The Return of the Buyer Contingency Sale?

In the early 90’s it was commonplace to get offers subject to the sale of the buyer’s residence. When the market heated up in the mid 90’s contingency sales like this began going extinct, especially when investor’s entered our market and were making all cash offers and when multiple offers became more of the norm. An offer subject to the sale of the buyer’s home would not even be considered, and often it would not be considered even if the home was sold and in escrow waiting to close. Well, that’s no longer the case.

Now, new offers coming in that are in escrow awaiting the close are seldom refused just for the sale of the contingency. And lately, we’re seeing offers happening that are not in escrow. This is a real change to our market and is another positive sign of a “normal” market.

What should a seller do if they receive an offer with a contingency? Well, for one thing don’t toss it. If a buyer is really interested in your house, they will probably offer you full price, or close to it to make it worth your while. But price is only one consideration. Perhaps too, their home is an easier sell than yours, (i.e. less expensive, better location, better condition, etc). The bottom line should be which house will sell quicker.

Other considerations would include how long their house has been on the market? How is it priced? Your Realtor should do a Market Analysis on their home. If it’s not on the market yet, make sure you provide a clause in your counter offer that gives you and your Realtor a few days to examine the marketability of their home, then decide. And limit the time they have to find a buyer for their home, such as 30 days.

There are other considerations as well that your professional Realtor will advise you on, but today’s takeaway for our current market is for you to consider all offers, including contingency ones, if they make sense.

FORECLOSURE NOTICES OLDER THAN 2002

It wasn’t too long ago that a host of states were consistently in the news as leading the nation in huge foreclosure rates and right at the top of that list with Florida, Nevada and Michigan was Arizona.

Well the worm has turned! Now, Arizona is one of a few states leading the nation with the FEWEST foreclosures and new filings. In fact, since the foreclosure market peaked in March of 2009 with 10,712 foreclosures filed, the current number of new filings has dropped off the table to less than one thousand. Actual completed foreclosures are less than 500 per month now compared to the height of the market in March 2010, which saw 5450.

Local experts are expecting the foreclosure rate to continue stabilizing due to the stiffened underwriting standards now imposed.

NEW HOMES SALES DECLINE – NEW HOMES LARGER NOW

Although newly built single family home sales grew 4% from 867 recorded unit sales in August to 906 in September, the monthly total was 9% below the same month in 2013. The total dollar value of single family new homes closed in September was down from $311 million in 2013 to $302 million in 2014.

Closings increased month to month in both Maricopa and Pinal County. The average sq. ft. of a new home in August was 2,527 while the average sq. ft. of a normal re-sale was 2,024. This suggests the extent to which homebuilders have abandoned the entry-level market in favor of the move-up market. It also shows us why the median sales price of new homes is so much higher than for re-sales.

Thanks to Michael Orr of the Cromford Report for todays stats.

Tight Financing Adds to Market Drag!

You’ve seen the mortgage financing ads quoting a certain rate, such as 2.99% on a fixed rate mortgage, but your lender is quoting you 4.00% for that 30 year fixed rate loan. Is your lender gouging you?

Or, when you chose your lender, they gave you an initial quote for that 30 year fixed at 3.75% and no points. You choose that lender, and shortly thereafter, the lender quotes you a far higher rate. Are you being hustled?

Or, you’ve got a solid 20% cash down payment but now your lender is saying you’ll have to switch to a FHA loan rather than conventional. Is this bait and switch?

We know there are a few lenders who may take advantage of you, but the answers to the above frustrations are all probably no, you’re not being gouged, hustled, or bait and switched. More likely, that 2.99% fixed mortgage is a 2.99% fixed rate loan, but it’s really a “fixed/variable,” as in a fixed rate, amortized over 30 years, but in 5 years it adjusts to a variable rate mortgage.

In the case of the lender who quoted you 3.75%, they may have been quoting you based on top FICO scores of 780 or higher. When the lender actually pulled your credit and your FICO’s were lower your rate was now quoted higher based on perceived higher risk to the lender.

And the lender who’s now saying you may need to do an FHA loan rather than the conventional even though you have a strong down payment, may be suggesting that because you’re still not qualifying for the conventional, but would qualify for the FHA as their qualifying standards are more lenient.

So, how important is having stellar credit when looking to finance a home purchase? As the above examples show, you may be able to get a loan, but unless you have good credit, you will pay more for that loan as in a higher interest rate and/or higher loan costs. You also may not qualify for as high a mortgage amount which means your price range will be less, therefore you get less house or less neighborhood, or less whatever.

