Bank owned homes – also known as lender owned homes, foreclosures or REO’s (Real Estate Owned) – continue to fly off the shelf in the Phoenix real estate market.

On the chart above, green circles indicate a condition favorable for sellers, red circles indicate favorable for buyers (white is neutral).

Of note, active listings continue to decline. The 6,107 active REO listings are half what they were just three months ago (as indicated in the “Last Qtr” column). There is only a one month supply of REO homes listed.

“Distressed sales” – those sales involving either an REO home or a short sale – make up a significant portion of the home sales across the Phoenix metro area. Virtually every major city in the Valley is showing distressed sales compose well over 50% of all sales, and many cities are over 75%.

 
Competition for purchasing REOs is fierce. If you are looking for a bank owned home in the Phoenix metro area, odds are you will be facing a multiple offer situation only a few days after a home is listed. Don’t expect to get an REO at much, if anything, below list price, and don’t expect to negotiate price with the lender. Sometimes a lender will come back with a counter for “highest and best” offer. My suggestion is to put your highest and best offer in initially – someone else probably already has.

— 
Tables and charts from CromfordReport.com 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.

Read enough about the Phoenix (or elsewhere) real estate market, and someone will start spouting statistics. And while market stats are important to understand, one must exercise extreme caution in interpreting them, or listening to other’s interpretations (mine included!).

Let’s take a look at “Days on Market” (DOM), or “inventory”, or “months supply”. Whatever you prefer to call it, it is an oft cited indicator of overall market conditions. And generally speaking, it’s not a bad indicator. The supply of homes available for sale is a key component in understanding the overall real estate market conditions.

It is important to understand a few things though:

• Our current market really consists of three major categories of inventory: 1) Bank/lender owned homes (also known as REOs); 2) pre-foreclosure/ short sale properties; and 3) “normal” properties (homes that are owner/investor owned and not in  a pre-foreclosure status).
• Real estate is local. And the Phoenix metro area is a BIG place. Any time statistics or price indexes are quoted for the entire Phoenix area, you have to understand that conditions across the Valley can vary dramatically. Even within a suburb, conditions can vary from subdivision to subdivision. Within a single large Master Planned Community, conditions can vary from neighborhood to neighborhood.

The supply of homes is a perfect example. The general consensus in the real estate industry is that a six month supply of homes is considered a “balanced market”. Less than a six month supply means we are in a seller’s market and more than a six month supply is an indicator that we are in a buyer’s market.

At this moment in time, if you look at all the available inventory of homes across the Phoenix metro area, there is a 5.2 month supply of homes.

Months Supply of Homes: All areas and types:

If you’re a seller, you may be thinking, “Halleluiah! Phoenix is a seller’s market!” and if you’re a buyer you may be thinking, “Crap. I should have bought a home a couple of months ago when it was a buyer’s market and I would have had more negotiating power.”

Not so fast.

Let’s look at the categories of inventory that make up this number…

If you extract the data for just lender owned properties, you’ll see a much different picture.

Months Supply of Homes: Lender owned properties only:

Wow, there is only a 1.3 month supply of foreclosed homes. That indicates a very strong sellers market for foreclosed homes. A close examination of the data above shows you that foreclosure inventory is down, sales are up and pending sales (those homes under contract but not yet closed) are also up.

OK, so now you need to understand why these numbers are what they are. And sometimes the numbers alone won’t tell the whole story. Nothing in the chart above tells you that some large lenders and the Government Sponsored Entities Fannie Mae and Freddie Mac imposed moratoriums on foreclosures that are in the process of being lifted. Nothing in the numbers above tell you that there is still a lot of short sale/pre-foreclosure inventory – much of which slips into the lender owned category when it doesn’t sell on the open market.

Months Supply of Homes: Pre-foreclosure / Short Sales only:

Almost 12,000 homes listed in a short sale position.^[1] And it would take 15.2 months to sell all the existing short sale properties – if there were no more properties placed on the market.

The simple fact is, no home lasts for 15 months in a short sale position. The lender will foreclose long before that time period expires.

And what if you are a “normal” seller? Just the guy who owns their home and wants/needs to sell it. You aren’t in trouble with the payments, and you’ve got enough equity to sell at current values and repay your loan (and hopefully pocket a little cash at close).

Months Supply of Homes: Not lender owned or pre-foreclosure:

You my normal seller are still looking at a strong buyer’s market. Yes, sales and pending sales are trending up, but they are nowhere close to what they were last year and the year before. On average, you can expect it to take almost a year to sell your home. And guess what? You also get to compete with that foreclosed home across the street. The seller there is a bank that has probably already taken it in the shorts, they have no emotional investment in the home, and they’ve priced it very aggressively to get it off their books.

