Home sales in the Phoenix real estate market made the news again. Our housing tracker reports that sales of Arizona MLS home listings reached 9,492 in April 2011. This is the fourth highest home sales month in the history of our MLS.
The article in our Phoenix housing tracker from last month reported that March 2011 had the third-highest home sales with 9,973. The all time highest sales month was June 2005 with 10,216 MLS homes/listings being sold. The number two month was August 2005 with 10,003 sales.
The percentage of sales that were foreclosure homes, defined as bank owned (or REO homes) and short sales, remained near 65%. You'll notice on the chart, as indicated in green, that the height of foreclosure sales was reached in the months between April 2009 and July 2009. March 2011 managed to sneak in as the third-highest sales of foreclosure homes, while April 2011 is now recorded as the sixth highest month.
Many sales are attributed to both people and businesses who are making investments in real estate. The rental market has never produced more people looking to lease, primarily because they have lost their homes to the short sale or foreclosure process. The trend of unprecedented low home pricing and higher rents has caused investors to flock to the Phoenix area and put their money back into real estate.
We will report on pricing trends in the next couple articles, but the decline in real estate property listings will undoubtedly produce at least a temporary increase in prices.
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The bar for investment real estate in Phoenix Arizona has been raised. Our housing tracker reports that cash buyer's in 2011 have quadrupled from historical trends, as noted in information obtained from the Cromford Reports. Investors who bought property for cash almost always had advantage over home buyers who were obtaining mortgage financing.
Historically, less than 10% of all residential home purchases are made with cash. As the chart below indicates, the foreclosure trends of the last few years -- coupled with lower interest rates for saving accounts and unstable stock and financial markets -- have induced many more investors to buy property with cash.
The chart indicates that cash buyers jumped to an average of 17.1% in 2008.The number went to 31% in 2009. 34.7% was the average in 2010. However, cash purchases for residential homes, either by home buyers or investors, has jumped to an amazing historical high of 41% in 2011. 
Let's take the analysis a step farther. How many Phoenix real estate investors do you suppose are paying cash for home purchases? While I have not been able to find any detailed information on that statistic, we can always do a little interpolation of the data based on the below chart.
The chart indicates how many residential home purchases were made by investors. The Cromford report obtains this information by scraping it from the tax records. They do this by evaluating the number of properties that are categorized as rentals at the initial purchase. The left side of the chart, illustrated by the blue lines, indicates the number of purchases made by investors. The right side of the chart, and illustrated by the red circles, indicates the percentage of investment purchases. We can now clearly see that 25% of all residential home purchases in 2011 were made by investors. This is a higher percentage than during the real estate boom when the average was around 17%.
Now comes the time for the interpolation. If 25% of all property purchases are made by investors, and 41% of all purchases are currently being made with cash, what percentage of investors are paying with cash? The odds are in favor of an extremely high percentage of investors paying cash. Therefore, it appears you are in a minority if you're a real estate investor and not paying cash.
Phoenix real estate property listings have entered their 7th consecutive month of declines. At 27,075 property listings (seen in red on the chart), Arizona MLS homes/listings are now at a 5 year low point. To give a historical perspective, listings averaged around 25,000 when I first became a Realtor in1999.
Let me make a distinction for anyone who is an avid follower of the Cromford Report (as I am). Mike Orr looks at "active" listings differently than I do. I consider an active MLS property listing to be one that does not have any offers on it. Mike Orr also counts properties that have "contingent"offers on them as part of his active count. In the Arizona MLS such listings are defined as "AWC," or active with contingencies. In today's market AWC generally means that a seller has entered into a short sale agreement and the contingency is whether or not lien holders will approve the short sale. It can also mean the sale is contingent upon a successful home inspection. There are currently about 7,700 property listings in the Arizona MLS that are classified as AWC.
Regardless of whether you subscribe to Mike Orr's philosophy or mine, we will both show a 12,000 property decrease (seen in yellow) over the last 12 months. If you follow the real estate market you know that shadow inventory is the reason for the property listing declines. The banks understand basic economics and realize that if the demand for properties goes up and the supply goes down -- the price will go up. Apparently the banks have figured out that the cost of holding the shadow inventory is less than the losses they will sustain by flooding the market with foreclosures, thereby driving prices down even further than at present.
The chart also illustrates that both the number and percentage of foreclosures is declining (seen in the orange). The number of foreclosures reached a historical high in October 2010 with 20,097 REO homes and real estate short sales. At 11,698, as seen in May 2011, they are at a 20 month low point.
This this brings up two main points: 1.) will prices go up in the short term because of lower inventory and higher demand and 2.) how long can banks hold onto shadow inventory? I believe many investors have voiced their opinions by the increased competition at the trustee sales.
See this article on my real estate blog: May 2011 - Phoenix Real Estate Property Listings
Our Phoenix housing tracker shows a near record sales volume in the Phoenix real estate market for March 2011. Nearly 10,000 MLS homes/listings were sold making this the third highest sales volume in the history of our market. The sales significantly reduced real estate property listings to begin April 2011.
The chart (shown in green) indicates 9,973 transactions, though home sales figures vary within the first week of each month while corrections and updates are made. The only months with higher sales were recorded during the peak of the real estate market. Our Phoenix housing tracker reported the number one sales month as June 2005 with 10,216 MLS homes/listings being sold. The number two month was August 2005 with 10,003 sales.
You'll also notice that the summer months are historically the months that record the best sales. That's because many families time their home purchases to coincide with the school year. Click here to search Phoenix real estate.
One of the most commonly heard questions by real estate agents is: "Has the Phoenix real estate market hit bottom yet?" For a number of reasons the answer is probably a solid "no." However, in our best opinion, we believe they won't drop that much further because of how the banks are controlling the shadow inventory. That being said, home buyers have cast a vote of confidence that, while prices may not be at the very bottom, they are low enough to make a real estate purchase right now.
The chart also illustrates the five months with the highest number of foreclosure-type home sales recorded in the Metropolitan area. Foreclosure type sales are defined as either bank owned (REO homes) or real estate short sales. You can see that March 2011 ranks number three.
More Phoenix housing tracker stats
See this post on my primary blog: March 2011- 3rd Highest Sales in History of Phoenix Real Estate Market - Housing Tracker
At the beginning of April 2011, Phoenix real estate property listings have continued their downward trend for the sixth consecutive month. Our Phoenix housing tracker chart illustrates the 9,047 property drop in Arizona MLS homes / listings.
There has been talk about "shadow inventory" for at least the last 16 months or more. Shadow inventory homes are homes owned by the bank and those on the verge of foreclosure, but not listed on the market as Phoenix real estate property listings. The reason shadow inventory is important is because of the dramatic affect they would have on pricing if they were all released into the market at the same time. Housing prices could plummet if there was a dramatic increase in Phoenix foreclosures. The banks are doing us all a bit of a favor by holding onto these homes.
As seen in the chart, the initial drop in real estate property listings (indicated in yellow) was rather small compared to the escalating decreases over the last two months. Simple economics dictate that the smaller the supply, the greater the possibility of increased prices. Let's see what happens to residential home sales by the end of this month.
Another indication of the validity that banks are holding onto shadow inventory is the decrease in the percentage of foreclosure listings currently on the market. Notice that the numbers in orange indicate total foreclosure listings, expressed as a percentage of total listings, and that they have been decreasing in sync with the decline in overall listings.
Article on my main real estate blog: Phoenix real estate property listings
Designated broker/owner specializing in residential and multi-family units.
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