July 2015 - Phoenix Real Estate Update

I hope you enjoy this monthly newsletter. Remember whether you are buying a new or resale home it is important to have a realtor to represent your interests. If you know of anyone who is thinking about buying or selling please let me know.  You can search the MLS from my website at www.greathouseaz.com.


Do you want instant updates on the Phoenix Real Estate market? Follow me on Twitter


Do you have a rental property and need a property manager?  Please call or email Karen Van Vugt at 602-316-7028 or ftr9558@cox.net


Sincerely,

Pat Hune

Broker

greathouseaz@gmail.com

1st Southwest Realty

www.greathouseaz.com

Search the real MLS from my website!

Cell 480-703-1976

Fax 480-304-9099

Equal Housing Opportunity



Market Overview  

Hidden key indicators of a seller’s market - Low inventory levels and increasing sales prices are key indicators of whether it is a buyer’s or seller’s market.  This is easily determined by looking at the statistics available from the MLS.  Other key indicators cannot be seen except by the buyers, sellers, realtors, lenders and title companies. These are the terms of the contract.  Lenders report seeing more contracts with the finance and/or appraisal contingency removed.  Buyers and their realtors are experiencing multiple offers and are often outbid especially for homes priced under $200,000.  An increased number of sellers are asking the buyer to agree to purchase the house “ As Is” with no repairs.  Even an undesirable house that backs to busy streets or freeways sell quickly if they are priced right for the condition and location.  Bottomline is low inventory allows the seller to call the shots.  


Low Inventory Pushes Buyers Back to Low Tech - Remember in the old days when you started your home search by driving through neighborhoods and calling on for sale signs.  The inventory shortage is pushing buyers back to this primitive search method.  The reason is many realtors are putting up a sign with a “Coming Soon” rider in hopes of finding buyer on their own before the house goes on the market.  Though these houses may be on Craig’s List or on the realtor’s personal or company website they will not be visible to the general public because they are not on the MLS.  The only way a buyer will find the house is to drive through the neighborhood and call on the sign.  The main reason is the realtor hopes to represent both the buyer and seller (called dual agency) and get both sides of the commission.  There are no laws or regulations preventing “Coming Soon” signs though the groups regulating realtor’s actions are concerned about the steep increase in this practice. Some states do not allow dual agency, i.e. where the listing realtor represents both the buyer and the seller.  These states feel it is a conflictive interest and have outlawed the practice.   It will be interesting to see if Arizona becomes one of those states.


No Inventory Relief From New Homes - The increase in the number of new homes being built will not help the inventory shortage especially for buyers looking to buy a home priced under $200,000.  New home builders cannot afford to build the entry level priced homes as there is not enough profit.  Even if they could there is little incentive to do so since homes priced at $200,000 and up are selling easily. Take Eastmark located at Ray and Ellsworth in far east Mesa. Eastmark opened just 25 months ago.  The 2015 season has seen strong interest from buyers wishing to live in this thriving Mesa-based community. Buyers have not been deterred by prices starting in the mid-$200,000.  As of June 1 over 1200 residents call Eastmark home.  Sales increased 148% from June 2014 to June 2015.  


Not Many Options for Entry Level Buyers - Buyers looking for an entry level home will be forced out to the distant suburbs like Buckeye, Surprise, El Mirage, Maricopa and Queen Creek.  But even these areas have few homes available that are move in ready and can qualify for entry level financing like an FHA loan.  Buyers who don’t want the long commute will look at townhomes as a cheaper alternative.  However depending on the location there are not many available and they may not be as cheap as buyers would like.  Most condo communities do not qualify for financing so this housing option eliminates all but cash buyers.  It appears there will not be any inventory relief in the sub-$200,000 in the near future.  


Articles

1)  STAT Newsletter, PPI and Rent Check Link 

2)  Rental Market  

3)  Multifamily and Commercial  Real Estate Trends

4)  Fannie Mae Relaxes the Rules for Buying a Primary Residence without Selling Current Home!

