What is the Future of Short Sales in the Greater Phoenix Real Estate Market?

November 21, 2009 at 8:53 am Leave a comment

I was fortunate recently to be in the same room with Mike Orr, author of the Cromford Report, a widely-respected publication with current real estate market analysis information. Mr. Orr was one of the guest speakers at a class that focused on “The Future of Short Sales in Real Estate.” Based on compiled data based heavily on the Multiple Listing Service (MLS), Mr. Orr observed the following regarding the Greater Phoenix real estate market:

1. There is no evidence of shadow inventory as others project. In other words, the lenders are not hoarding foreclosed properties. It just takes time for the lenders to sell the houses to the public. There is no sign of “new wave of Foreclosures.”

2. Far fewer Notice of Trustee Sales (NOTS) are turning into foreclosures in 2009.

3. Short sales are five times more likely to succeed in 2009.

4. Loan modifications are being accepted in 2009 – around 500 to 600 successful loan modifications monthly.

5. There is a 20 percent increase in sales of properties bought at the Maricopa County Courthouse.

6. As of this date, the inventory of homes for sale is made up of 39 percent short sales, 13 percent lender-owned, and 48 percent are traditional sales.

7. Average days on the market for short sales is 139 days and 34 days for lender-owned homes.

8. Lender owned properties have been rising in price since April but are currently stable. Normal sales experience a sharp decline from June onwards. Short sale prices declined between May and September but are showing more strength. Current average price per square foot is: Normal sale – $114.18, Short Sales and Pre-foreclosures – $87.55 and Lender owned – $69.45

Conclusion: The impact of lender owned homes reached a peak in the winter season 2008/2009. While these were available in large quantities and at falling prices, buyer interest was focused almost entirely on them. Supply was sufficient to keep REO prices declining until early April 2009.

After the second quarter of 2009, REO became much harder to find and with competition for them very fierce, short sales have become far more important. Given the large number of homes in distress and the banks’ apparent determination to avoid foreclosure if possible, we expect short sales to become the most important segment in the market over the next few years.

Greater Phoenix suffered a very significant price decline which prevailed between May 2006 and April 2009. So the majority of non-lender homeowners who wish to sell their home and have a deed of trust on their property are going to find themselves in a short sale situation for the foreseeable future. Fortunately, lenders are now devoting more effort and resources to short sales and many Realtors are learning the tools and techniques to bring them to a successful conclusion.

As properties get purchased by new buyers at the new lower prices, and prices stabilize and then increase, we will eventually see a peak in short sales and a long slow decline in their importance. However that peak is still ahead of us and the next several years are likely to be remembered as the “Age of the Short Sale.”

*Information obtained from Mike Orr of Cromford Report

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

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