Today we’re seeing a number of credit issues affecting buyer/borrowers. Student loan debt, poorer credit due to fiscal mismanagement, and folks still in the “Penalty Box” waiting period of having had a short sale, foreclosure, or bankruptcy.

There is financing available for folks who have had a short sale or foreclosure and don’t otherwise qualify for a loan. These are called “Portfolio” loans. Local community banks may have these loans available, but one such loan quote we got for a buyer recently was requiring a 35% cash down payment, 10% interest, all due and payable in two years. The good news is that if you have to have the house, you can get it and then refinance in two years when you come out of the “Penalty Box.” This is risky however.

We’ve talked before about reasons why the market is not more robust with rates as low as they are, and I tended to blame the Millennials’ generation for not buying, but credit obstacles are probably the main reason. As these issues

For better or worse, I think the new congress, commencing in January will be more pro-active in setting policies that could lighten the loan requirements thereby increasing the number of qualified buyers in the marketplace. Time will tell.

(Next week, we’ll look at how you can best discern if you’re getting the best rate and terms available from your lender)

Where Have All the Buyers Gone?

Where have all the Buyers Gone?
Sung to the tune of “Where Have All the Flowers Gone…”

Where have all the buyers gone, long time passing
Where have all the buyers gone, not so long ago
Where have all the buyers gone, gone to rentals everyone
Oh when will they ever return? Oh when will they ever return?

2014 will go down in local real estate lore as the year we Phoenicians caught our collective real estate breath. This is a good thing. Though the Phoenix-Scottsdale metro market has been languishing for a year plus now, our prices have so far held up.

As far as sales are concerned, we have to go back to September 2006 to find as few sales as we had last month. So, this begs the question, where have all the buyers gone? More importantly, when will they return? And what will bring them back?

There’s good news on this front (in my opinion). Before I go there, let’s take a look to see where our buyers did go. Here’s a quick review, thanks to Michael Orr, of the Cromford Report. It is generally agreed that a number of issues contributed to the current real estate malaise, including:

Where Have all the Buyers Gone?
• Investor activity dropped 36% from September 2013 (our peak)
• Millennials are not buying homes like their parents did (more of them are living with their parents, sharing or renting)
• One in four former homeowners are in the “Penalty Box.” (The “Penalty Box” is where these former homeowners have to wait before they can buy a home again. Typically, this wait runs from 3-7 years, (2 years if VA) no matter how well their fico credit scores rise)
• 367,000 owners lost homes to foreclosure, short sales
• Large Lenders are holding back as they are very much risk averse and so buyer qualification standards are still pretty rough
• Demand is currently favoring Renting

A Closer Look at the Millennial Buyer:
• Starting families later than earlier generations
• Lower birth rates
• Many Still living with parents
• Higher preference for urban lifestyle
• Tendency to share accommodation and transportation
• Not convinced home ownership is good for wealth
• Expect to own a home one day – Not a high priority for them in 2014
• Mostly renting, creating demand for landlords.

A Closer Look at the Penalty Box:
• 232,767 (19% of Maricopa homeowners) have been foreclosed since 2008
• 83,849 (7% of homeowners) completed short sales since 2008
• 26% of former owners have credit issues
• Peak foreclosures were from 2008 – 2011

So What’s the Good News?

In this case, what goes down should go back up. As there were peak foreclosures and short sales in 2008-2011, the penalty box release phase begins in 2015 and continues through 2018, meaning that these buyers, assuming their regular credit is good, can qualify for conventional and FHA loans again.

If only 5% of these Boomerang Buyers (18,000+-) bought a home in each of the next four years, each of those years, save one, would make a record sales year. And if that happens, look out, we could see the wild, wild west all over again.

The Bodeen Zip Line Report – 11/01/2014

85254 – Zip Line Report

Active and Pending Listings are virtually unchanged from one year ago.  Sales are down while the median price has risen 10%.

 Currently              Last Year              Change

Active Listings:         256                 vs        257                             Down Negligibly

Pending Listings:     38                   vs        36                               Up Slightly

Sales Per Month:     61                   vs        63                               Down Slightly

Sales Per Year:         716                 vs        932                             Down Significantly

Median Price:           $425k             vs        $385k                        Up Significantly

 

85255 – Zip Line Report

This premier North Scottsdale zip code is showing active listings up and Pending listings down. Sales increased this last month versus last year, but are down 17% from last year.