5)  Real Estate Briefs

    a) Western Fed Boss Optimistic About Arizona Economy, Cautious About Construction Jobs   

    b)  Empire Group to build 158 Homes in Peoria 

    c)  Why Don’t Good Houses Sell - Might be the smell  

    d) Strong Dollar Discourages Foreign Investment in US Real Estate 

6)  Tales from the Real Estate Trenches 

     How Solar Can Be Detrimental to a Home Sale

 

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1) STAT Newsletter Link - STAT is produced monthly  by the Arizona Regional Multiple Listing Service - the database realtors use to list homes for sale and that have sold.   ARMLS® COPYRIGHT 2015


STAT Report


STAT Newsletter and Real Estate Market Highlights

Commentary by Mike Orr, WP Carey School of Business at Arizona State University


In each of the last three months, there has been one metric that jumps off the spreadsheet! In April it was lower than expected new builds, May saw a 4.1% increase in the median sales price and this month we saw the highest monthly sales volume in the last two years. Total MLS sales volume in June landed at 8,674. The last ti􏰀me sales volume was higher was in May 2013 when 9,436 home sales closed. Even though the sales total was aided with 22 business days, sales volume in June was sti􏰀ll impressive.


“Supply 􏰀tightens, demand holds steady” might not be the most glamorous headline but it perfectly describes the first 6 months of 2015 as our inventory numbers have declined every single month. STAT is currently reporti􏰀ng only 19,596 Ac􏰀tive (excluding UCB) lis􏰀tings, down 20% from last year at this 􏰀time. We currently have only 2.69 months of inventory. The low number of homes available for purchase, par􏰀ticularly listi􏰀ngs below the $200,000 price level, has lead to a significant increase in the median home price this year.


The median sales price ended 2014 at $197,000 and our current median sales price is $214,900. The median sales price in June was 9% higher than in December 2014. The current pricing pressures for entry level buyers caused by low inventory numbers are now appearing in newspaper articles as well as Facebook discussions. Three ar􏰀ticles in the last week have used the phrases “mul􏰀tiple offers,” “bidding wars,” “below $200,000” and “􏰀tight supply”. The general public is now becoming aware of what industry insiders have known for months.

Tina Tamboer Gla􏰂elter from The Cromford Report says it well: “The imbalance is not caused by too much demand ironically as we have a normal level of demand. It's caused by too little supply, which is primarily driven by sellers who do not have enough incentive to sell and the fact builders have not been building entry-level single family homes since the crash. Instead, they have focused their resources on move-up and pre-luxury homes in price ranges and areas that do not lack for inventory.”


Buyers can also take comfort that the 30‐ year fixed‐rate mortgage (FRM) averaged 4.04 percent for the week ending July 9, 2015 when a year ago at this ti􏰀me, the FRM averaged 4.15 percent. Use of the MLS to buy/sell also increased in this period, despite the doomsday disruptor predicti􏰀ons.


The ARMLS Pending Price Index (PPI)

Our last Pending Price Index projected a June median price of $213,000 with the actual median coming in at $214,900, an error rate of less than 1%. Looking ahead to July, the ARMLS Pending Price Index projects a median sales price of $213,000. We begin July with 7,020 pending sales contracts with 3,741 lis􏰀tings in UCB. This gave us a total of 10,761 residenti􏰀al lis􏰀tings under contract, compared to 12,076 listi􏰀ngs under contract at the beginning of June 2015. July 2015 sales volume will undoubtedly exceed July 2014 (6,775), but will be lower than June 2015 at 8,674. Our sales volume projecti􏰀on for June missed the mark by 674 sales. I had an􏰀cipated sales volume would be in the 8,000 range. June’s sales volume was the highest monthly total for the year and I expect the 8,674 homes sold in June will be our highest monthly sales total in 2015. STAT is projecti􏰀ng 7,700 home sales in July 2015. My wish for July is that your reality again exceeds my expectati􏰀ons.


2)  Rental Market Check - Rent Check is an ARMLS's  publication tracking single family home rentals.  Click on the link for the statistics.


