Pending Sales up 14.9% in the West

The National Association of Realtors released pending sales data today and the west region lead all others with a 14.9% monthly gain!  Overall, pending sales nation wide were up 7.3% from last month.  For those who wish to make a home purchase consider this.  The affordability index is the best in years, interest rates at or near record lows, and now others are starting to make their moves into the market.  All of this coupled with record low inventory levels and fewer properties going into foreclosure would indicated to me that the market is poised for a rebound.  As I posted in the past few days, our market in Phoenix was the only one of the 20 city composite to show an increase in month over month pricing.  There was an old saying, "Never fight the Fed".  One should also never fight market supply and demand fundamentals. 

Phoenix Prices rise according to Case-Shiller Index

Phoenix was the only city in the 20 city composite to post a month to month gain according to the Case-Shiller numbers released today.  Prices were up .3%.  Inventory is near all time lows so this comes as no surprise to those who follow the numbers.

Year Over Year Pricing Increases In Phoenix Market Predicted: You Heard It Here First

Don't be surprised if you start hearing of year over year real estate pricing increases in the greater Phoenix market really soon.  After falling up through around a year ago, prices have started to rebound and we are going to see year over year pricing increases starting this next month.  This may be the news that causes momentum to pick up in pricing because we have very low inventory levels, over 40% fewer MLS listings than one year ago.  That translates to a 3.7 month supply of housing area wide.  Closer in markets are experiencing an even tighter market with impressive month over month price appreciation.  Interviews with investors at Trustees sales auctions indicate that prices are being bid up there too with fix and flip margins being squeezed by an increasing measure.  Hopefully, once these stats are reported, lenders will start looking for reasons to make loans instead of reasons to reject, adding more momentum.  From what the author is reading, several other markets are in much the same status.  The media template of doom and gloom may have to be re-designed to show a more balanced and more positive viewpoint.  Hopefully, this protracted nightmare is coming to an end.  I, for one, am ready for it.

Bank of America Mortgage Cleanup Unit

Recently Bank of American announced Terry Laughlin would head up a new unit responsible for cleaning up the Bank's mortgage mess.  One has to wonder if this is yet another in a string of impotent moves the large banks are making or if Mr. Laughlin is really going to make headway into the Bank's massive issues.  As one who deals with this on a daily basis, I can only hold out hope.  Last year, they did make some progress on the short sale side by allocating additional personnel to assist in processing them.  In that way, things have improved.  Negotiators are assigned a case and have been fairly timely in getting the files processed.  However, in their zeal to save money by assigning low fee appraisers who do not appear to have knowledge or experience in the markets, they have short circuited what would otherwise would be considered a success.  If you are out there Mr. Laughlin, please start making an effort to use seasoned appraisers who are familiar with the market the assignment is in and start paying them as the professionals they are.  In one example a house was listed on the market for over 90 days and received a cash offer of $750,000....bank came back at $820,000....result buyer walked.  After another 90 days another offer comes in at $728,000 the bank comes back at $740,000....result...buyer found another house they liked better.  While the second one may have been close enough to work out, one has to wonder what the ???

I don't envy anyone who has to take on a portfolio the size of Mr. Laughlin.  Of course, it would not have been near the issue had they not bought Countrywide (what were they thinking? they had time to back out when things were crumbling around them) but that is an issue perhaps for another day.

In closing, I would like to wish Mr. Laughlin luck with his new endeavour because the sooner he and is contemporaries in other banks have success, the sooner we can get through this and recover.

Vacation Home Market on Rise

Amid the rising interest rates, sales in many vacation communities in the U.S. are soaring.  According to the Wall Street Journal, the low prices and a general feeling that the worst is over is catapulting sales to their heights levels in years.  Here in Arizona, we have seen similar results.  Inventory levels of homes in many of the price ranges in Paradise Valley are the lowest in years and not that much new is coming to the market.  I have interviewed architects, builders, and subcontractors and calls are up for all of them.  Now whether that translates into new builds or not remains to be seen.  However, the inventory of newly built speculative homes abundant in the market a few years ago is all but gone. 

What was surprising to many of us was how few new listings came on the market at the first of the year, typically the beginning of our busy selling season.  Here in Paradise Valley, there were several homes built after 1996 priced under $1.6m, but they are almost all gone.  The most recent to go under contract were the ones on busy streets which is always an indication of depleted inventory.

