“Listing Success Rate” is defined as, “the percentage of listings that closed with a sale rather than expiring or being canceled”. It compares the number of listings sold this month with the number of listings that were sold, expired or canceled in the same period.

At this moment in time, the Phoenix real estate market is running at about a 60% listing success rate. In other words, 60% of all listings are sold.

What happens to the other 40%?

In a nutshell, they aren’t sold. The listing either expires, or is cancelled, or in the case of many short sale listings, is foreclosed on (and most likely re-listed at some point later as a lender owned (aka “REO”) property).

So is 60% “good”? It depends on your perspective. If you are trying to sell a home, you want to see Listing Success Rate as high as possible. If you are buying a home, a higher rate means (generally speaking) that their is more competition for available listings. More competition for the buyer means less negotiating power, and increased potential for multiple offer situations.

Historically speaking, a 60% listing success rate is quite high. My stats service only tracks this particular metric back to February 2006, and the current Listing Success Rate matches the high of March 2006.

Here is the historical data:

 
But wait, let’s take a closer look at the numbers.

The critical reviewer of real estate statistics would be asking themselves, “why the big increase in Listing Success Rate 2009?” A very reasonable question.

Currently, the Phoenix real estate market is heavily influenced by “distressed properties”. Distressed in this case means lender owned foreclosures and pre-foreclosure (short sale) properties, not distressed as in the pissed off owner has trashed the home and ripped out the fixtures, flooring and appliances (though believe me, that happens). Distressed listings currently make up almost half of the available listings and in most parts of the Phoenix metro area compose a significant proportion of sales (see the Distressed Sales chart posted last week for the gory details).
 
As anyone that has tried to buy a bank owned home will tell you, they are moving very quickly. It is the norm, not the exception, to see new bank owned listings get multiple offers within days of coming on the market.

Here is the Listing Success Rate for each major market segment (as of Saturday May 23):

• Lender Owned Properties – 89.8%
• Pre-foreclosures (short sales) – 36.6%
• “Normal” (not lender owned or short sales) – 40.6%

So there is your reason for the sharp increase in overall Listing Success Rate. Almost 90% of lender owned property listings end in a sale. Only 40% of “normal” listings end in a sale.

This market segment breakdown is why I sometimes struggle with the reports and indexes often quoted in the mainstream media and elsewhere. When you break down these overall market aggregated numbers into individual components, they often tell a very different story. It would be easy for a seller in a “normal” situation to see the graph posted above and begin a Happy Dance. The astute normal seller (who hopefully has an astute agent working for them) would note that their market segment isn’t performing quite so well when is comes to Listing Success Rate. Factor in other considerations, such as location, price range, condition, the number of surrounding distressed listings, etc. and you can find yourself in a very different situation than the broad-based metrics may indicate.

It’s a great trend and clearly is better than if the line were going in the other direction, but as always look at all real estate statistics with a critical eye and consider all the factors that compose the metric(s) you are investigating.

— 
Tables and charts from The Cromford Report using data from public records and  data licensed from the Arizona Multiple Listing Service (ARMLS). Cromford Associates LLC, ARMLS and yours truly, Jay Thompson, expressly disclaim and make no representations or warranties of any kind – express, implied or statutory – as to the accuracy of the data, nor its merchantability or fitness for any particular purpose.

In other less legal-like words, if you use this data to make personal, business or investment decisions and something blows up, it’s not our fault and you can’t sue us.

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Sounds great!

Don’t get too excited. . .

Yesterday I attended an information session held by the City of Phoenix regarding the Neighborhood Stabilization Program (NSP). I’ll attempt to summarize, and opine. Links for further information are at the bottom of this article.

What is the NSP Homeownership Assistance Program?

The NSP Homeownership Assistance Program provides a $15,000 loan for down payment and closing cost assistance for buyers of foreclosed homes anywhere in the city of Phoenix. The full amount of the loan is paid back to the city when the homebuyer sells the home or refinances. The program targets foreclosed single family homes, townhouses and condominiums (condo conversions are not eligible) that meet HUD Housing Quality Standards (HSQ). The Homeownership Assistance program is for down payment and closing cost assistance only and cannot be used to fund rehabilitation activities.

The $15,000 is a loan, and a lien will be placed on the home. It has to be repaid if the home is ever sold or the loan is refinanced. (Program officials noted that if you live in the home for 45 years, the loan payment becomes due, but a request for an “extension” will be available at that time.) Repayment is also due if the home is no longer used as a principal residence – in other words, you can not convert it to a rental property.