Rent Stats


3) Multifamily and Commercial  Real Estate Trends


Current Phoenix market trends data indicates a decrease of +6.1% in the median asking price per unit for Multifamily properties compared to the prior 3 months, with an increase of +14.5% compared to last year's prices. County-wide, asking prices for Multifamily properties are 4.3% higher at $58,853 per unit compared to the current median price of $58,496 per unit for Multifamily properties in Phoenix, AZ.  There has been an extreme price pressure placed on duplexes, triplexes and fourplexes as they qualify for conventional financing.  


Loopnet Commercial Trends


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4)  Fannie Mae Relaxes the Rules for Buying a Primary Residence without Selling Current Home!

Amber Kovarik, Caliber Home Loans, MortgageCurrentcy.com, July 2015


Effective June 30, 2013 Fannie Mae relaxed the rules making it easier to buy a new home without selling the current home. From new rules stating that the conversion of principle residence no longer applies, to the fact that Fannie Mae will no longer require lenders to analyze or deduct income such as bonuses, commission, or overtime that equal less than 25% of the buyers total income, these rules offer vast new opportunities for buyers who want to purchase a new home without selling their current home.  These rules make it easier to buy a second home or buy a home while the current home is in the process of closing escrow.


Rule:  Home on the Market and Purchasing New Primary Residence

Q: What if a client’s current home is Pending Sale but that loan will not close before closing on the purchase of a new primary residence?

• The borrower must be qualified with both monthly payments, unless you are provided with:

• The executed sales contract for the current residence. 

• Confirmation that any financing contingencies have been cleared.


Rule:  Converting Primary Home into Second Home and Purchasing New Primary Residence

Q: What if client wants to convert their current home into a second home and purchase another primary residence?

• Follow the reserve requirements defined by Desktop Underwriter (DU), except that:

◦ If borrower owns a total of 2 to 4 financed properties, including subject property, then the lender must document an additional 2 months reserve for each additional property.

◦ If borrower owns a total of 5 to 10 financed properties, including subject property, then the lender must document  an additional 6 months reserve for each additional property.

• Must qualify for both monthly payments.


Rule:  Converting Primary Home into an Investment Property

• Follow standard rental property requirements: 

◦ If there is no history of receipt of rental income from the converted primary residence, the lender may be able to document a justifiable reason to use a lease agreement to offset the payment on the home being exited.

◦ If borrower owns a total of 2 to 4 financed properties, including subject property, then the lender must document an additional 2 months reserves for each additional property.

◦ If borrower owns a total of 5 to 10 financed properties, including subject property, then the lender must document  an additional 6 months reserves for each additional property. 

◦ The requirement to use the LTV of the current primary residence to determine ability to either offset the payment with rental income, or to reduce the number of months in reserves based on the equity in the exit home, has been removed and is no longer a Fannie Mae requirement.


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5) Real Estate Briefs


a) Western Fed Boss Optimistic About Arizona Economy, Cautious About Construction Jobs  

Ronald J Hansen, The Republic, July 2015


Metro Phoenix, and Arizona more broadly, seems on the right track economically, even if their recovery from the last recession trails much of the nation, the Federal Reserve Bank’s Western president said during a stop in Mesa last week. John C. Williams, who heads the San Francisco Fed bank and this year is one of the voting members of the Federal Open Markets Committee that sets the nation’s monetary policy, chatted with Valley officials to gauge conditions here and make clear his views of the U.S. economy.


During an interview with The Arizona Republic, he weighed in on a variety of topics, ranging from Arizona’s economy to assessing the unconventional tools used by the Fed during the seven years its benchmark interest rate has sat at nearly zero percent. Here’s a smattering of what Williams had to say.  On Arizona: “When you’re in San Francisco and look out your window and see dozens of cranes and high rises and see all of these companies that have been really successful ... that’s not the full picture,” Williams said. “You’ve got to get out to other parts of the region. Arizona, which has been one of the hardest-hit parts of the country and has had a long road back in terms of its recovery, still has a ways to go. It’s still a little bit behind, as are parts of California. But it’s made a lot of improvement.”


