- Forecasting

What will 2012 bring?

Will the Phoenix area housing market recover in 2012? That's the big question. Listing inventory is next to nothing, days on the market is trending down, prices are inching upwards, and the tide of bank-involved activity is receding. That all sounds like the stuff of recoveries, no?

A couple years ago I thought this is exactly what the start of the recovery would look like. Banks go away, prompting "regular" sellers, who no longer have to compete with the banks, to raise their prices a bit. As prices rise, more sellers are no longer upside-down and are able to sell. Buyers appear in the form of former homeowners who have been renting for the last few years and are now ready to own a home again (from a credit worthiness perspective.) Eventually the market becomes more like normal than we've seen in about a decade. I've even read others expressing the same thoughts within the last few months. Unfortunately, today I'm not so sure..

As I watch the market and talk to various people, I'm seeing 2 factors which make me think this recovery will be slower than anyone is expecting.

1.) Few Buyers - even though many people lost their homes in waves over the last few years, they aren't coming back into the purchase market in waves. Maybe it's taking them longer to get their financial houses back in order. Maybe it's more difficult than expected to save up for a down payment. Maybe people are gun shy about buying and are comfortable with the lack of commitment offered by renting. Regardless of the why, it's becoming clear the buyers will come back into the market as a trickle over many years, rather than in waves over a few years.

2.) Few Sellers - I can't even count the number of homeowners I talked with over the last few years who decided prices were too low today (and falling), and they wanted to wait for the market to stabilize and come back a bit before they'll be ready to sell. These would-be sellers are now facing a couple hurdles:

a) Money - the market simply isn't going to spike the 20-30% these homeowners are looking for anytime soon. If they can't see the other side of the equation - that the home they want to buy is also reduced in price AND interest rates are ridiculously low, which means moving today probably makes sense regardless of the actual prices involved. If they want to move but can't get over the pricing hurdle, they'll most likely end up waiting for awhile longer.

b) Time - take this example: moving made sense in 2007 when the family had kids of 8, 5, and 2. They thought it would be great to have an extra bedroom and upgrade to a better neighborhood, but they weren't able to pull the trigger as prices fell. Today the kids are 13, 10, and 7. The family has already figured out the shared bedroom situation, the kids are deep into school & don't want to leave friends behind when they move to new schools, and the family only has 15 years left on their mortgage (which they've probably refinanced to 5%). It no longer makes sense for this family to move. They'll probably stay put until the youngest kid goes to college.

I'd love to be wrong, but I'm forecasting a long, slow, gradual recovery, with each year being a little better than the last. Of course, this is all subject to change if the government can't balance it's budget and interest rates double from where they are today...

-Chris Butterworth

Distressed Activity by Month - December 2011

** New Charts this month!

I’ve got good news and bad news.  I also have a handful of new charts!

This post will be a little longer than usual, mostly due to the new charts, but also because there’s more to talk about than usual..

(Click on any chart to see a larger version.)

Listings First – Here are the new distressed listings hitting the market each month going back to January 2009, broken out by different types and views.

Chart 1 - New Bank Owned Listings  - (new listings actually owned by the bank – think foreclosures and REOs.)

The trend on this one is significant, obvious, and heading in the right direction!  We added a “mere” 1,267 new bank-owned listings to the market last month.  Yes, that’s a big number historically, but it’s now 2 months in a row with the smallest 2 numbers we’ve seen in the last 3 years.  This means A) fewer properties are going through the foreclosure process, and B) fewer bank-owned homes on the market for sellers to compete with.


Chart 2 - New Short Sale Listings (new listings, still owned by the ‘owner’, but needing the bank to take a short payoff because the home is worth less than the mortgage balance.  The bank will need to approve the sale.)

Another low point, although this trend doesn’t look as strong as the last one.  The last 3 years has shown quite a bit of seasonality, or random ups and downs, without much of a trend in either direction.  This month’s 1,605 number is the lowest number on the chart by far – about 20% less than the next lowest months (Dec ‘10 and Dec ‘09 – hmmm.)  Since December seems to be an annual low point, I’m not ready to buy into this as a trend quite yet – let’s wait to see what happens next quarter.


