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Foreclosures, REOs Account For 67% Of Phoenix Home Resales In August
For all those curious what the potential impact of an escalation in the GMAC Bank scandal may mean for the housing market, look no further than Phoenix. According to a new report by the Arizona State University W.P. Carey School of Business in Phoenix alone foreclosures and REOs account for 67% of all home sale transactions. According to author Jay Butler, out of 8,790 resales, 3,990 were foreclosure sales. This compares to 3,865 in July and 3,085 in August 2009. Adding REO sales to foreclosures, and the total become a whopping 67% of home buying activity in August, meaning just a third of all resales occurred in the traditional method were a buyer and a seller arrived at a price after arms-length negotiations. This is stunning, as it means that should the foreclosure pipeline get clogged up courtesy of the GMAC snafu, and price discovery will become completely impossible, as banks are stuck holding real estate they are legally prohibited from offloading in judicial states. Luckily for Arizona, it is not such a state. For home buyers in the 23 states in which GMAC has halted evictions and certain foreclosures indefinitely, the home buying process is about to get really complicated.
More observations from the ASU report:
- The median price for a regular-way sold home was $135,000, compared to $137,500 in July and $138,000 in August 2009
- The median price for a foreclosure property was $147,050, compared to $154,970 in July and $139,800 a year earlier
- August saw 22 foreclosures of homes worth more than $1 million
- 7 of these were for homes worth more than $2 million
- Condominium sales saw the same declining trend, with the median price of $97,560 a marked declined from July's median of $110,235 and August 2009's $100,820
- The median square footage for a single-family home recorded as foreclosed in August 2010 was 1,680 square feet (1,705 for a year ago), while it was 1,800 square feet (1,790 for a year ago) for a market transaction home. In the townhouse/condominium sector, the median square footage for a foreclosed unit was 1,055 square feet (1,050 for a year ago), while the traditional market units was 1,090 square feet (1,150 for a year ago).
And lastly some very gloomy observations on the market from the author:
As the year comes to an end, it is not unusual for median home prices to decline from the levels found in resale home buying season. The fundamental reason is sales activity declines in response to holiday and school activities that allow little time or desire to buy a home. Beyond the impact of foreclosure activity, the absence of a strong move-up market, which is fundamental to a housing recovery, will also limit any growth in home prices.
Soon there will be a very notable move in home prices. However, unlike what Obama and Bernanke desire, it won't be up.
Full REALTY STUDIES August 2010 RESALE HOME MARKET report
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But my real-estate friend just told me now is a great time to buy?
It could be if you don't plan to move or borrow against your home in the next 15 years and if you aren't going to be phased by a mortgage worth more than your house for a while.
Unless you believe in full hyperinflation, then, it isn't.
This will actually cause home prices to rise, maybe significantly, at least for a while. If REOs are taken off the market in any number, supply will dwindle, especially in cities like Phoenix.
The problem with the supply-and-demand model, accepted by keynesians, monetarists, and neo-classicists, is that it doesn't explain how the bid or the offer is formed.
OK, so one component of supply is pulled. Does this make existing sellers raise their offers? How about the pool of buyers? Does this make them raise their bids?
Oh, wait, the pool of buyers is shrinking due to bankruptcies and other FICO-killing events, loss of employment and other income-killing events, looking at the economy and other optimism-killing events, etc.
so you're saying reduced supply of houses for sale makes prices fall more than they would otherwise?
novel idea...
we're talking 67% of supply immediately removed, right?
ummmmmm.....well....i don't think i agree
That would depend significantly on the question of why the homes were taken off the market, the perception of such, and the duration of the market hiccup. If it became widespread knowledge that REO's were being held back from the market because of clouded title, inability to foreclose legally, etc., this might cast a huge pall on the real estate market. People are waking up to the idea that maybe buying a home isn't for everyone. And that the banksters don't have their best interests at heart. Skepticism could be a powerful force in the market.
Or, it could be no big deal. Only time will tell...
Again with this Phoenix stuff...look, they are solid contender. But, when the Pontiac Silverdome sells for $500k and houses in Detroit can sell for LITERALLY a dollar and are bulldozed for 'urban farmland' then Phoenix is suckling on hind tit.
Damn it, can't anyone acknowledge that Detroit is #1 at anything? We used to be the murder capital of the US until those uppity a-holes in Washington D.C. started buying up all the guns.
Man, we just can't catch a break (or a football if you understand the Lions reference).
Absolutely right. Detroit has been right properly destroyed. The image of that happy, middle-class Ford plant worker had to be erased from the national memory banks.
