Prescott, AZ

On April 1st, NAR released it latest figures on affordability and the index is at a record low. This is great news for buyers of traditional resales and foreclosed homes in the Prescott and Prescott Valley market areas.

NAR's Housing Affordability Index (HAI) rose 0.9 percentage points to a record high 173.5 in February from January. The HAI is a measure of housing affordability that correlates the relationship between home prices, mortgage interest rates and family income. The index has been tracked by NAR since 1970.

Lawrence Yun, NAR's chief economist, said a median-income family, earning $59.700, can afford a residence that costs $285,600 in February with 20% down, assuming that 25% of gross income is devoted to mortgage principal and interest. These numbers are well within the prices and incomes in the Quad-cities region of Northern Arizona.

Yun said in the press release that he expects inventories to rise through early summer as part of normal seasonal patterns, as more sellers enter the market through the spring.

See the NAR site to see this and past reports.

The first quarter of 2009 is thankfully over and we are seeing buyers starting to take advantage of the pricing in the real estate markets in Prescott, Prescott Valley, Chino Valley, and Dewey-Humboldt. Foreclosures and short sales have driven prices come down to levels seen before the "boom." Historically, prices have increased at a modest 3% - 5% range, and I would imagine that if normalcy comes back to the real estate market, we could anticipate similar growth in the future. We just have to cycle through some of this foreclosure inventory first.

Speaking of foreclosures, according to latest data from Zillow, the Prescott area averaged only about 4.1% in foreclosure transactions in the previous 5 years. For 2008, we averaged 23.9%!

To see the full report on Zillow

The Zillow data compares fairly closely with the Prescott MLS data below. On the listings side, there were 274 residential single family residence that were listed as foreclosures or short sales, about 22% of the total amount of listings on the market for Q1.

However, on the sales side, foreclosures and short sales made up 34% of the total sales. This is probably due to the 22% discount off of "retail price" that distressed home buyers are getting in the Prescott AZ area.

This discount is driving down the amount that tradional sellers are willing to take for their homes to 76% of their asking prices on average. Banks are getting 13% more, or 89% of their asking prices, on average.

The time it takes to sell a home is decreasing, but tradional sellers are having to wait a little over 6 months, or 92 days, and REO and short sales are taking about 4 months, or 124 days, on average .

(Replaced orginal chart with image)

Prognosis for Q2: Prices will stabilize at the low end and tradional sellers will continue to have to drop what they get to match the foreclosure comps that appraisers are going to be using. When homes don't appraise, buyers either get a discount or will walk most of the time.

Sign up for the Prescott Arizona Area Foreclosure and Real Estate Market Report to stay on top of the Quad-Cities area of Northern Arizona including Prescott, Prescott Valley, Chino Valley, and Dewey-Humboldt.

Is anyone else skeptical of Chase Bank's newest efforts to do loan modifications for up to 400,000 of their customers? Call me a stick in the mud, but I have a hard time believing that banks are doing this for their client's benefit. To me it seems like they are doing this for their bottom line and their shareholders.

In this morning's Arizona Republic, Russ Wiles wrote about the opening of a Phoenix homeowner center to allow Chase Bank to "get up close and personal with troubled homeowners." Chase is going to "help" 400,000 of its customers stay in their homes. This includes homeowners facing foreclosure in Prescott, Prescott Valley, Chino Valley, and Dewey-Humboldt. See the whole article.

The problem I have with Chase's plan is that many homeowners are going to be stuck with homes that are going to be underwater for years and it's unlikely that many of them will emerge stronger financially. And most of them will fall into foreclosure anyway in the long run because banks are focusing on reducing the interest rate of loans rather than reducing the principal. See Bloomberg article.

But any delay in the foreclosure, even by a few months, adds cash flow to the bank, mitigates their immediate loss, and allows them to issue press releases on how they are taking care of their customers.

The bottom line is that banks know that its in the bank's best interest not to have the homeowner walk away from an upside down home. Depending on what study you read, it costs a bank about 20% - 25% of the cost of the loan to foreclose on a home, and in a declining market, even more:

According to mortgage financier Freddie Mac, the typical foreclosure cost is nearly $60,000. And officials at HSBC, North America, parent of HSBC Bank USA, HSBC Mortgage Corp. and HSBC Finance Corp., say their average loss on sale at foreclosure is 20 percent to 25 percent of the loan's value.

"We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure," Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. "Financially, it is our worst alternative."
via The Buffalo News

I personally believe that foreclosure and short sale are the cleanest ways for people to get out of their upside down homes if banks are not offering a reduction in the principal. Don't let the bank turn you into a mortgage slave.

See: Loan modifications create mortgage slaves

I made the plunge and have integrated Twitter into my Web 2.o strategy. If you haven't heard of Twitter, you are not alone, but it is beginning to define itself in the marketplace as a new source of news and views.

Here are some resources that will help you get an idea of what Twitter is and why you might want to use it in your business to network more proficiently:

5 Ways to Use Twitter for Good

The Three Stages of Twitter Acceptance

Why Use Twitter?

Why Your Company Needs to Be on Twitter

The Top 5 Ways Smart People Use Twitter

I'll continue to add more methods of communication and networking to my Web 2.o strategy. If you have more ideas, please let me know.

Follow me at: http://twitter.com/prescottreos

HOPE NOW, the organization formed in 2007 with the help of the Treasury and HUD, is an alliance between HUD approved counseling agents, mortgage companies, investors and other mortgage professioinals that provides FREE foreclosure prevention assistance.

Many homeowners in the Prescott and Prescott Valley markets facing foreclosure and doing short sales have have been able to get free assistance from the organization. Before you shell out money to a "loan modification specialist," contact Hope Now and get the same info at no charge.

Here's what they just reported:

Home foreclosures are still rising across the country, even though lenders have helped an increasing number of mortgage borrowers to become current on payments and stay in their homes.

In February, nearly 250,000 homeowners received either mortgage modifications or repayment plans from their lenders, according to Hope Now, a coalition of lenders, investors and community advocacy groups put together to combat the foreclosure plague.

About 134,000 of those workouts were mortgage modifications, which typically involve lowering the loan interest rates, lengthening the mortgage terms or reducing the principal owed to make loans more affordable. Modifications are considered more comprehensive and effective than repayment plans, which simply tack the late payments on to the end of the loan and don't reduce payments.

Despite that aid, the number of foreclosures started rose from 217,000 in January to 243,000 in February, according to Hope Now. Banks repossessed about 87,000 homes during February, a 28 percent jump from 68,000 in January. Since the mortgage meltdown began in July 2007, nearly 1.4 million homes have been lost.

For more: www.hopenow.com.