Western Fed boss sees improving economy, higher rates:

“The way I viewed Arizona, even during the housing crash, when things were not looking good, is at least the fundamentals were good. I hate to pick on Michigan, but compare it to Detroit, an area that had longer-term structural issues, and then the housing crash hits. Arizona, you had a bigger boom and it was unsustainable, but it was still overlaid on a still-positive fundamental trajectory.”  On the Arizona housing market: “The danger here is similar to Florida, that a lot of jobs get linked to construction,” he said. “A lot of the economy gets overly linked to that growth and of course that’s a risk because when things are going good, they go great. And when things slow, they get much worse. That’s an area where states like Florida, California, Arizona are more susceptible to these boom-busts.”


On the current economy: 

“One of the things you hear a lot is that we’re still in a recession, and that’s completely understandable,” he said. “In a way, the statistics may have gotten ahead of the reality. The unemployment rate came down a lot faster than maybe where the labor market was.  First-time claims for the week ending July 18 dropped by 26,000 to 255,000, the lowest level since 1973, according to the Labor Department.  “What we’re seeing now is much broader-based signs of people heading to work. Initial jobless claims are a reliable gauge of layoffs. And with the unemployment rate at a seven-year low of 5.3% and a growing number of workers feeling confident enough to switch jobs, many employers are holding on to staffers. As the U.S. economy has gotten stronger, as consumer spending has increased, as tourism is increasing, almost everywhere is improving.”  On an impending interest rate hike: “Of course there’s a lot of uncertainty. There’s a lot of people in the markets that have never seen a rate increase in their careers. That’s not an exaggeration. Even among the (Fed’s) governors, (Fed Chair) Janet Yellen is the only one who has ever raised interest rates as a member of the FOMC. Some of the (Fed) presidents have been around for that. So a lot of people out there say, ‘I don’t know what this means. Is this some huge thing?’


“Well, we’ve been in this business a long time. It is something that normally happens when the economy improves and I think the market participants get that. ... When we raise rates it won’t be the biggest news story of all time.”  On lessons learned from the downturn: “To the extent that we’re in an economy that has slower growth and the new normal is lower interest rates, then we are going to hit the zero lower bound problem about not being able to cut interest rates more often. We know from recent experience you can get sucked in for many years and you have to think about quantitative easing or forward (policy) guidance or other tools. European countries are now doing negative interest rates. It’s something we never did. We weighed the costs and benefits and decided not to. That’s another option we would have to consider in the future.


“My own view is that QE and forward guidance, given the circumstances we were in, were actually very effective at getting long-term interest rates down. ... It reduced mortgage rates a lot,” Williams said. “There’s another debate about how much did that boost the economy. ... When you do something completely new and different, you better know you’re going to have a lot of communication issues and challenges and you’re going to have live with that.” 



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b)  Empire Group to build 158 Homes in Peoria 

Matthew Roy, Planning and Development, July 2015


The Empire Group will build 158 new single family homes on a 40-acre site located at 103rd and Olive avenues in Peoria.  Average lot sizes in the single-phase development are planned for 6,326SF, with a minimum size of 5,220SF. Density for the proposed development is just less than four units per acre.


As part of necessary road improvements related to the project, a half-street will be constructed for 103rd Avenue along the development’s frontage. The developer’s road construction efforts are planned to be undertaken simultaneously with the City of Peoria’s planned capital improvement project to improve 103rd Avenue from Northern to Olive. The city project is currently in the design stage.


The developer will also dedicate a 65’ right of way on Olive and 55’ right of way on 103rd to help alleviate traffic concerns for the project.  More than 13 percent of the site (5.4 acres) will be maintained as open space, as well as a substantial buffer on the south side of the development. Amenities will include walking paths, bench seating, a children’s playground and basketball court.


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c)  Why Don’t Good Houses Sell - Might be the smell 

Pat Hune and Various Sources, July 2015


One of the biggest objections buyers have is a house that smells bad.  Luckily the smell issue can usually be resolved without spending a lot of money.  The first thing to do is determine the source of the smell.  Pets are the number one culprits but cigarette smoke is not far behind.  Vacant houses can start to smell due to the drain traps drying out allowing the sewer smell to permeate the house.  Strong cooking odors or the smell of stale cooking grease may require life style changes while the house is on the market.  Moth balls are used to repel pests and have an incredibly strong smell that requires a lot of air circulation to remove.  