Now the Republican vision for those people is almost complete: Move them all down to Arizona, trap them in their houses and turn off the water.
you have quite a Thinker there TMR. Having said that GMAC is a "government bank." So "what's the big deal?" right?
i'm starting to understand your pessimism and anger now, living in detroit must be worse than death.
no amount of money in the world could make me live there.
Well, as they say, if god wanted to give the US an enema, he'd slam it directly into Detroit.
oh damn, i was hoping for a 'fuck you' and then i coulda mentioned your daughter and we'd be off to the races!
Don't you know the recession is over. There is nothing to see here, move along.
Considering most foreclosures and REO sales are considered distressed sales and thus not considered a comparable when determining real estate values for "normal" sales, how exactly are they determining fair market house prices in Arizona? Or anywhere else for that matter?
Just askin'
Good point.
Directly perhaps not. Indirectly - definitely.
Foreclosures cull off a lot of demand from the non-foreclosure market; lots of people looking to buy a house are willing to buy foreclosures instead, since prices are way lower. Less demand = lower prices.
I saw an "appraisal" two weeks ago that showed 7 comparable "sales". Six were distresseed property sales that were marked as such, including the notation that they were not included in the calculations but representative of condition and size. All 6 were relatively near the home that sold. The 7th was another "normal" sale one county (35 miles) away.
The report used quite a bit of fantastic leaping and jumping to unsupported conclusions in order to appraise the home for exactly what the seller and buyer needed to complete the "normal" sale.
Anyone else see this "quote" stuffing going on in their part of heaven?
Why would a buyer be 'willing' to enter into such a transaction? Don't they see the writing on the wall concerning coming price declines? I'm guessing they have deluded themselves that this is a great deal, yada, yada, etc. And why aren't distressed sales, especially when they dominate markets, calculated in the comps? They seem to be sales to me, and why should a non-distressed sale get a premium (condition obviously being relevant)?
OT: the lead story in the Seattle Times business section is a 204k vacant brand new Class A office building was given back by the developer to US Bank. $67.5 million construction loan. No takers on leases for 16 months (totally vacant). Not an A+ location, but a decent building. Now on the market for $35 million. Any equity wiped out, plus 50% of loan value. [Oh, and REIT's at 52-week highs.] The recession is over right?
CD, are you implying that a real estate appraiser just puts on the line what you tell him? I would have never thought such a thing would happen! EVER!
CD
I just re-fi'ed my mortgage, full doc at 3.75 and as part of that I got an appraisal.
They used all sales (only 2 REOs) and ... and the tax appraisal!
The conclusion: Property was properly valued within the range values and with a 50% LTV that's good enough apparently.
I took it a step further and did a price per sq. ft analysis and guess what there was only about a $1.05 variance between high and low.
Full disclosure, not in a housing bubble area ... housing costs are just boring out stable with an ever so slight incline higher.
This question may have already been answered. Distressed sales are the comps (adjusted for condition), at least in Southern California. And these are fannie freddie guidelines, which aren't usually regional. Anyone who is trying to support value on an appraisal by discounting distressed and offsetting with non-distresssed sales is...???
There may be the rare case where a distressed property is in such poor condition that a "market" sale better reflects value - from an adjustment standpoint, but that's about it, imo.
In Nashville, it was hit or miss whether real estate agents would accept my comps, which included several foreclosures. They would argue about how that wasn't the norm. Granted, Nashville isn't as bad as Phoenix, but it was just getting aggravating trying to speak with people about how they should be included. I ended up buying a foreclosure and the bank (DB) just wanted to get rid of it.
great point actually. now take a trip around South Carolina while having "the scene" from A Few Good Men in your head.
I do a lot of house flipping and in my neck of the woods (Indiana) distressed sales ARE included in comps. There was resistance to this a few years back when there weren't very many of them. Now, however, distressed sales are so common that they form the market price so how could they be ignored?
The appraiser needs to be careful about condition on distressed sales, though. Many of them are rough and would not be comparable to a "pretty" house - especially if the sales terms are "as is". In general, though, a distressed sale needs to be considered a comp if they are common in that area.
One possible outcome of a halt in judicial foreclosures that no one has mentioned is that the lenders might be a lot more willing to consider a heavily discounted short sale as an alternative to foreclosure. This could be good for investors like me!
If the title is clouded by bogus lien transfers you can and should get 20% plus discounts. Or GMAC could clear the title.
