Recent reports show that nationwide, home prices have fallen for the third consecutive quarter. Interestingly, here in Arizona we were reporting less sales, but sales prices were actually increasing. What does this all mean? Well, let’s not forget that anyone can extract a set of statistics and interpret them to suit her own purposes. In this case, nothing bad happens, but we need to analyze the statistics carefully. What is happening in the greater Phoenix area is that even though the number of homes sold has decreased, the ones that have sold are at the higher end of the price range. This reflects a couple of interesting points in the Arizona real estate market. First, the fact that the most expensive homes are still selling reveals a larger fact of life: the wealthiest among us aren’t affected as much as the less financially fortunate by the overall economy or the ups and downs of a picky real estate market. Second, people in entry-level homes who want to trade in for something bigger or better (and this is a great time to do so) are experiencing a lot of difficulty selling their current homes due to unrealistic pricing and an overabundance. Inventory The pricing problem is one I run into all the time. Otherwise, smart people can’t seem to comprehend that the “investor” fueled madness of two years ago is over. I point to recent comparable sales and the answer is universal. Those people simply “dumped” the property at below market prices. The old “grassy knoll” conspiracy trick!
The overall economy is generally healthy. In the Pacific Northwest, prices were flat or slightly down due to excellent job growth. Here in Arizona, the economy has to catch up to help divert excess inventory. That can take time. In addition, banks are tightening credit parameters; make loans, particularly “low” or “non-qualified” loans, much more difficult to obtain. Lenders are now seeing a rise in foreclosures, Arizona ranks seventh in the nation, as their previously lax requirements are coming back to haunt them.
Lenders are also beginning to process “short payments.” This is a situation in which a bank forgives a portion of the debt secured by a home to allow it to be sold. Traditionally, in a foreclosure, a bank would receive, after expenses, about 70-75% of the proceeds from the sale, while a short payment could be as much as 90% of the proceeds. Consult your real estate agent or accountant for more details on both procedures.
Not everything is gloom and doom. There will not be any catastrophic decline in house prices, as we saw in the 1990s, due to the underlying strength of the economy. Some of the huge increases pushed by “investors” will inevitably be paid back. The market will remain strong, however, but it will take a year or more to get rid of so-called investors, foreclosures, and for inventory levels to return to normal.
Look on the bright side, at least the weather is great!