The Bottom Line

Not all statistics are as they appear, nor does any one stat tell the entire story. Consolidating all types of listings across an area the size of Phoenix metro into one number is usually very misleading.  Look closely at all real estate stats, keeping in mind that the variations across market segments and location can swing wildly (and change quickly). You should try to understand what the real estate market is like in your location, for your type of home in your situation. Just keep in mind that it is very easy to generalize and misinterpret real estate market stats, particularly the data that aggregate large areas of completely different property types.

— 
Tables from CromfordReport.com 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.

1. Short sale: a sale in which the owner can not sell the property for what they owe. Banks always have to approve short sales. After all, they are the ones who are not getting the amount they loaned.

My second semester college stats professor had this posted over his desk:

A statistician can have his head in an oven and his feet in ice, and he will say that on the average he feels fine.

Despite the fact that on multiple occasions I wanted to put either his head or mine in an oven, the guy really did teach me a great deal about the power, both good and bad, of statistics.

Now there is no way that six credit hours of statistics makes one an expert. Nor does sitting in meeting after meeting listening to semiconductor engineers drone on about F-tests and kurtosis. Been there, done that, made the charts. (Fair warning, don’t click those links without a bottle of aspirin handy.)

But having a little exposure to statistics does help one sift through the daunting pile of real estate stats that are published on a regular basis out there on the world wide web. Some real estate data analysis is very well done, some is not good but harmless in the grand scheme of things, and some is just flat out wrong.

Lately there seems to be a resurgence in the not good to bad category of real estate statistical analysis. I ran across a chart similar to this a couple of days ago:

What is this chart trying to tell us? The text said that it shows “units sold” in Phoenix, and that the upward trend was “happy news”. OK, I’ll buy that generally speaking, increased sales are a good thing.

But what does this chart really show us?

Absolutely nothing. Conspicuously missing is the Y-axis (vertical) scale. If you want to change the visual impact of a line chart, adjust the scale. Without a scale, we have no clue as to whether this chart means anything. Did sales go up by 10 units or 10,000? Isn’t that knowledge just a wee bit important if you are going to try to draw any conclusions from this data set?

Sadly, this chart (well, not THIS chart, but THIS one) wasn’t done by an individual who simply doesn’t know better. The chart I saw (but can’t copy without permission) was produced by REality, a company that claims to be “the leading provider of real estate market intelligence in North America” (an interesting statement given I’ve never heard of them — wonder if they have any data to support that claim?).

Business Week blows it too

The well-regarded publication Business Week provided an interesting example today of statistical analysis gone bad. In this brief article, BW tells us that traffic to certain markets on Realtor.com has increased and, “What this tells you is that a lot of people are starting to bottom-fish in these markets”.

Really?

Maybe that’s true, maybe not. To take one statistic — increased traffic — and conclude that means something in particular is quite the leap of faith. Traffic to this blog has increased dramatically this year, does that make it safe to say the Phoenix real estate market is booming?

What the BW article fails to explore, completely, are alternatives to why traffic may have increased on Realtor.com. Could it be due to a site redesign (which R.com went through), increased advertising in those markets by either local agents or R.com, a change in searcher demographics, a change in Google’s algorithms, or some weird shift in the space-time nexus? Who knows, all are plausible (well, maybe not the nexus thing, I pretty much made that one up).

“So what is the point Jay?” a bored and weary reader is likely saying right about now.

The point is, very few real estate agents (myself included) are well versed in statistics. Dare I say, neither are most main-stream media writers. Apparently neither is North America’s leading provider of real estate market intelligence. And you know what? The typical person looking for information about real estate is probably not all that familiar with statistical analysis either, though I have no statistics to prove that.

As a real estate agent building charts and tables filled with stats, keep in mind that conclusions you draw based on statistics may, or may not, be accurate. Do you really understand the difference between average, mean and median home price? Do your readers? Do you want to make predictions and draw conclusions from data you don’t really understand.

As a real estate “consumer”, be careful letting other people interpret data for you. You can’t believe everything you read on the Internet — unless it’s on this blog of course, he says dripping with sarcasm. In fact, it’s probably safe to assume the conclusion someone reaches from their “statistical analysis” is nothing more than their opinion that is loosely based on some data set. There is certainly nothing wrong with expressing an opinion, just be aware that’s what it is — an opinion. Do your due diligence, seek out varying opinions and analysis before reaching your own conclusions.

Hat tip to Ines at AgentGenius for the BW link.

A regular visitor to our Phoenix real estate stats page, we’ll call him “Glenn”, likes to keep me on the straight and narrow. I often fall woefully behind in updating the stats page on the website. Thanks Glenn for the reminders!!

