Mortgage And Real Estate News

Monday, September 3, 2012

SIGNS OF HEALTH - USATODAY.com

The rapid run-up in Valley home prices this year could signal that the long-awaited housing recovery is finally happening.

More on Valley

home values

Catherine Reagor will discuss home prices on "12 News Today" at 6:25 a.m. Monday.

Are you trying to buy or sell a home? What do you think about metro Phoenix's housing market, and investors driving up prices? E-mail catherine.reagor@arizonarepublic.com.

Read more about real-estate market trends, developments and deals at money

.azcentral.com.

Metro Phoenix's median home price has shot up more than 30 percent in the past year. The number of houses for sale is at a six-year low, and realistically priced homes are drawing dozens of offers, mostly from investors.

While those conditions sound similar to the boom that led up to the worst crash in Arizona history, housing analysts say this situation is different.

The 2005-06 run-up was driven by investors. Median home prices climbed 50 percent before plummeting 65 percent.

But in the current market, experts say, several factors are keeping prices in check and should prevent another boom-and-bust cycle: tighter loan regulations, a reduced role for investors as prices rise, and the return of more traditional sellers and buyers.

One immediate sign that the housing market isn't in danger of overheating is that the median home price in Maricopa County increased less than 1 percent in June. That is attributable to a shortage of homes listed for sale, which has pushed prices higher but is starting to discourage investors from buying.

If the supply of homes for sale starts to increase, the pent-up demand will still push prices higher, but at a moderate rate, for the next few months.

"The housing market is healthy, not overheated," said Mike Orr, real-estate analyst with Arizona State University's W.P. Carey School of Business.

A different market

Buyers, sellers and even the types of homes for sale now are much different than they were during the boom. Fewer buyers qualify for loans, and most sellers owe too much on their properties to make a profit.

During the boom, there was little to rein in the market. Loose loan underwriting, a lack of understanding about how much buying was being done by investors and lax lending-industry regulation all contributed to a market out of control.

Too many investors put down little to no cash when they bought a home. Too many homes were speculatively built. And too many loans were made to borrowers who couldn't afford them. Those factors led to record foreclosures that triggered the market crash.

For almost two years during the boom, home prices climbed 4 to 7 percent a month in a market in which there were hardly any trustee sales, foreclosure resales or short sales.

Between February and May 2012, home prices climbed about 5 percent a month before the June slowdown.

Orr said the increase in the metro Phoenix median price is being driven by sales of the lowest-priced houses to investors. It doesn't mean all homeowners will see that kind of increase in value.

Instead, most people will see a 10 to 20 percent increase in their homes' values since the start of the year, Orr said.

Hot activity in one niche

Over the past few years, lower-priced homes sold by lenders to investors through foreclosures or short sales have dominated the market -- as much as 75 percent in 2009.

In contrast, during the boom, the market was dominated by sales of new and existing homes.

Investor deals have driven up the area's median resale home price from its recent market low of $112,000 in August 2011. Despite the rise in metro Phoenix's home prices during the past year, the region's median home price of $146,000 still has recovered to only the pre-boom level of May 2003.

But the long-awaited transition to a healthier, more traditional market is beginning, analysts say. Foreclosures and short sales have slowed, and the number of regular and new-home sales is climbing. About one-third of 9,700 home sales in May were foreclosures or short sales. In the same month in 2011, more than 50 percent were distressed-property sales.

Many traditional buyers and sellers generally have not yet benefited, although market experts say that as sales in the distressed market continue to decrease, normal sales -- and prices -- should rise even more.

"Investors are being priced out of the market," said Chris Broglia of Gilbert-based Solutions Real Estate. "Buyers are being enticed by lower interest rates, and more regular homeowners see they can finally sell again."

The median price of a regular home sold by a homeowner reached $174,900 in May, about $50,000 more than bargain foreclosure homes.

"The distressed market is drying up; normal sales are on the rise … both great signs for the Phoenix-area market," said Matt Widdows, founder and chairman of Phoenix-based HomeSmart.

However, he said prices haven't risen enough to motivate many traditional buyers and sellers to return to the market, and that's why the number of homes for sale is so low. Only about 8,000 homes are on the market that don't already have a contract from a buyer.

New breed of investors

Leading metro Phoenix's housing market out of the crash, large investment companies and smaller-scale buyers have paid cash for foreclosures and short sales, improved the properties and rented them out. Most are investing for the long haul, but their impact is forecast to diminish.

During the boom, a different type of investor dominated: speculators who put little to nothing down on a home. When they saw prices stall and then fall, they walked away and lost very little.

Since 2009, investors paying cash have been able to win most bidding wars on metro Phoenix's foreclosures and short sales because they don't need an appraisal to match their offer price, and they can close on the sale faster than a homeowner using a mortgage to buy.

These wealthy investors and investment groups ranging from Wall Street investment funds to private foreign investors won't walk away from their homes and money, housing analysts say.

But as prices climb and foreclosures slow, the number of investors purchasing in the area is expected to shrink.

"Investors will soon be priced out of the housing market," said Beth Jo Zeitzer, a real-estate attorney and president of Phoenix-based R.O.I. Properties. "Consumer confidence and normal home sales have taken over the market."

Home sales that don't involve a foreclosure or short-sale deal now account for more than half of all sales.

More signs in yards

Getting traditional buyers and sellers motivated again seems to be the combination needed for the market's continued recovery.

Interest could be growing. Housing-market watchers say more homeowners who don't have to sell are putting up "for sale" signs to test the waters. Supply hasn't climbed yet but could in the next few months.

Zeitzer said it's finally the regular homeowner's chance to sell and make some money. But of course the market isn't favorable for all sellers.

People who bought before 2003 and didn't take out second mortgages have the best chance to sell for a profit.

Phoenix real-estate agent Diane Watson of Russ Lyon Sotheby's International Realty recently said she was going to start going door to door to talk to homeowners about selling because so many don't realize prices are up and they can finally sell for a profit, albeit a small one.

"I have lots of potential buyers but wish I had more sellers," she said. "But with the market turnaround, I think we will soon see more regular sellers. Some homeowners are waiting until it (the weather) cools down to try to sell."

Mary Brierley-Peterman of HomeSmart is working with a homeowner who bought in 1999 and is ready to make a traditional sale.

"Regular houses priced right in the best locations are drawing offers," she said. "Both regular buyers and investors are looking at these homes."

Mark Stapp, Master of Real-Estate Development program director at ASU's W.P. Carey School, said today's 30 percent annual appreciation rate "isn't sustainable. … But housing appreciation will continue as long as demand persists."

By Catherine Reagor| The Republic|azcentral.com Jul 22, 2012




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