Eligible Homebuyers

• Can earn up to, but not more than 120 percent of Area Median Income (AMI) based on family size. All sources of income are considered. These limits are:

For example, a family of 4 has to earn less than $77,050 to be eligible.

• Must be creditworthy (as deemed by FHA).
• Must qualify for a 30 year, fixed rate loan (not subprime).
• Must invest $1,000 of your own funds.
• Must obtain a three-year home warranty, not to exceed $1500.
• Must complete a required eight hour Homeownership Education and Credit Assessment Counseling course at least 6 months prior to closing.
• Can not own ANY other real estate.
• Must maintain the home as your principal residence.

Eligible Property

• Home must be located inside the Phoenix city limits.
• Must be a foreclosed, lender owned property.
• Must be appraised within 60 days of the purchase contract.
• Sales price must be at least 15 percent below appraised value.
• Must be clear of Phoenix’s top eight neighborhood code violations:
  • Trash disposed of properly
  • Cars parked in designated areas
  • No visible outdoor storage
  • No graffiti
  • Fences maintained
  • No inoperable vehicles
  • No unsecured vacant buildings
  • Maintained vegetation
• Must pass HUD Housing Quality Standards (HQS) inspection prior to close of escrow (this is a “safety and health” inspection, not a full-blown home inspection).

Other Details

Phoenix has been allotted $38,478,000 in NSP funds, but only $2.82 million has been allocated for this particular program. I’ll do the math for you, that amounts to 188 homes that can be purchased through this program. Other programs using these funds will be announced later.

Funds are anticipated to be released later this month.

No specific areas or income levels are being targeted.

There is a $50 fee to take the required education class, but that is refunded at close of escrow.

There are not any “preferred lenders” – you can use any lender of your choice.

My Thoughts

Clearly, moving 188 foreclosed homes off the market won’t do diddly squat for the Phoenix real estate market. This isn’t the intent.

But, getting 188 people into a home that wouldn’t be able to do so otherwise isn’t necessarily a bad thing.

It’s in the details that the plan falls short.

Leaving aside the question of whether or not this is an effective use of almost three million dollars, this is a program that will disappoint far more than it will help.

The requirement that a home be purchased at less than 85% of appraised value is a fundamental flaw. I understand the reason – the desire for built in equity, the need to not have someone be immediately upside down in their mortgage – but I also understand the reality. Bank owned homes in Phoenix actually move relatively quickly, if they are reasonably priced. And banks are getting better at pricing their foreclosure inventory. If a REO (Real Estate Owned, aka bank owned) home is priced at a 15% discount, it’s going to be snapped up very quickly, probably in a multiple bid situation.

Then there is the propensity for appraised values to come in at or very near the offer price. Right or wrong, an appraiser knows the offer price before they complete the appraisal. The odds are excellent that if you offer $85,000 for a home, the appraisal is going to be $85,000 – not the $100,000 you’d need to qualify under this program. The “market value” of a home is what a ready, willing and able buyer will pay. If you submit an offer of $85,000 that’s a strong data point in the appraisal that $85,000 is the market price, not $100,000.

REOs often receive multiple offers in the Phoenix market. If a bank gets two offers, one at $100,000 and one at $85,000 (the necessary 15% discount to be eligible for this program) which offer do you think they will accept? A program official said, “The banks are aware of this program and want to help.” Bullhockey. I can assure you that given a choice between two offers, the one with a 15% discount built into it will be swiftly tossed aside.

Then there is the cost of appraisals to consider. A good real estate agent can determine very closely what the appraised value will be. But appraisal isn’t an exact science. Using our example, let’s say you and your agent determine the home will appraise at $100,000. So you have to offer $85,000 to be eligible for this program. Your lender will order an appraisal. What happens if it comes in at $99,000?

The home you want, and just paid $300 for an appraisal on, does not qualify for this program.

Another program official said about this, “Your agent can get the appraisal changed”.

Yeah, good luck with that. Yes, it’s possible, but there are certainly no guarantees. Another option mentioned was “renegotiating the price”. Sure. Consider this…  you’ve just handed the owner a document saying the home is worth $99,000 and now you want to lower your original offer price to come in 15% below that.