One report that Glenn looks for is the quarterly “Economic and Market Watch Report” issued by the Arizona Regional Multiple Listing Service (ARMLS). Unfortunately it takes them 6 – 8 weeks from the quarter end to post this report. Combine that delay with my own delay in posting it and you get folks jonesing for their stats fix.

This report contains a ton of information, breaking down quarterly prices, sales, days on market and more by zip code, for all of Maricopa and Pinal counties. It also contains commentary from the National Association of Realtors (NAR) Chief Economist Lawrence Yun — for what that is worth.

Monthly indicators, trends and forecasts are also included.

The current Q3 2007 report is available for download here. (PDF format.  Big file, be patient.)

If you are interested in previous reports, go here.  At some point, I’d love to go back through old quarterly reports and evaluate how accurate ARMLS forecasts have been. It could be an interesting exercise…

. [tags] Phoenix real estate market stats, ARMLS [/tags]

From today's Arizona Republic:

Home building permits across metropolitan Phoenix fell to a 14 1/2-year-low to 1,309 in September, according to RL Brown's latest Phoenix Housing Market Letter.

New home construction figures for the Valley haven't been this low since February 1993, but the current slowdown is part of a much-needed market correction. Most builders are slowing down and putting up fewer homes until much of the speculatively-built inventory is sold, Brown said.

Fewer spec homes – houses built but not sold – mean fewer listings and a dent in the glut of Valley homes for sale.

Drive through Gilbert in the East Valley, particularly south of Elliot Road and east of Higley and you'll see tract after tract of homes under construction. Of course these homes are being built on permits issued months ago. Eventually the lower September permits will result in fewer homes being built, but don't expect changes overnight.

As of this moment, there are 47,713 single-family detached homes in the Arizona Regional Multiple Listing Service (ARMLS) — which roughly covers Maricopa and Pinal Counties. 43,389 of those are listed as built in 2006 or earlier.

Using the the trusty HP-12c calculator, that means there are 4,324 homes currently listed for sale that were built in 2007.

If you are interested, the total number of dwellings (single-family, condos, duplexes, mobiles, etc) currently listed in ARMLS is 57,773. It should be noted that the MLS we currently have, in all its glory, includes time shares in residential listings, so they are included in these numbers. Total closed sales from September 22 through October 22 was 3,280. That's a 17.6 month supply of homes.

Isn't it about past time for new home building to slow down?

[tags]Phoenix New Home Sales[/tags]

Two folks have kindly pointed out that the stats page on ThompsonsRealty.com has not been updated in… well, let's just say "awhile". Reader "Jon" sent a very nice email:

Yo, Phoenix Real Estate Dude! I really like the stats page on your website. But you stink at updating it! MAY is the last month. For the love of God man, update that thing so I can get my stats fix!

Sorry Jon (and others), I didn't mean to send you into stats withdrawal.  The page has been updated…  The September compilation hasn't been released yet. I promise I'll post it as soon as it is. Really. Seriously. Honest.

[tags]Phoenix real estate stats, Jay is a slacker[/tags]

Here are the latest high-level overview stats for the Gilbert real estate market. Note our listing service reports the average NOT the median as you'll often see in the mainstream press (particularly for sale price). Actually it's the arithmetic mean, but most folks call that the average…

Average/mean and median are not the same statistic. Here is a simplified explaination of the difference between mean and median. Don't read the whole thing or you'll want to slit your wrists, the first few sections will suffice. In a nutshell, the mean is more effected by outlier data than the median.

However…

Given the large number and range of data points, reporting either the mean or median for a data set such as this is statistically acceptable. But you can't compare the two directly as they will be different–albeit only slightly in this case.

And you've been fed your stats lesson for the day. Dr. Edmondson would be proud.

Edited to add glaring ommission:
Total active listings (Gilbert, single-family homes only) = 2,741
Total sales: (Gilbert, SFH only Aug 18 – Sept 18) = 215
Absorption Rate (Months) = 12.75
 

I'm going to try to do this more regularly, which will allow me to put some trend charts together. Of course, I could just send you to John Wake, but what's the fun in that?

And for the love of Pete, and Jonathan Dalton's sanity, please don't put a lot of stock in the Days on Market (DOM) number. DOM is influenced by way too many factors to make reasonable assumptions about how/why it changes.

Data extracted from the Arizona Regional Multiple Listing Service (ARMLS) and is deemed reliable but not guaranteed.

[tags]Gilbert real estate, Gilbert listing and sales stats[/tags]

Click image for larger view (PDF)

Data from Arizona Regional Multiple Listing Service (ARMLS). Compilation and chart provided by Sandra DiCosmo (the best!) with First American Title, Price/Warner Branch in Tempe, AZ.