The cat litter box, residual odor from dog pee pads, dander and oil from their coats, strong smelling food (who loves the smell of tuna based cat food?) and of course the indoor accidents are typically contributing factors.  Houselogic has a great article on eliminating pet smells.  


Pet Odor Remediation Tips 


Cigarette smoke is a much harder challenge because there are different components to the smoke. The first is cigarettes produce many toxic and irritating gases such as carbon monoxide, phenol, and ammonia gases. The second component of the smoke odor is the high level of tar vapors released into the air as cigarettes are smoked. These smelly tar vapors become sticky when they contact surfaces. They travel everywhere in the house that air can flow into, including inside air vents, on walls and ceilings, on furniture, and even inside closets and cabinets. To totally eliminate cigarette smoke odor, you need something that will follow the same path and oxidize the odors away. A combination of Ozone generators, airing the house out, cleaning the carpet, drapes and furniture is a great start.  Wood furniture needs to be cleaned using a furniture cleaner like Murphy’s Oil Soap, citrus based cleaner or vinegar and water.  


Most realtors will have a carpet cleaner that specializes in removing odors.  There a many chemical treatments but the most effective is a combination of odor neutralizers and running an ozone machine for 24 hours. Ozone generators create O3, or ozone, which disburses into the space to be treated. O3 attacks odor causing substances at their source to permanently remove odors in the treatment area.  Then focus on washing or dry cleaning window coverings and steam cleaning upholstered furniture.


Avoid using a lot of air fresheners as sone buyers may object to the scent you have selected and sometimes the scent can be overwhelming. And the buyers may be wondering what you are hiding.  It is better to air out the house and see if the natural smell of the house is welcoming.  Since people living in a house get use to the smells have a friend or two come over to do a smell test.  With some work an owner with a smelly house should soon be smelling the sweet smell of a successful sale.


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d) Strong Dollar Discourages Foreign Investment in US Real Estate 

Eric Morath, Wall Street Journal, July 2015


A strengthening dollar is putting the haven of U.S. homeownership out of reach for some foreign investors.  After years of finding bargains in a down real-estate market, some purchasers from abroad now face sharply higher housing prices because their nations’ currencies have fallen against the dollar. That could reshape certain U.S. housing markets where foreign buyers have been a stabilizing force.


“Foreign buyers have been a big part of the rebound in home prices in the U.S.,” said Stan Humphries, chief economist at real-estate website Zillow. “The recent strength of the U.S. dollar has significant implications for the attractiveness of the market for foreign buyers.”  U.S. real-estate values are up about 5% in dollar terms from a year earlier, according to Zillow, representing a leveling off of growth after stronger gains in 2012 and 2013. But users of many foreign currencies see a dramatically different story.  For a Russian investor using rubles, for example, the price of Miami real estate was twice as high in February as it was a year earlier, according to Zillow data. A resident of the eurozone buying in New York City faced a 24% price increase during that time, and a Canadian now has to pay 20% more to buy a vacation home in the Phoenix area.


But while Canadian snowbirds are having a harder time finding easy bargains in sun-splashed locales, some real-estate agents say wealthy South Americans and Chinese are still seeking to secure U.S. properties, even those they intend to leave vacant, as safe places to store wealth. Agents say that perception has only been reinforced by the dollar’s recent rise.  Canadian buyers, who are a relatively short flight from U.S. vacation hotspots, are of particular importance to the domestic housing market. In 2014, they accounted for 19% of all international transactions, according to the National Association of Realtors. That figure is down from 23% in 2011, when the Canadian dollar’s exchange rate was more favorable.


One agent in in Palm Desert, Calif., said western Canadians represent the bulk of his clients for seasonal vacation properties. That segment of his business is down 30% from a year ago, he said. The drop-off is even larger among properties priced at $1 million or more.  “They’re just not willing to lose a quarter-million on the currency conversion,” he said. Instead, some of the Canadian clients he cultivated on a 2012 trip to British Columbia are now seeking to sell so they can profit from the currency moves, he said.  One of his clients, Billy Harasymchuk of Victoria, B.C., recently put his Palm Desert vacation home he purchased five years ago on the market, hoping the stronger U.S. dollar will let him maximize his return. The U.S. dollar had appreciated 20% against the Canadian dollar by mid-March from July 2014, though the Canadian dollar has strengthened a bit in recent weeks.  Mr. Harasymchuk, 55, said he faces a tough market in part because Canadians who vacation in the area are reluctant to buy. “It’s a good opportunity for a U.S. buyer to get a good deal,” he said. “But from a Canadian point of view, they wouldn’t even bother.”  