Oh, but the banks “want to help”. No, they don’t. They want to get every nickel they can out of the deal for their investors. Other than their big hearts and desire to do good, banks have no motivation to help you get into a home.

How much heart and desire to do good do banks have?

Yeah, I thought so.

I’m not saying this program can’t work. There are currently 3,979 homes listed in the Phoenix city limits that are bank owned (assuming, which isn’t safe, they are correctly entered into the MLS). Are there 188 of those almost 4,000 foreclosures that can be bought for 85% of appraised value? I’m sure there are. Finding them won’t be easy. Finding one that no one else is interested in because you can’t enter into a bidding war – your hands are tied with a maximum offer of 85% of what the home is worth – will be practically impossible.

Links to further information:
Neighborhood Stabilization Program (NSP) Homeownership Assistance Fact Sheet (contains contact info for required home ownership education classes)

Phoenix Neighborhood Stabilization Program (NSP) web site

Phoenix’s top eight neighborhood code violations

Information on HUD’s Housing Quality Standards (HQS) requirements

Phoenix City Council draft report on Neighborhood Stabilization Program

City of Phoenix application for NSP program (contains info on other parts of NSP plan)

HUD web page on NSP (more for municipalities that want to participate)

Excel spreadsheet from HUS showing Arizona cities fund allotment

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Think people aren’t interested in the home buyer tax credit? Think again…

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Using the $8,000 First Time Homebuyers Tax Credit as a Down Payment. Sort of.

The article is behind the WSJ’s subscription firewall. I’d reprint it here, but the WSJ wants $475 for a month for that privilege. (you can read the article in its entirety here if you are a online subscriber or on page C10 if you get the print edition)

We’ll exercise a little “Fair Use” and put Heather’s quote here (and hope the WSJ doesn’t sick a pack of rabid attorneys on me).

“Cash investors have come right out and said, ‘We can’t make a return on our money in stocks or bonds.’” says Heather Barr, a Realtor based in Gilbert, Ariz., a Phoenix suburb. “They think Phoenix has had such sharp price declines that we’ve got to be near the bottom and real estate will be a safe place to put their money.”

Heather rocks. . .

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Using the $8,000 First Time Homebuyers Tax Credit as a Down Payment. Sort of.

It’s quite likely (almost a certainty) that you’ll see the assessed value of your home has declined since your last notice.

That’s because, of course, generally speaking, home prices in Maricopa County have declined – sometimes significantly.

Of note, and this is important folks, these notices are NOT tax bills, and your 2009 property taxes will not be lower because of this lower assessment.

“Well that sounds like a load of crap Jay! My home value declines and my property taxes don’t?!?” you may be thinking. 

That’s because the assessment you are about to receive is for your 2010 taxes. You got your assessment for your current property taxes some 18 or so months ago.

Yes, the wheels of government turn slowly, and that includes the county tax assessors office. They lag about 18 months because there is time built in to appeal the assessment and because let’s face it, there are a lot of homes in Maricopa County. Gathering, assimilating, compiling and evaluating that much data takes time.

Before you get too bent out of shape remember this. A couple of years ago when Phoenix home values were exploding, you were paying taxes based on a lower value assessment from the previous 18 months. It works both ways…

Another thing to note. We get calls ALL the time after these notices come out from people who don’t think the assessed value equates to market value. They don’t. These aren’t appraisals. They aren’t usually even “drive bys”. Odds are no one in the assessors office has ever seen your home. Despite being called the “Full Cash Value” (FCV) this number does not reflect the true market value of your home. The valuations are determined based on sales data and statistics. Even so, they are fairly close to actual market value in some cases, but should never be used to determine the true market value of your home.

Here’s a chart courtesy of the Maricopa County Tax Assessor comparing median Full Cash Values between 2009 and 2010 assessments for various Phoenix area cities. The FCV numbers won’t match up with sales values, but the trends will be pretty darn close.Read it and weep.

Edited 2/24 changing references to “Fair Cash Value” to “Full Cash Value” because I’m an idiot and apparently had “fair” on the brain. Thanks Zoot!

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Fulton Homes Corp. filed for Chapter 11 bankruptcy reorganization Tuesday.

“It is confirmed,” said Rosaria Glasco of Knoodle Shop, the home builder’s public relations firm. “Fulton Homes Corp. filed for Chapter 11 protection today this morning. This does not affect home warranties or customer service.”

