The latest reports show that home prices nationally fell for the third consecutive quarter. Interestingly, here in Arizona we were reporting fewer sales, but sales prices were actually increasing. What does it all mean? Well, we must not forget that anyone can pull a set of statistics and interpret them to suit their own purposes. In this case, nothing bad happens, but we need to carefully analyze the statistics. While the number of homes sold in the Phoenix metropolitan area has decreased, those sold remain at the high end of the price range. This reflects two interesting points in the Arizona real estate market. First, the fact that expensive homes are still being sold reflects a broader reality that many of the wealthiest among us are financially vulnerable, and are not affected by the ups and downs of the general economy or the real estate market. Second, entry-level homeowners who want to trade up to something bigger or better (and it’s a great time to do so) are currently having a hard time selling their home due to unrealistic prices and oversupply. Inventory. The pricing problem is something I always run into. Otherwise, sane people will not understand that the “investor” frenzy of two years ago is over. I point to recent comparable sales and the response is universal. Those people who “dumped” the property at below market value. The old “knoll of grass” plot!
The overall economy is generally healthy. Prices in the Pacific Northwest either held or fell slightly due to good job growth. Here in Arizona, the economy has some jobs to help eliminate excess inventory. That may take time. Also, banks are tightening credit parameters; Lending, especially “low-down” or “no-ball” loans, is very difficult to obtain. Lenders are now seeing an increase in foreclosures, with Arizona ranking 7th in the nation, as their previously lax standards are catching up to them.
Lenders have begun to “short-pay”. This is a situation where the bank forgives part of the debt on the home to allow it to be sold. Traditionally, a bank receives 70-75 percent of sales revenue, after expenses, while a short payment can earn up to 90 percent. See your realtor or accountant for more details on both procedures.
It’s not all gloom and doom. As we saw in the 90s, there will be no catastrophic decline in home prices due to the fundamental strength of the economy. It is inevitable that some huge “investors” will be fired back. However, the market remains strong, but it will take a year or more for the so-called investors to get rid of themselves, restrictions and inventory levels to return to normal.
Look on the bright side, at least the weather is great!