 Currently              Last Year              Change

Active Listings:         563                 vs        468                             Up Significantly

Pending Listings:     46                   vs        69                               Down Significantly

Sales Per Month:     71                   vs        68                               Up Slightly

Sales Per Year:         861                 vs        1,036                         Down Significantly

Median Price:           $637k            vs        $617k                        Up Slightly

 

85258 – Zip Line Report

Including the Ranches of McCormick, Scottsdale, and Gainey, listings are down 11% over last year, while the median price is showing an 8% gain over 2014.

 Currently              Last Year              Change

Active Listings:         127                 vs        154                             Down Significantly

Pending Listings:     13                   vs        22                               Down Significantly

Sales Per Month:     35                   vs        29                               Up Slightly

Sales Per Year:         385                 vs        410                             Down Significantly

Median Price:           $500k            vs        $465k                         Up Significantly

 

85259 – Zip Line Report

Listings are up 15% from last year, while Pending listings are the same. Annual sales are lower as well and the median price has dropped 10%.

 Currently              Last Year              Change

Active Listings:         242                 vs        211                             Up Significantly

Pending Listings:     21                   vs        21                               No Change

Sales Per Month:     34                   vs        41                               Down Slightly

Sales Per Year:         409                 vs        522                             Down Significantly

Median Price:           $556k            vs        $585k                        Down Slightly

 

85260 – Zip Line Report

Sales are doing very well this year, and are up 7% over last year. The median price however has dropped 9% from one year ago.

 Currently              Last Year              Change

Active Listings:         199                 vs        192                             Up Slightly

Pending Listings:     24                   vs        29                               Down Slightly

Sales Per Month:     47                   vs        30                               Up Significantly

Sales Per Year:         504                 vs        470                             Up Significantly

Median Price:           $415k            vs        $457k                        Down Significantly

 

85262 – Zip Line Report

North Scottsdale’s most expensive and one of its nicest community’s, the median price is down 24% from last year. Pending listings are down as well.

 Currently              Last Year              Change

Active Listings:         445                 vs        402                             Up Significantly

Pending Listings:     24                   vs        35                               Down Significantly

Sales Per Month:     22                   vs        32                               Down Significantly

Sales Per Year:         405                 vs        558                             Down Significantly

Median Price:           $654k            vs        $860k                        Down Significantly

 

85266 – Zip Line Report

These very popular and upscale communities which are the North of North Scottsdale, and which is home to the newest zip code being added to Scottsdale, has seen appreciation of 8% from one year ago. Pending sales are down slightly and homes sales have dropped significantly from one year ago.

 Currently              Last Year              Change

Active Listings:         201                 vs        166                             Up Significantly

Pending Listings:     17                   vs        27                               Down Significantly

Sales Per Month:     20                   vs        16                               Up Slightly

Sales Per Year:         266                 vs        356                             Down Significantly

Median Price:           $722k            vs        $668k                        Up Significantly

 

85253 (Paradise Valley) – Zip Line Report

The Valley’s most upscale, prestigious, and expensive town currently has 347 homes for sales compared to 299 one year ago – an increase of 16%. Closed and Pending sales in Paradise Valley are off slightly from one year ago.

The median sales price is currently $1,763,000 having jumped significantly, as in 55%! Paradise Valley has recorded the largest median home price gain of any Arizona city.

 Currently              Last Year              Change

Active Listings:         347                 vs        299                             Up Significantly

Pending Listings:     22                   vs        23                               Down Negligibly

Sales Per Month:     28                   vs        30                               Down Negligibly

Sales Per Year:         341                 vs        386                             Down Significantly

Median Price:           $1.763k         vs        $1.138k                     Up Significantly

 

85268 (Fountain Hills) – Zip Line Report

Scottsdale’s most immediate eastern neighbor is accurately named for its mountain slopes and town fountain. For those wanting a small town feel, it doesn’t get much better than here. Listings and Pending listings are up over one year ago. The median price adjusted 3% lower.

 Currently              Last Year              Change

Active Listings:         302                 vs        271                             Up Significantly

Pending Listings:     26                   vs        14                               Up Significantly

Sales Per Month:     38                   vs        24                               Up Significantly

Sales Per Year:         450                 vs        514                             Down Significantly

Median Price:           $402k            vs        $415k                        Down Slightly

 

85331 (Town of Cave Creek) – Zip Line Report

Cave Creek has done a great job of standing strong in value. The median sales price of $461,000 is up 16% from 2013 and pending sales are down slightly from last year.

 Currently              Last Year                 Change

Active Listings:         320                 vs        290                             Up Significantly

Pending Listings:     33                   vs        39                                Down Slightly

Sales Per Month:     41                   vs        56                                 Down Significantly

Sales Per Year:         604                 vs        705                              Down Significantly

Median Price:           $461k            vs        $398k                         Up Significantly

 

85377 (Carefree) – Zip Line Report

The delightful and small town of Carefree is almost too small to accurately compare year to year stats. Having stated that, sales are way down at 73 this year compared to 110 one year ago. The median sales price increased 23% over one year ago.