“Back in the day” (of the real estate boom — you know, way back in 2005 / 2006) builders in Phoenix went nuts. And they over-built in this writers humble opinion.

Now they are facing the consequences of over-building and a depressed real estate market.

Fulton Homes was big around here. They are “restructuring”, not going away, but this is still a big deal.

I suspect that they won’t be the last home builder to hit the bankruptcy courts…

More from the Mainstream Media:

ABC15 – Major Arizona home builder files for Chapter 11 bankruptcy

KTAR – Fulton Homes files for Chap. 11

East Valley Tribune – Fulton assures homeowners after bankruptcy

AZ Republic – Customers can relax, Fulton’s Chief says

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Upgrades Galore - and nothing broke!

Can I see more photos please?

Last week, Phoenix-based real-estate investment firm Right Place Properties spent investors’ money to purchase multifamily housing units, promising a healthy return on their cash.

Then on Monday, the company and its designated broker, Red Door Commercial, shut down their Web sites, disconnected the phones, laid off the bulk of their employees and told investors and others that their money was all but gone.

Company officials say they were blindsided by rapid property-value declines in October and a lending-capital freeze that made it impossible to continue executing their business plan of buying run-down apartment buildings, renovating them and selling the units as condominiums.

(my emphasis in bold)

WTF? Have these people been living in a cave the past two years?

How in the name of heaven could a “real estate investment firm” and a real estate brokerage be “blindsided” by property value declines and lending issues?

Knock knock knock. Anyone home?

“It’s true that through last week we were continuing to close escrows,” Right Place principal owner Earl Ricker said Thursday. “It really didn’t sink in until the weekend that continuing operations would put our ability to manage our existing properties in jeopardy.”

So let me get this straight. You’re closing escrows one week using OPM (Other Peoples Money) and then the next week you’re practically out of business, shutting down web sites, laying people off and telling investors that they won’t be getting any money back.

And the fact that you can’t stay afloat in this market “really didn’t sink in until the weekend”???

You were “blindsided” by rapid property value declines. In Phoenix Arizona.

You’ve got to be kidding me.

There are an abundance of home price indexes out there. Have you heard of the S&P Case-Shiller Index? (Well, evidently not given the stunning ephinany you had over the weekend.) Here’s a chart of it I made for the Phoenix metro area. Similar charts are available in about a half a bazillion other places:

Blindsided — by a steady and precipitous drop in home values over the past 2+ years.

Don’t like the Case-Shiller Index? Fine. Here is a chart from a recent Wall Street Journal article showing trends from six popular home price sources. The measurements are different, hence the actual numbers don’t match up, but note the shape of the curves — they are all very similar.

A third grader can read these charts. All show a peak in roughly mid-2006 and declining values since then. Yes, real estate is local, and even in the Phoenix market there are isolated instances that have bucked against these trends. But how a real estate investment company and their designated broker can just wake up one morning and realize their business is in the toilet and their model is fundamentally flawed is beyond me.

These investors have apparently been making administrative, marketing and renovation payments — “hefty” payments according to the article. No renovation has occurred, and there are now no plans to sell the units.

“We do not have the cash to refund to investors” said Right Place principal owner Earl Ricker.

Really. Then what did you do with the money?

If I were an investor in Right Place Properties, I sure would have a whole lot of questions right about now….

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On the map below you can click on a house icon to get the median home value for that metro area (you’ll likely need to zoom in and pan about — the United States is a big place). Also available are PDF and Excel files of all median home values.

To the NAR, I’m assuming it’s OK to embed this map since it’s classified as “public” and the embed code is readily available (if you know where to look). If not, I’m sure you’ll let me know…

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If you are so inclined, you can purchase a six-month subscription to his Sales and Permit Report for $1,050. I think I’ll pass.

According to the East Valley Tribune’s account of the report, Brown also reports that new housing permits are off as well, from 2,560 in July 2007 to 1,493 in July 2008.

Existing home sales however, were up nearly 17% from 5,072 to 5,928. This factoid, of course, gets buried in the main-stream media reports. As Brown states, “If you think about the marketplace, it’s a long way from where we were in 1989-1991 in the savings-and-loan crisis. If we compare it to overall historical activity in Phoenix, this is still not a bad housing market.

Now isn’t the best time to sell. There are however, clearly buying opportunities available.

That doesn’t mean it’s all sunshine and roses. Far from it.

