The Phoenix Real Estate Market Defies Age Old Law

Courtesy of Barb Savoy-Pacella, ABR, CHMS ~ CEO, Keller Williams Arizona Realty

www.PacellaGroup.com

Once again, I had the distinct pleasure this morning of attending a meeting with Mike Orr of the Cromford Report.  The Cromford Report is a compilation of MLS data that graphs and charts trends in our market.

Many of the things that Mike mentioned are things that we have been evaluating weekly, such as the ability of our current market, to break the age old law of supply and demand.  As we have reviewed previously, Mike also believes that the reason we are able to break this law is due to the distressed properties on the market, but he also cites the fear felt by some appraisers, who the lenders pointed a finger at when the bubble burst accusing them, at that time, of inflating values, to risk over valuing a property (even slightly), and therefore are instead under valuing them. 

Mike even recanted a personal experience, as he purchased a short sale earlier this year.  By coincidence, the lien holder on the property was the same lender that he was using to finance the purchase.  It is baffling that the man who wades through MLS data seven days per week, pulled comparables and made what he felt to be an offer that was getting him a very good deal, and yet, the appraiser valued the property at $20,000 less than his offer.  The lender, who also held the lien, required him to reduce his offer by $20,000 in order for them to fund the loan.  In essence, the lender shorted themselves $40,000 and gave it to Mike.  Unfortunately, that means that the comps for the area just became devalued by $20,000 as well.  That’s enough to leave you scratching your head in disbelief.

Reviewing our ability to defy the laws of supply and demand, the chart below illustrates the rate of appreciation (or in most cases below, depreciation) that has taken place in our market, over the past two years.  Most areas are not in the free fall that we were experiencing in 2009, but I find it curious that with the exception of Scottsdale and Paradise Valley, most municipalities are seeing a greater rate of decline at this point in 2011 than they did at this point in 2010.  It’s possible that the tax credit that was offered through the first five months of 2010 could be the explanation, but again, inventory has fallen considerably, absorption is higher, and yet prices are declining slightly more quickly….

The good news is that in the past 90 days, foreclosed bank owned properties have increased their average price per square by $12 per square foot.  Additionally, notices of trustee sale are down by 50% over the past two years, the mystery shadow inventory is down by 50%, and Mike believes that we are 75% to 80% through the overall distressed inventory.  Additional good news is that short sales are seeing a 55%-60% success rate, versus a 15% success rate two years ago.  Mike believes that it will not be long before we see stability, and then ultimately slight increases in pricing.

Listings Pending Sale are 12,227.  That is an increase of 221 pending sales compared to last week, which is unusual for this time of year. Listings that are active with sales contingencies account for an additional 7,859 properties.

Current Conditions in the Phoenix Market:

• There are 15,444 single family detached listings, currently active in MLS.  That is a decrease of 157 listings from last week.  This represents the thirtieth consecutive week of decrease.  
• There are 19,593 total listings currently active in MLS, which includes condos, patio homes, townhomes, and lofts.

For additional information, or to view homes for sale, visit www.PacellaGroup.com