Foreclosures are ugly. Assuming you aren’t just a nasty person, no one wants to see anyone lose their home to foreclosure. However; unless we choose to bury our head in the sand and pretend they don’t exist, then if you are even remotely interested in the Phoenix real estate market you need to understand what’s happening in the foreclosure side of things. Like them or not, foreclosures in the Phoenix area aren’t going away any time soon.
Phoenix Pending Foreclosures
This would be a chart of foreclosures pending in Maricopa county for the 4.5 years. Scary chart isn’t it?
“Foreclosures pending” means this:
The inventory of foreclosures pending represents the number of properties which are scheduled for sale by the trustee at some point in the future.
Inventory is increased by 1 whenever a notice of trustee sale is issued. Inventory is reduced by 1 when a trustee sale is cancelled. Inventory is also reduced by 1 when a trustee deed is issued to either a third party or the beneficiary (i.e. the lender). If the trustee deed is issued to the beneficiary then this adds 1 to our REO (real estate owned) inventory and it no longer counts as a foreclosure pending.
The data is for the county of Maricopa and includes all real estate property types, including land and commercial. A commercial parcel counts as 1 foreclosure even if there are multiple structures within that parcel.
In Arizona (mileage may vary in other states), a “trustee sale” is what most people generally think of as “foreclosure”. In very basic terms, if someone is delinquent on their mortgage payments the lender will at some point issue a “Notice of Trustee Sale”. It’s basically notification that in 90 days your home will be sold “on the courthouse steps” to the highest bidder. Assuming that is, someone bids on it. Often (about 88% of the time) no one does, or doesn’t bid enough to satisfy the lender and the home is effectively returned to the lender, who will likely soon list it for sale on the open market. The home is now a “banks owned home” or “REO” (real estate owned) property – a “foreclosure”.
What can cancel a trustee sale?
- The homeowner can get current on payments. The bank doesn’t want your home, they want you to pay the loan. Catch up on your payments, and they’ll cancel the trustee sale. Note, your credit is going to take a hit – you’ve generally got to have several late or missing payments before the lender issues a Notice to Trustee Sale. Your credit is whacked before you even get the notice. Catching up doesn’t erase that fact.
- You can (at least in theory) get your loan modified / restructured.
- You could list the home on the open market and sell it. This may (or may not) involve a “short sale” – selling the home to a third party for less than what is owed on the mortgage. The lender will naturally have to approve a short sale. Short sales have been discussed here and countless other places. They are painful, though (some) banks seem to be getting better at handling them. A short sale will also damage your credit. Some people think that’s not fair. Consider the lenders perspective – you promised to pay a certain amount. You didn’t. Their investors therefore take it in the shorts. They report the fact the loan was satisfied at an amount less than promised and your credit gets whacked. Such is life. In the not-so-distant past, the federal government counted the forgiven amount of the loan as taxable income – resulting in hefty tax bills, so things could be worse. (And it’s important to note that there is no blanket rule that covers all situations when a portion of a mortgage is forgiven. TALK TO A PROFESSIONAL TAX ADVISOR IF YOU ARE CONSIDERING A SHORT SALE. Sorry to yell, but it’s important).
So the chart above indicates the number of homes which are scheduled for foreclosure, NOT the number of homes that have been foreclosed on. Some will ultimately go into foreclosure, some will not.
Third Party Purchases at Trustee Sales
Here’s a very interesting chart. It shows the percentage of properties sold at the Trustee Sale to third parties – anyone other than the lender. (Often the Trustee Sale is erroneously referred to as a “foreclosure auction”. While not technically correct, you can still think of it as a foreclosure auction.)
Why the big giant change between 2005 /beginning of 2006 and the end of 2007 through 2008?
The answer is actually pretty simple. The high percentages of homes sold to third parties in 2005/2006 correlates perfectly with the insane seller’s market Phoenix experienced. Conversely, that 5% of sales to third parties you see in 2008 corresponds to the strong buyers market.
When homes are in short supply (as they were in 2005 / early 2006) then people – be they regular home buyers or investors – tend to pick up foreclosure properties. When there is an excess of supply (ala 2008) there is far less demand for homes – including homes sold at Trustee Sales.
Note the uptick in sales to third parties from March 2009 – present. This is another indicator the market is shifting from a buyers market to a neutral market. We’ll have to keep an eye on this trend.
What does the current REO sales and inventory look like?
Sales and pending sales are off last months torrid pace.
