and correct it. Every month you waste is costing you money.

We have two years, at least, of bad loans still to work through. If demand rises to meet the inflow of foreclosure inventory, prices will rise despite everything. But don’t hold your breath on that outcome. Long-term risk is probably pretty safe. Short-term risk is foolhardy, for now.

by Greg Swann

Sun City Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

I was in a new-home sales office last weekend, and the sales rep was raving about how the real estate market has turned. It was hard to argue with her. That subdivision had a lot of traffic, and, besides, the newspapers have carried story after story bearing good real estate news. And who wants to rain on the parade?

There is good news out there, after all. We track bread-and-butter tract homes month-by-month, and, in some respects, March was a great month. Volume of sales was up 62% over February, for example, and this past month was the best March since 2005.

But both August and September of 2008 were better months. Still worse news, sales prices were down another 5.2% for the month. That’s 35.22% year-over-year and 54.13% from the peak in December 2005.

So, yes, people are buying homes. And, yes, for now inventories are declining. But FannieMae and FreddieMac had declared a moratorium on new foreclosures late last year. This was quietly ended on April Fool’s Day. There are 10,000 new foreclosures happening right now, half of which will hit the market as lender-owned homes in the next 60-90 days.

So what? Boom? Bust? Both?

If purchases exceed new listings, prices should stabilize or even go up. But if that’s a temporary phenomenon — a temporary “shortage” of newly-foreclosed homes — we could see an echo-bust: Stability for now followed by more price declines later.

And heads matter more than beds. If investors buy homes for which they can’t find tenants, this will depress prices, too.

On the other hand, interest rates are at unprecedented lows. Is it possible that you could save more by paying a higher purchase price now, at a lower interest rate? Or are you better off waiting for better prices, even if you end up paying a higher interest rate?

Here’s an easier question to answer: Is it time to put the champagne on ice, thus to celebrate the bottom of the real estate market? Possibly. Just don’t pop the cork yet.