What will it take for Metro-Phoenix’s Home Values to Rise Faster?

October 23, 2009 at 4:10 pm Leave a comment

1. Job creation and stability: Buying a home is not only about location, it is also about financing. People need decent jobs that they can hold onto in order to buy homes. The state’s jobless rate dropped slightly to 9.1 percent in September, the Arizona Department of Commerce reported this week; the rate was 9.2 percent in July. That improvement, while modest, is good news for Arizona and the nation as a whole. If people have better-paying jobs, they are more likely to be able to afford bigger homes in higher price ranges. Cities around the valley could also work towards attracting businesses that will employ high-salaried employees, not just service workers.

2. Lender-Owned Pricing:
The sooner banks price the homes they’ve taken ownership of at market value rather than below market value, the sooner we will see prices go up. At the moment, banks list their lender-owned homes at 10,000 to 15,000 below market value – for a reason: This elicits multiple bids, which usually ends up driving the selling price to a level at or above market value. It would help the market rebound if the banks price homes close to market value. Of course, this is a double-edged sword for the banks. If banks price homes higher, they would probably not get above-list-price offers. However, when they price below market value, it stalls the housing recovery. But banks don’t really care about the housing market – only profits.

3. Loan Modification Approval:
If qualified borrowers are allowed by their banks to modify their loans to terms that are beneficial to homeowners in the long-term, the number of foreclosed homes would be reduced. However, not all homeowners can afford to pay for their homes despite loan modification and therefore may still end up in default. And these homeowners are likely to short sale their homes down the road.

4. Short Sale Pricing:
Short sales are dominating the Metro Phoenix market. The homeowner sells his or her home for less than what it is owed, which requires lender approval. The success rate of short sale approvals have increased by half. If we are to see home values rise much sooner, lenders would need to be more careful about approving short sales at very low prices. This quarter, the short sale purchase prices have decreased to levels comparable to foreclosure prices. A bank typically approves a short sale offer which is 10 percent less than the broker’s price opinion. To keep home values from going down, banks probably should think of approving sales at a level not less than 5 percent below the broker’s price opinion. Realtors listing short sales should price homes based on their value, not simply to elicit a quick offer. Some Realtors’ strategy is to price their listings lowest within the neighborhood to get a quick offer, even if the home could realistically sell for more. This practice may turn the sale over quickly for the agent so he or she can move on to put other homes on the market, but it is not helping home values go up sooner.

In a crazy market where short sales and foreclosures are dominating, nobody really seems to care about overall home values. The homeowner who short sells his or her home is not getting a single penny from the sale. So, it does not matter to him what the home is priced as long as he avoids foreclosure. The lenders are so overwhelmed with selling millions of properties, they are happy to sell their inventory quickly and for less. Similarly, some Realtors, not wanting to spend a lot of time or effort with each listing because of the reduced fees they are earning, look for quick sales without regard for the cumulative effect these low prices are having on the market and future sales prices.

Obviously, the best thing that can happen for everyone with direct or indirect ties to real estate – homeowners, banks and Realtors — is for prices to go up. An increase in traditional real estate sales where the homeowner is selling to profit from the house will help home values to improve. These homeowners care about home values and would like to sell for a good price.

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Entry filed under: Arizona Real Estate, Chandler Real Estate, Foreclosures & Short Sales, Phoenix Real Estate, Real Estate Deals.

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