Chart 3 - New Bank Owned + Short Sale Listings  (a combined look at the above charts – these are the new listings where the bank is going to take a loss on the property, and the best reflection of my former Distressed Listings chart.)

This chart shows exactly what we’d expect to see – a small number of bank-owned listings, coupled with a small number of short-sale listings, equals a small number of bank & short sales.  (don’t need to be a rocket surgeon to figure that one out!)


Chart 4 - New Vacant Listings  (new listings which are vacant homes.  While not all vacant listings are distressed listings, I am including them because they represent a very large percentage of the overall market, and therefore provide some measurement of Distressed.)

This is another piece of good news.  Looking at the distressed activity from a different angle, we can see there are far fewer vacant homes out there with For Sale signs in their yard.  And this isn’t just a good month – this has been a declining trend over the last six months.

Charts 1 and 4, taken together, should give us a very clear picture of the market’s healing in 2012.


Now the Sales - I’ve pulled all the homes sold since 1/1/2009 for Single Family Residences in Maricopa County, broken out by who owns them and who lives in them.

After 3 years of data, and the inflection point last month, I switched to a line chart to see the trends a little easier.  And trends they are.  Fewer purchases of bank-owned homes; more purchases of short-sales, and more purchases of traditional equity sellers!  I’d prefer to see fewer short sales, but short sales are very good for the market’s healing – much better than letting a home go through the foreclosure process, sitting vacant for a couple years before an investor finally buys it and either flips it or rents it out.  A short sale typically puts a new homeowner into the home in about a quarter of the time.

Chart 5 - Home Sales by Type of Owner


No change in Chart 6:  Vacant homes have been dominating Occupied homes for over 3 years.  This is another good indicator chart – fewer foreclosures and fewer vacant listings will eventually lead to a higher percentage of occupied homes being sold.

Chart 6 - Home Sales by Type of Occupant


And now the bad news

The next 3 charts are new, and they don’t share the optimism of the older charts.  Yes, bank-owned and vacant listings are trending downward, and in steep fashion.  But what does that mean in relation to the overall market?

Here’s a look at the total number of new listings hitting the market each month.

Notice the steep drop-off over the last few months?  Suddenly it’s not quite as impressive to think there aren’t as many bank-owned listings, since there are less listings overall.

In order to see just how much effect one had on the other, I pulled together the percentages – what percentage of the overall market are bank-owned listings?

There’s a long-term trend heading slightly lower, but not much.  We started this experiment 3 years ago in the low 60s.  We peaked near 70%.  We dropped down to the low 50s, before spending most of the last 2 years hovering around 60%.  And recently we’re back down to the low 50s.  Not exactly earth shattering, but at least it looks like it’s going the right direction.

I’m not sure I can say the same thing about the vacant listings, unfortunately.  Vacant listings made up more than 60% of the market in 2009, and then hovered around 60% in 2010 and 2011, before closing out the year at 61.6%.  This doesn’t look like any kind of trend at all.


All charts:  I am including Single Family Detached Homes listed for sale (or sold) in Maricopa County via the Arizona Regional Multiple Listing Service.  These numbers are believed accurate but not guaranteed.

What does it all mean?

While I’m very pleased with seeing fewer bank-owned and vacant homes hitting the market as new listings, the fact that they aren’t being “replaced” by traditional sellers adds a whole ‘nother wrinkle to the “when will we recover?” question.

In addition, the fact that there are finally more sales of traditional sellers than bank-owned homes is most likely a charade.  Since the gap between vacant and occupied homes selling hasn’t really closed, I think the upswing in traditional sellers is due to investors re-selling homes they’ve purchased directly from the banks.

Overall, this shows a market which still isn’t picking up any steam at all from regular, traditional, I own the home I live in and I want to sell it – type sellers.

Stay tuned…

Your feels like he needs to look into this even further Realtor,

Chris Butterworth