Paul Pastore

Beware Of Hidden Agendas

Today, real estate agents, more than ever should appraise people just as diligently as they appraise properties. If the seller's motivation is not strong enough, they should be dissuaded from competing in markets with elevated inventories, repos, and short sales.

In early 2008 I listed a friend's residence. Randy received a promotion and transfer to California from Arizona. He was elated. His wife Linda did not share his enthusiasm. She was eligible for early retirement in the next 18 months. Her frown, tacit approval, and reluctant signature on the listing agreement would undermine the marketing activities.

The property was situated in a great location. The initial list price was at the high end of the range in a soft market. The first two reasonable offers were countered by the sellers and then rejected by the buyers. The property was appraised & reduced as the market softened. The sellers began to chase the market. Randy move to California and left Linda in Arizona until the house sold.

Randy delegated the selling decisions to Linda. She was opposed to reducing the price. The market was disinclined to pay a premium. In this modern day tragedy the real estate messenger was shot. The listing expired, a marital schism developed, and agent number two hoisted their for sale sign.

A few years ago a seller could simply say they were 'serious about selling'. Today, that same seller needs to 'put their money where their mouth is'. The initial price needs to be competitive with both recent comps and competitively priced active listings. If this price is not accepted by buyers, the price needs to be lowered every two weeks.

Real estate agents should ask each seller the reason for selling on several occasions. The answers should be examined for underlying feelings, unrealistic expectations, and hidden agendas.

Phoenix Housing Update: September Sales Surge 81%; Prices Plunge 28%
Analyst(s): Paul D. Puryear & Buck Horne
[Industry Classification: Real Estate/Housing]

* During September, existing home sales in the greater Phoenix metro area increased a remarkable 81% y/y, bringing the number of transactions recorded last month to the highest level seen since June 2006 (near the peak of the housing bubble). Similar to recent months, this volume improvement continued to be stimulated by sharp declines in home prices and foreclosure activity, with Phoenix area median prices falling 28% y/y to $170,000 (the largest y/y decline yet cycle-to-date). Compared to September 2005, when the median price stood at $260,000, prices have declined 35%. Blended together, the aggregate dollar value of residential re-sale transactions in the Phoenix market increased 29% y/y in September.
* Inventory listings fell 6% y/y, but despite the increased sales activity, September's listed inventory level actually rose 2% sequentially from August. Specifically, listed inventory in Phoenix stood at 54,427 units, representing approximately 8.8 months of supply unadjusted for seasonality.
* Based on these data points, the Phoenix market appears to have reached a critical point in its local housing cycle, as large numbers of buyers are continuing to absorb the growing stream of heavily discounted foreclosures and bank repossessed properties - but inventory is not moving materially downward. Prices continue to slide because of the increasing mix of distressed homes, but the encouraging sign, in our view, is that there are still buyers in the market with cash to invest - at the right price. Notably, Phoenix home purchases financed with cash comprised 17% of all sales this month, versus 11% a year ago.
* Moreover, with supply pressure from single-family housing starts at the lowest level since 1982, we believe the slightest sign that the level of new foreclosures and repossessions is beginning to wane could help fuel a rapid clearing of excess inventory and help stabilize Phoenix home prices sooner rather than later. In our view, we believe the government is likely to be increasingly proactive on this front.
* Unfortunately, in the meantime, the foreclosure crisis in markets such as Phoenix still appears to be feeding on itself unabated in a vicious circular reference. As these distressed sales become the new neighborhood comparables, the risk of severe price declines dragging more neighboring owners into a dangerous negative equity situation continues.
* Also, while the September numbers are very encouraging on the surface, we must also acknowledge that much has changed in the financial and housing market landscape over the past three to four weeks since the Treasury Department's massive $700 billion bailout package was first announced to the public. We also note that while we envisioned many of these events transpiring, our upgrade of several homebuilders in the wake of the government's announcement unfortunately underestimated Congress' ability to create a political fiasco out of the situation and to thoroughly impair consumer confidence. With indications from homebuilders that buyer traffic has slowed to a virtual standstill in recent weeks, we believe data points from October will be more indicative of the new housing environment in light of the lingering credit crisis.
* We also remain cognizant that the MLS system is not necessarily capturing the entire picture. As increasing numbers of bank-owned properties are entering the market at deeply discounted prices, these homes are not always listed in the MLS system (and therefore may not be captured in this data). Accordingly, we will continue to closely monitor the inventory situation in Phoenix .
* D.R. Horton, Pulte Homes, and M.D.C. Holdings are the market share leaders in the Phoenix market. As a percentage of their overall closings, M.D.C. Holdings, D.R. Horton, Pulte Homes, and Meritage have the largest exposure to the Phoenix market.