My real-estate co-worker just told me that Wells, BofA and the other big boys are ramping up foreclosures here in Nevada. They have hired a number of outside companies to handle the paperwork as they don't have the man power. His words were "It's going to be a flood".
I've been waiting for this. Gettin ready to pounce.
i heard the homeless rate is a "mere 40%" in Vegas, too. Still "that's a lot of people to pounce on." I hear "the government has some questions they might want to ask."
Here are the Aug numbers for Las Vegas/Henderson.
Total sales 3,518. REO 1,539.....Short Sales 1,073 or 74% distressed.
We have been hearing about the "wave" that is coming for about a year, so don't hold your breath.
The total listings are 27,834 of which 5,521 are REO and 16,284 are Short Sales.
We have 8 months of supply at these rates, not counting the "shadow inventory".
Is anyone watching the softs? Cotton and OJ put AAPL to shame. Parabolic milk, bitchez.
I am.
http://tfc-charts.w2d.com/marketquotes/index.php3?market=CT
Not exactly parabolic:
http://futures.tradingcharts.com/chart/DL/W
http://futures.tradingcharts.com/chart/OJ/W
http://futures.tradingcharts.com/chart/CT/W
Nevertheless, I am very, very, happy we have our own dairy cow, beef steer, layers, broilers, lapins, orchard, and veggie garden.
Prestidigiflation. When the rabbit finally does get pulled out of Ben-The-Magnificant's top hat, it is going to cost a whole lot more than $20.
rightfully so in my book after witnessing the dairy suicides first hand.
GMAC is just the tip of the iceberg.
The velocity of loan issuance, securitization and loan sales to third parties from 2002 through 2006 pretty much assures that many, many mistakes were made by under staffed back office operations to perfect ownership of mortgage notes.
Now comes the shit storm. I hear the paper shredders whirring to life. I personally recommend the GBC Shredmaster Arthur Anderson signature model.
"Mistakes" - I like that.
Nice irony.
Yeah, whole banks' worth of "mistakes" were made.
In many states, if the buyer of a mortgage loan does not perfect ownership by completing the statutory filings properly and timely, they have no claim and the deed holder own the property free of lien.
I would call that "a mistake".
Right, but what happens when the sharks start eating each other and attempt to crawfish out of the assignments due to the value/formalities being misstated? If the GSE pays 100% on the dollar for a note that was worth 60% if they actually had a 1st priority lien, but now have a lien as an unsecured creditor, presuming they can get a judgment, dropping the value to 0%-10%, then that's a lot different pill to swallow. Will the GSEs attempt to offload the bad loans back onto the sellers? (no, but still).
I second the recommendation. You can stuff half a ream of paper in it without jamming and it runs on a 200 HP diesel engine that gets 370 reams to the gallon. Depending (of course) on how fast you're .....um.....reaming. :>)
i think they need hard-core industrial strength. 2.5 tons per hour. i'm talking about a shredder that can shred 14 gauge steel. for real.
meet the allegheny 100 series:
http://www.youtube.com/watch?v=8qzAQP89qvk
CD - I would recommend the Oliver North - Fawn Hall limited edition - it plays patriotic music in order to muffle the shredding sound -
The mad dash for the exits. Hard to manipulate all of the exits.
CLUEDO: SUBPRIME EDITION
http://williambanzai7.blogspot.com/2010/09/cluedo-subprime-edition.html
REO sales do affect the comps if they show up in the MLS sold statistics. The only ones that slip through the comps are auction sales, and new home sales(often sold below market to blow out builder inventory).
Snatched this off Mish's website
Not Your Typical Recession or Recovery
http://3.bp.blogspot.com/_nSTO-vZpSgc/TJhFxFaAa0I/AAAAAAAAJXI/FSBDfXA5GL...
There can be no real housing recovery w/o jobs. A VP of large painting supply co told me they ran an ad for a "warehousing man" in Phoenix not Manager, just a guy to run the forklift. The co. received 250 responses in 3 days and 750 in 6 days (about 50% of the responses had college degrees and 15% of those had advance degrees). Only 57% of the poplulation is employed compared to 62 to 64% from 1990 to 2007. The trillion dollar stimulus program created public sector (union) jobs and many jobs overseas. The stimulus bill did create 2 mm jobs. The people who wrote the stimulus bill knew most of those jobs would be created overseas to serve their partners in China and India...better known as outsourcing.
those that VOTED for it knew that. interestingly "not a single Republican voted for it." But wait..."don't they hate America too"? I'm confused.