I am inclined to agree with Brown when he says, “If you’re a seller, this is not the time to sell. If you have to sell … then be realistic about the price of your property and your property will sell.” He nails it again with this: “The key thing that we need to understand is that this housing market is not going to change dramatically in the near term and be much different than it is now.”

“Realistic” is the key word there, and it is very difficult for many home sellers to come to terms with reality. That is understandable as it is hard to separate emotion from fact. Selling your home is a very emotional experience, but it is critical to look at it as the business transaction that it is. I realize and understand that it is hard to get past the, “but if I sold it two years ago. . .” thoughts and feelings. Get past it you must. This is not the market of two years ago. Homes can be (and are) sold every single day. They need to be in pristine condition, and priced and marketed appropriately. If you need to sell, it can certainly be done.

There are signs of life in the Phoenix real estate market, but the road to recovery may be long and winding.

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Last week, PMI Mortgage Insurance Co released its Summer 2008 U.S. Market Risk Index, which ranks the nation’s 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years.

The bad news? The Phoenix real estate market has (according to PMI) a 79.6 percent probability of home prices declining over the next two years. This places Phoenix at #11 (and be glad you’re not in Riverside-San Bernadino–Ontario California which sports a whopping 95.5% Risk Index…).

The good news? That’s down from an 82.3% chance in Q4 2007. Overall, 35 of the nation’s 50 largest MSAs and 326 out of all 381 MSAs experienced a decline in Risk Index since Q4 2007. In other, more cheery words, there seems to be less risk of home price declines than when last analyzed in late 2007.

Interestingly, Phoenix and Las Vegas were the only “high risk” MSAs to show a decline in Risk Index. California in fact showed an increased risk in 25 of their 28 MSAs. Ouch.

Of note: Phoenix continues to show a very low unemployment rate (3.67% in this report). High employment levels (or conversely, low unemployment rates) are generally considered a positive economic indicator and bode well for housing demand.

This is an interesting report, jammed full of data. The data is also summarized nicely, though they do say things like this:

But the picture of home price performance changes significantly if the 59 MSAs located in California, Florida, Nevada, and Arizona are removed from the total.

Statements like that are just beyond stupid. Of course things change significantly if you simply ignore 59 MSAs in the four hardest hit states. My college stats professor would be wanting to squish the numbskull that wrote that nugget. 

Here is a list of the Top 14 MSA’s with the greatest risk of declining home prices:

Linkage:

Here is the press release.

The entire Economic Real Estate Trends report in PDF format is available — Chart-o-holic alert!

And finally, here is the appendix listing the Risk Index for all 381 Metropolitan Statistical Areas. 

Go forth and absorb your daily dose of real estate statistics.

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This is the first double-digit “ever” (ever is a really long time. I suspect it’s the first double digit decline in this metric’s history — I’m trying to determine how long that is, and/or what Professor Karl Guntermann considers “ever”).

The ASU-RSI is very similar to the fairly widely known S&P/Case-Schiller Index. Both track repeat sales of the same home over different periods of time. It’s thought by many that using repeat sales is a more reliable method of monitoring market changes as in effect, it is comparing “apples to apples”.

I spoke at some length yesterday with Misty Williams, the real estate reporter for the East Valley Tribune for her article on this story. (Always a pleasure Misty!.) Much of our discussion centered around the impact of REO (bank owned) properties and their impact on the Phoenix real estate market. I hadn’t read Guntermann’s analysis yet, but it looks we do agree that REOs continue to drag down prices. But as I said to Misty, we’ve seen increased buyer activity, and their is no question that REO properties are beginning to move much more swiftly than they were just a short time ago. Aggressive bank pricing and multiple offers are the norm now in many situations.

The $50,000 dollar question is and remains, how long will this last? Yes, buyers are coming into the market. But there is still a ton of short sale and REO inventory out there. Until some of that inventory bleeds off, buyers will still be clamoring for and maintaining the (unrealistic)perception of getting the short sale or REO property for pennies on the dollar.

Fortunately, as difficult as it is, sellers seem to be getting more realistic about the current conditions. We’re seeing far fewer ridiculously over-priced listings, and not every buyer wants an REO or has the patience and fortitude to put up with the crap lenders consistently spew on short sales. This market will correct. It may just be awhile. Personally, I think we will continue to see price declines through the remainder of the year, and a leveling through next year before returning to a more normal gradual appreciation rate.

And I reserve the right to be completely wrong. 

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