July 19, 2009 | Last Month | 3 months ago | |
| Active Listings | 5,193 | 5,105 | 8,412 |
| Pending Sales | 6,510 | 7,292 | 8,762 |
| Sales per Month | 4,895 | 5,909 | 5,410 |
| Months Supply | 1.0 | 0.9 | 1.6 |
| Median Sales Price | $95,000 | $92,000 | $89,900 |
| Listing Success Rate | 91.2% | 90.9% | 81.3% |
There are currently 37,485 active listings in the Phoenix area Multiple Listing Service (ARMLS). If that sounds like a lot, it is. But consider two years ago there was 55,267 active listings. As a percentage of all listings, normal sales continue to constitute about 50% of active listings, short sales continue their steady climb and now represent 35% of active listings and REO properties have dropped almost in half since the beginning of the year – holding steady over the last couple of months at 15% of active listings.
And finally (FINALLY! say those that have stuck through and read this far – I bet there are four of you) we see that as a percentage of monthly sales, REOs still constitute the bulk of sales but both normal sales and short sales are both trending up. This may be as a result of a combination of things – banks are getting better about responding to short sale offers, sellers are getting more realistic in there pricing and there is a general lack of supply in REO homes.
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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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Glad I was one of the four who read through to the end.
Interesting information.
“Banks are getting better about responding to short sale offers, sellers are getting more realistic in their pricing and there is a general lack of supply in REO homes.”
Do you expect to see more REO homes enter the PHX market soon?
Im just hoping that these are not a “pending doom” situation for any economic advancement. The recession is not yet reversed and we might have another big bust coming up here soon if the numbers are correct.
-Tyler
Very interesting report; this was info I had seen nowhere else. By the way, I heard on the radio about a month ago that banks were feverishly sending out notices of trustee sales (since there had been a moratorium on foreclosures for a while). The speaker said they expected there to be a large number of foreclosures coming on the market in late August and early September. It will be interesting to see what happens then.
“Do you expect to see more REO homes enter the PHX market soon?”
Probably. Given the amount of pending foreclosures, it seems inevitable. But there appears to be plenty of demand out there from buyers, and I think the market could absorb a lot more foreclosure inventory.
Not that I want any more homes to go into foreclosure, but let's face it. There is a one month supply of REOs out there. The inventory could quadruple (or more) and probably be quickly absorbed.
Good article Jay but have to say that banks are NOT getting any easier in the short sale decision process. At least not in my area. Fact is, until they do, the market will continue to sag. Only cure to recovery is purchased inventory. If you can't buy it and/or people move on, the inventory continues to sit vacant, exposed to mold and theft.
Startling statistics, median under 100k and virtually no available inventory. I guess market forces do work after all
Over the last few months in Baltimore Maryland we have seen an increase in forclosure auctions. However, banks have been reluctant to sell the properties they are taking to auction. It is common for them to “buying it in” only to loose more money when they finally listed the asset on the open market. As of July, MRIS (The local MLS for Baltimore Homes) reported 5,432 forclosure listings from January 1st, 2009-June 1st 2009. Out of the 5,432 Listings 3,951 here sold at 82.7 percent of the initial list price.
Very good information. Is the stat stuff available through your MLS, or is there another source? It is startling to see that over 60% os sales are foreclosures and around 15% are short sales. Pity the folks who own “regular” homes in the Phoenix area!
thanks for the information..really charts depicts things very organized…one can read charts and can make judgements..
Very good information. Is the stat stuff available through your MLS, or is there another source?
Jay, as always great article and information. I like what the charts are telling us (thanks for providing) but have concerns with the things we are “not” being told.
I've been hearing a lot of mixed reviews regarding banks and shorts sales, too. Most of the blogs I have been reading have indicated an increase in problems. I am glad to hear it is a bit different for you.
Very interesting charts and statistics.
Thanks Jay.
Hey thanks for these Jay these are just great all around foreclosure proceedings to know in general.
Jay,
I’ve been following your blog for a month or two now and would like to say thanks for posting such great info. Your blog is by far the best I’ve seen from any real estate site. I can only hope that in the next few months or years I can get mine up and going somewhere close to the quality of yours. Thanks for all the great posts and keep up the good work.
Jacci
Well thanks Jacci! Let me know if there’s ever anything you’d like to see here!
Interesting points – thanks for this. We deal in Moraira Costa Blanca. Like most we have seen some demanding times in real estate recently. Spanish banks have repossessed a fairly wide scale. They have, until recently refused to offer substantial discounts to willing and able buyers. Usually private sales have been cheaper so repossessed sales have not been significant. There have been signs that the banks are beginning to recognise this and discount more heavily. Time will tell if this becomes a widespread practice
Very interesting article and information. Thanks for sharing this up. I hope this won’t continue like this. I heard that some banks will be foreclosing in the middle of the year.