Sales have been very brisk in Silverleaf, an exclusive gated golf community in north Scottsdale but those sales have not translated into greater activity in Desert Mountain yet in far north Scottsdale.  We are just going to have to see, but things started feeling better a year ago October but then died down this summer and have really accelerated since November/December.

Jumping Rates Hit Refis

Is it me or does it seem like every time it feels like we have put the worst behind us something else happens?  Mortgage rates have started to jump recently due to inflationary worries.  Only a few months ago we were more concerned with deflation.  The American public must be wondering 'what the heck is going on?'  In my opinion, the recent unrest in the Middle East, while fascinating and in the long term positive, is allowing shrewd speculators to venture into and I am sorry, manipulate the commodities markets.  Just back in 2008 we saw something similar as corn, oil and other commodities appreciated at meteoric rates.  We all know it was investment banks and large hedge funds driving it and there was supposed to be limits on speculative positions in some commodities, namely food, to stop this.  Have they been put in place yet?

While Libya represents only 2% of the world's oil supply, prices increases in the oil markets have far exceeded that and are up around 14%.  This when Saudi Arabia can make up for any supply interruptions of this size.  So what is going on and why should it matter and what in the world does this have to do with real estate?

Well if oil goes up and stays up, the cost of everything, farming, transportation of goods, materials made of plastics, everything starts going up and a 'cycle' of inflation can occur.  Bond markets price the risk of future inflation and if they, the bond investors, see inflationary worries, they pull back and bond prices fall.  Since interest rates are inverse to bond pricing, the rates start to climb until they are high enough to entice enough buyers into position to create stasis.  Mortgage rates are closely tied to the 10 year U.S. Treasury note. So there you go. 

My fear is that if speculating drives oil prices too high for too long, any momentum we have started to seen in real estate will be quashed.

"Housing Statistics Hit Rough Waters"

In the January 8-9th Wall Street Journal article with the above quoted headline, Carl Bialik is dead on with his analysis of the housing statistics that get thrown around .  I encourage you to read the full article but here are some highlights.  He first points out that only 2/3 of all homes have mortgages so if you hear that 22.5% of homes with mortgage have negative equity, which CoreLogic reported in December, that means that 15% of all homes in the U.S. were underwater.  He goes further to say that most are concentrated in a handful of states, Arizona, California, Florida, Michagan and Nevada.  These states combined for 31% of all mortgages nationwide but 53% of all underwater mortgages. 

In addition, 7% of that 22.5% are underwater by 10% or less.  That means that just under 9% of all homes nationwide are underwater by over 110%.  If you are not confused enough by now, there are many more homeowners with slightly positive equity than slightly negative equity so if the methodology for home valuations used by CoreLogic & Zillow are flawed or greatly inaccurate, more people are likely to be shoved into the negative equity bracket than positive.  CoreLogic claims its valuation estimate is within 10% of a sales price 55% to 75% of the time while Zillow claims it is within 10% almost half of the time. 

So what should the reader take from all of this?  There is clearly a bias to the negative in both the statistical methodology and the media at large.  Yes, this has been a crisis of epic proportions and devastating to many, but wallowing in the negative and refusing to acknowledge anything positive can only lead to more of the same.  Markets are simply a group psychology. (Read upcoming blog on markets)  Thankfully there are some lie Mr. Bialik who can bring some measure of sanity to the news cycle.

The Jumbo-Mortgage Comeback

A recent article in the Wall Street Journal confirmed what we are seeing in the Jumbo Mortgage and Luxury Home arena.  During the financial meltdown, most banks quit underwriting jumbo loans and super jumbo loans entirely.  Thornburg Mortgage, a big secondary market player, saw their credit lines dry up and one of the biggest players in the jumbo market over the prior years eventually had to shut its doors.  Why is this all important to Luxury Home buyers, you may ask?  It is quite simple really.  As the Luxury home markets expanded during the tech/stock boom of the 90's and then the real estate boom of the 00's more and more buyers were lured into the market segment by utilizing financing, some of it highly leveraged.  With no financing available, those who needed to sell had to find cash buyers.  Obviously, the number of cash buyers was quite small and many were forced to give up their homes, putting more downward pressure on values.  Prices were way over-inflated and a correction was eminent, but the lack of financing made a terrible problem even worse. 

The good news from the banks is that jumbo financing is on the rise and more available.  The article mentions Wells Fargo and J.P. Morgan Chase but my experience is that ING has been real aggressive in offering jumbo financing and are quickly taking market share.  The affluent will recover as will everyone eventually and they have taken the stance that relationships developed now will pay off even more down the road.