A similar dynamic is playing out in the Phoenix area, another popular destination for Canadians. Those buyers took advantage of depressed home prices in the wake of the recession, at a time when the Canadian dollar was relatively strong and high oil prices provided extra disposable income in crude-rich regions around Edmonton and Calgary.  In March 2011, Canadians accounted for 5% of all home sales in the Phoenix area, according to the W.P. Carey School of Business at Arizona State University. That represented a larger fraction of buyers than from any single state other than Arizona. In March of this year, Canadians accounted for just 1% of sales.  In some Arizona retirement communities, Canadians made a quarter of all purchases from 2008 through 2012, said Mike Orr, director of the university’s Center for Real Estate Theory and Practice.  “They softened the blow when the market was at its worst, but they’re probably putting a damper on growth now that the market has recovered,” he said.  In other areas, however, wealthy investors see opportunity in the appreciating dollar and relatively steady U.S. economy.


“Affluent buyers are acting like American purchasers did when interest rates first moved up,” said a real-estate broker in Miami. “They think the dollar’s increase is going to continue, and they want to act on it.”  The U.S. dollar has strengthened relative to most foreign currencies over the past year. The gain reflects the rosier prospects for the U.S. compared to many overseas economies. And actions by some foreign central bankers have decreased the value of their currency relative to the dollar.  He said he frequently shows South American and European investors around high-rise properties featuring ocean views, luxury spas, helipads and nearly non-existent neighbors. While the condominium units are used for the occasional vacation, most buyers view them as containers to store wealth and leave them empty most of the year, he said.


Currency rates have less influence on Chinese buyers because the yuan closely tracks the dollar. But escalating real-estate values, especially in California, and the dollar’s strength against other currencies make U.S. investments attractive for Chinese buyers, said Li Li Hwang, an agent in Rancho Cucamonga, Calif. She frequently works with Chinese buyers and actively advertises that she is bilingual.  Two Chinese clients recently closed on a property during a one-week visit to Southern California, Ms. Hwang said. Purchasers are often seeking property to improve their chances to obtain a U.S. visa or as housing for children attending a local university. For Chinese buyers, the “stronger dollar will indicate that the U.S. is the most safe country” for investors concerned about a slowing economy at home, Ms. Hwang said. “It will give them much more confidence and protection.”



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6)  Tales from the Real Estate Trenches 

Pat Hune, Broker at 1st Southwest Realty


How Solar Can Be Detrimental to a Home Sale


The increase of the popularity of solar panels has generated a new set of problems for home buyers and sellers. For example Mr. and Mrs. Green decide they want to install solar panels.   The solar company offers them an economical way to buy the panels with a 20 year payment plan for only $60 per month. The solar company tells them they will save far more than that per month with the reduced electric bills.  The Greens think this is a marvelous idea and sign up.  Eighteen months later Mrs. Green gets a fantastic job opportunity in another state.  This means the Greens will have to sell their house.  The issue is the buyers have to qualify for the house payment AND the solar payment. If the buyers are not interested in having solar or making this additional payment it is now a detriment to the sale.  


The solar payment is a big issue with entry level or lower priced homes. These buyers tend to be more limited in the monthly payment amount.  It should be less of an issue on a more expensive homes but the buyers may want the sellers to pay off the solar rather than have the buyers assume the payments.  If the seller is not in a position to do this  it could mean the difference between selling the house quickly or discounting the price.  The current inventory shortage is helping overcome this problem but 20 years is a long time and many things can change.  Before installing solar home owners should make sure there is either no chance they will need to sell the house in the near future and have the financial resources to pay off the solar debt if circumstances change.