I have a lot of friends and family in Phoenix and it's rough. Three of my good friends have left the state for work and a few others I know fled into school for a while. The economy was really geared toward the FIRE economy. What really got me was the empty storefronts in Scottsdale (Rich part of Phoenix), things are tough all over.
Judging by this report one can buy bigger and cheaper house by avoiding foreclosure sales.
judging by the comments it would appear "paying your property taxes" is a good idea too.
WTF is REO and who is ASU?
Dont you guys just love acronyms!
HFT and POMO QE by the FED cuppled with MSM (CNBC) MOPE, ECBs PIIGS and BOJs latest interventions leaves the GP clueless about the real value of USD and GLD YTD % chance. TARP did not save BofA FASB did. And JPM, HSBC, GS, BRK SEC and the CFTC does not give a shit. But dont worry NBER has ended the recession GDP is back on track. The BIS, IMF, WTO will get the BRICs in on a new deal and everything will be OK.
Do not buy SLV buy silver.
Some of my friends :-) mentioned to me that the ZeroHedge stuff I forward to them is hard to understand because the acronyms are unfamiliar to them. So I made up a page of commonly used acronyms at: http://goldsilverstocks.info/Investment%20Acronyms.html
Just a heads up to all those interested in "buying off the bottom." Aside from all the other unknowns out there (taxes, economy, et al) you want to keep in mind that there won't be any V shaped recovery in housing prices.
I only bring this up because I have some buddies who are buying on speculation. Some of these guys haven't thought it all the way through - they forgot about carrying costs, which are important if you are running a negative, and haven't really thought about how long they will have to hold before they can sell at a profit. They "just want to own Real estate because that's how people get rich." Some have bought the very low end and are making the numbers work, but the margins are shrinking due to inventory control on the part of the banks. The whole thing, at least in socal, is pretty manipulated (read: falling knife)
I'm speaking of Real Estate for investment purposes here - buying at or near a bottom when the property is going to be a person's domicile is another story.
The Real Estate market isn't running away from anyone. Time is on your side.
67 percent of SALES, not supply on the market. With also a huge shadow inventory, and the ability to foreclose on many mortgages delinquent but not yet foreclosed upon, things can get weird indeed.
This will take the short sales off the market, thus far fewer homes sold, thus the pressure will be on to lower property prices. You see with all this fake activity going on, it's keeping the numbers up (not very well but it is), and thus people are keeping asking prices up from what they would be otherwise.
Take that away, and down it goes.
But if people think this will diminish the supply of houses available, they're fools. All they need to do is switch the homes they aren't foreclosing on, with the ones they cannot. Now none of this is easy or clean, but it can be done. (not that they should do it, I just EXPECT them to)
Since this is one of the pieces of tape holding humpty together, you can darn sure bet they'll hit their other delinquent borrowers harder and faster to make up for the $$$ shortfall this creates.
But no, it won't be a drop in supply enough to do anything to the market, not when it could cause sales to drop in half nationwide. That is just a rough estimate.
When things hyper inflate, it'll be deflation/hyperinflation at the same time. Houses won't be in the hyperinflation camp, they'll be in the ongoing deflation camp.
So no, this isn't a good time to buy. When brand new (or couple of years od) houses are around 15-30k non-short or foreclosed sale, you MIGHT be at a time to buy. Until then, you're paying far too much. At the same time, once that is the case, your wages will drop in kind, if you aren't one of the 70 percent unemployed. Again rough figures, it could be 95 percent.
ASU is Arizona State University. The most populous main campus in the nation. The Harvard of the Southwest...well for partying that is. Ah yes, the joys of parking at Sun Devil Stadium and walking to W.P. Carey 2+ miles away in 110 degree heat. I do not miss those days. At least they had a real good stats professor whose whole class was teaching the meaning of BULLSHIT STATISTICS. 0 or 1, is or isn't. 95.5, 98.7, 99 percent isn't either. Ahh yes, the fallacy being taught at most schools is that this stuff is real, just ask any ivy league school whose teacher works at a wall street bank. Harvard the epitome of mental sloth.
Anyone remember I think it was Reggie's pictures of the empty waterfront towers ha ha? Don't worry we have dumbass Jan "I haven't been elected as your Governor" Brewer. Sad thing is she won 96 percent of the republicans votes. Which should just show you, republicans in Arizona are stark fucking nuts. I've watched their continued idiocy by whole life.
Don't expect any help from the Arizona gov't, they're out to pasture, and full of the biggest fools as, well, probably everywhere else. Nope, when things crumble, they'll be as clueless as Palin in front of a reporter asking questions. Headless corpses propaganda anyone? She couldn't even answer that question.