(As noted, "Southeast Valley" data includes Ahwatukee, Apache Junction, Chandler, Gilbert, Guadalupe, Mesa, Queen Creek, Sun Lakes, and Tempe.)

If you're not inclined to do the math yourself: 19,644 active listings / 1,515 recent sales = 12.96 month supply….  that's a frightening number.

[tags]Phoenix real estate listings stats, Southeast Valley[/tags]

Here are the Phoenix and East Valley real estate listings and sales stats for June…

[table=4]

[table=5]

Data extracted from ARMLS – Arizona Regional Multiple Listing Service

The stats for May are available here for comparison. In short, listings are up (though less than we've seen in the past), Days on Market (DOM) are up, and sales are slightly lower for the metro area, but some East Valley cities showed a slight increase in sales over May.

[tags]Phoenix real estate, listings and sales stats[/tags]

Now there's a pretty frightening title…

The PMI Mortgage Insurance Company recently released its Summer 2007 "US Market Risk Index Model" results, and it places Phoenix solidly in the #2 spot for metropolitan statistical areas (MSAs) most likely to see a decline in housing prices over the next two years. A 64.6% chance to be precise.

There is no mention of how much of a price decline may occur, but other than the most rabid bubblehead, no one wants to see any price decline in home value.

This report has been in my "to be read and digested" pile for the last week. I got a call this evening from Marilyn Lewis, a reporter for MSN Money who is working on an article related to the report. She was quite nice and cordial, and we had a good talk about things a seller can do in this market. Having spoken with her, I elevated the PMI Group report to the top of the pile. While not yet fully digested, I've read it and pondered it enough to proclaim it "interesting".

Being a self proclaimed "chartaholic", and a former semiconductor manufacturing engineering type, I always find statistical analysis and models interesting. It's a sickness with no known cure.

The "MRIM" combines several factors to come up with a weighted analysis of what MSAs are most like to suffer price declines over the next two years. Specific factors are:

The PMI U.S. Market Risk Index is based on the OFHEO House Price Index , labor market statistics from the Bureau of Labor Statistics, and the PMI Affordability Index, which uses local per capita household income, home price appreciation, and a blended mortgage rate to calculate the local share of mortgage payment to income relative to its baseline year of 1995. (source)

That Phoenix has and could continue to see falling home prices is not an earth shattering revelation. As I said in "GASP! Median Values are Down!" (Oct 2006) and even as far back as November 2005, there is/was no way our 54% appreciation rates of 2005/2006 were sustainable. The question of course becomes, will prices continue to drop, and how much?

The PMI Group says there is a 64% chance prices will drop in the Phoenix real estate market over the next two years. Whether that means a drop of $1 or a drop of 50%, who knows.

Someone may be thinking right now, "Well, then there is also a 36% chance prices will rise!"  That's not really a valid assumption as prices can do one of three things — rise, fall, or stay flat. We don't know what part of that 36% covers the probability of rising prices and what covers the probability of flat prices — the "MRIM" simply doesn't encompass this side of price movement.

And of course, the Market Risk Index Model could be wrong. It's been around since 2000 — "pre boom" years. I'm trying to find their previous years analysis as I think it would be quite interesting to see how accurate the model has been in the past.

What does this mean for real estate consumers? Much depends on what your needs are. If you have to sell (say due to a job transfer, financial reasons, etc.) then you have to. You can't really worry about what the future may bring. Find an agent that knows how to market a home in the current conditions, get your home spotless and make necessary repairs and price it properly. It will sell. Despite the doom and gloom of the mainstream media and bubble bloggers, homes still sell, every single day.

If you don't have to sell, now may not be the best time to list your home. Yes, I just said that in "print". It may not be the best time to sell. 

Is it a good time to buy? Maybe. Again as I wrote in "What the Heck is a Buyer's Market?" it depends on your situation . Interest rates are near historical lows, and there are (in the Phoenix market) 54,000 homes to chose from. That bodes well for buyers. If you plan to remain in your home for several years, you've got decades of history that supports overwhelming odds your home will appreciate over time. But if your intent is to buy and flip the home for a profit, in the current market I'd have to label you as insane. And that assessment holds true whether or not the "MRIM" is accurate in predicting the future. Now is not the time to flip.

The MRIM is an interesting model. There are sound assumptions behind it. No model can predict the future however. It is a data source and one of many factors you should consider if you are contemplating buying or selling real estate in the current market. 

Others Opine: Realty Times, Housing Doom, I Team, Housing Bubble Blog, Ellis Team

[tags]PMI Group, US Market Risk Index Model, Phoenix real estate[/tags]