Market Climate Update…….
If you are a Buyer, be aware, especially if you are moving here from another state, that regardless of the market climate, the offer-process for a home purchase in Arizona will be DIFFERENT from what you have heard or experienced previously.
And, if you are a home Seller, achieving a successful property sale will also be DIFFERENT from what you have heard or experienced previously!!
The goal for a property listing is to bring in an offer that can be accepted as-written or negotiated into a sale-contract which will result in a successful “closed sale”. The Seller wants the highest possible price; the Buyer wants to purchase at the lowest possible price. The number of available properties at a given time plus their amenities and price differences, coupled with financing options, creates a market climate, and sets the perimeters for successful home sales. Regardless of market climate, though, Buyers shop by COMPARISON, often looking at similar properties in a number of areas in the Phoenix Valley, not just the MLS area of one Seller’s listing.
The purchase or sale of residential real estate is unique in that it is an investment that involves both finances and “heart”. Like all financial investments, there are price-cycles. There are up-bubbles, and there are down-bursts. Historically, real estate cycles run 7-10 years. The last two years of an up-cycle see the greatest price increases, and the first three years of a down-cycle see the greatest price drops.
Long term, history has repeatedly confirmed that buying a home or owning additional real estate assets as an investment provides unequaled opportunity for financial growth. Not only is there the yearly financial benefit of deducting annual interest and property taxes, but the payments going towards principal are like an automatic savings account. Your property asset value increases two ways: as you pay down your loan, and through long-term appreciation. Yes, “Home” is for building -- both beautiful memories and a financial future!
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So, where are we currently in the Arizona housing market?
During the last years of the previous up-cycle, Lenders made numerous 100% and / or interest only loans, plus financed sales for Buyers who were only marginally qualified to purchase. A number of home-owners re-financed and pulled their home-equity dollars out. These various loans were packaged for investors into the secondary financial markets. Most of these loans now total more dollars than what their properties can be sold for.
Our current “down-cycle” has had unusual extreme elements which move it well outside the “normal” classification. I.e., this housing cycle is part of a world-wide economic contraction of excessive debt. Swift and brutal pricing changes have been part of the cause & effect of massive over-supply, contributing heavily to what would have been “normal sales” becoming “short-sales”, and then Lender-owned.
What is a “short sale”? This applies to a property that is listed for sale at a price that is below the total loan(s) owed by the Seller. In other words, if a sale actually takes place, the lender or lenders will be “short” loan payoff dollars at the closing. For a contract to complete, the lender(s) and seller have to all agree to the end-result dollars. Often there are title issues, particularly if one or more of the outstanding loans has been sold or transferred. Short sales are not appropriate for buyers who need to purchase a home within a specific timeframe as it can take months to get lender agreements to a contract – and frequently there is no agreement. Currently we are seeing around 28% of short sales actually completing.
Lender-owned properties are those that have gone through the foreclosure process, often wiping out one or more “second” loans. When the foreclosure process completes, title is cleared and the foreclosing Lender owns the property. The Lender then lists the property for sale at a price to recoup their debt position and get the property off their books. This list price is often substantially lower than the market climate price in place when neighboring properties were purchased. When the number of these properties increases, list price “reductions” by Seller-owners have to take place to be in harmony with these new “comparable sales” for appraisal purposes. This creates new “short sales”, and the cycle continues. Nasty stuff for Sellers!!! Bargains for Buyers!!!
Today:
Properties under $600,000 that are correctly priced in harmony with current closed sales are now “hot”—especially those in good condition that are not short sales or lender sales, and we are once again seeing multiple offers, including over list price. Where and when does it end? That is, of course, only something we can see AFTER it happens!!
Most properties are selling 99 - 102% of their final list price.
Prices have dropped substantially from their highs, and interest rates are still historically low. However, obtaining purchase-financing is becoming more complicated, and getting lender appraisals to validate contract purchase prices is often difficult. FHA and VA loans require a property to be in livable condition with all normal basic items like AC and kitchen appliances in place and in operating condition. And, because short sale Sellers are prohibited from making repairs, and because lender-Sellers rarely will make repairs, these sales will usually not meet Buyer lender-guidlines for financing.
The good news is, homes are selling! And if you are a Buyer, the market pricing of today is providing a wonderful window of opportunity to enter the market for long-term investment holdings or to purchase your dream home.
Whether you are a Buyer or Seller, I look forward to helping you achieve your real estate goals!
Results that Count……
Liz Pickett, ABR, CRS, GRI
Broker-Associate & Certified Relocation Specialist
Coldwell Banker Residential Brokerage
Updated 05-2012