 Currently              Last Year              Change

Active Listings:         85                   vs        79                               Up Slightly

Pending Listings:     7                      vs        4                                  Up

Sales Per Month:     5                      vs        7                                  Down

Sales Per Year:         73                   vs        110                             Down Significantly

Median Price:           $732k            vs        $595k                        Up Significantly

 

85086 (Anthem – North Phoenix) – Zip Line Report

These communities remind me of North Scottsdale back in the mid 90’s – newer homes with beautiful mountain views in an unspoiled northern environment. These are the bargains of the valley. Prices are so affordable and only a 30 minute drive time to Sky Harbor Airport. Prices are virtually unchanged from one year ago, with sales being down 23%.

 Currently              Last Year              Change

Active Listings:         350                 vs        344                             Up Slightly

Pending Listings:     63                   vs        67                               Down Slightly

Sales Per Month:     71                   vs        64                               Up Slightly

Sales Per Year:         932                 vs        1210                          Down Significantly

Median Price:           $273k            vs        $269k                        Up Slightly

 

*With thanks to Michael Orr and the Cromford Report for the Statistics used.

Phoenix Fall Real Estate Report

Overall, the valley has taken a downturn in price over the last month. We have had a general imbalance in supply vs demand over the last year, but only now are we seeing the first downward price trends. That being said, not all areas are doing poorly. Sometimes we can get caught up in looking at the month to month. Phoenix is still doing better than this time last year. That cannot be said however, of every city here in the valley. Chandler and Tempe for example, are now less per sq. ft. then they were this time last year.

Time will tell if this is a little temporary dip, as is normal in a healthy and balanced market, or evidence of a longer lasting decline. We can get into a lot of trouble when we broadcast our opinions of the future, because of course we can’t guarantee anything. So take what I’m about to say with more than a few grains of salt. We expect prices to continue to dip over the next months, but not some sort of cataclysmic downturn like we had 5 years ago, just a gradual softening.

Hopefully demand will pick up in the spring in response to the improving job market and we will see an upward trend begin again. We know that people want to buy houses as much as they ever have, what they lack is ability and confidence. Only a little time can re-introduce some optimism into these potential buyers.

Qualifying to Buy is No Slam Dunk

I received an e-mail today from a prospective buyer from Minnesota who was coming out to Arizona to purchase a second home in the North Scottsdale area next month. Her e-mail sadly explained that due to an unforeseen economic event, they couldn’t qualify for a mortgage and would have to delay any consideration of a purchase. This was confirmed by their lender as well.

The buyer is the niece of a wonderful client of mine and she and I had been communicating for several months via e-mail about their upcoming visit here. Jon and I initially set them up on a local real estate search using our automated MLS system which sends them property updates twice per day according to the parameters of the type of home they’re looking for. They were really getting excited about buying – very much looking forward to getting this second home in North Scottsdale as they have much family here and LOVE Arizona. It’s been my experience that ALL Minnesotans love Arizona!

This situation is a very good reason why professional Realtors make it a mandatory practice to make sure a buyer is qualified to buy before looking at homes. In the “old days” (as in the 80’s and 90’s) we just took it for granted that someone could qualify to get a loan, and they most always did – except in the heyday of 17% -18% mortgages.

Lending requirements have changed a lot, especially with the Dodd-Frank Act in 2009 and signed into law in 2010. Some have changed for the better, but for many, not so much. (Side note: Chris Dodd and Barney Frank are no longer in office, having retired from their positions last year. Hmm, as we now feel the full farce, uh, force and effect of this legislation, I’m not surprised)

Now this doesn’t mean that we don’t show homes to prospective buyers who are considering buying and want to get a “feel” for the lay of the land, or summer temps, or various neighborhoods, etc. This is a part of what we do. We will however have a pretty good idea of where the buyer is at in terms of their financial ability to buy so there are no dashed expectations.

We met with our Minnesota clients yesterday and they remain as enthusiastic as ever to get a piece of the Arizona real estate pie. We sat down with a lender who has access to portfolio loans that don’t have the same stiff waiting period as regular conventional loans, however they also cost more so the client will need to weigh the cost vs. benefits. We also discussed some other alternative measures to move them sooner rather than later. We’ll see.

So if you or someone you know wants to check out buying a home in the Valley, please give them our contact info. We’ll be happy to provide an excellent buying experience for them…and that makes us and you look good!