Have housing prices bottomed out?
Maybe, maybe not - but I can report one interesting piece of factual information that is happening right now - and you won’t read about in your local papers… yet.
But first, a little background.
As you know, “all real estate markets are local” and so what I am about to reveal doesn’t necessarily apply to all parts of the country - I can’t tell you because I only work on the “front lines” helping people with their mortgage needs in the Arizona market.
In the Phoenix metro area, there has long been a saying - “drive until you can qualify”. If you use central Phoenix as your starting point, generally speaking the farther you drive, the less expensive the housing is.
Metro Phoenix home building has slowed to a crawl. Last year, 13,000 new home permits were issued, down 60 percent from 2007. Valley foreclosures hit a record 40,000 last year and continue to climb this year. Home prices are down 40 percent from 2006’s peak because half of all homes selling now are foreclosures that lenders are reselling at bargain prices.
One of the “boom towns” that exploded in numbers over the last few years is Queen Creek, Arizona - now one of the hardest hit towns in Arizona regarding the dramatic rise in the number of foreclosures.
What is happening that you won’t read about in the local paper… yet.
I am currently working with a handful of buyers who are looking at buying their first home. Some of these buyers are single individuals without a family. Some of them are families. None of them are investors.
They are all trying to buy a home in the Queen Creek area and are looking at mostly bank-owned properties in the Queen Creek area that are priced in the sub-$125,000 range.
And they are often losing the “bidding war” that is going on.
You heard it here first - in Queen Creek, Arizona there are bidding wars going on with multiple offers on houses that are first time home buyers who are not investors.
Does this mean that the Arizona housing market has found a “bottom”?
I don’t know for sure - but if families are trying to buy their first house and are getting into bidding wars for entry-level homes, it seems like it might be a good sign.
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Comments
11 Comments so far
Gay Potter
Justin - excellent topic of conversation…..Native Broker to the area and active in the Queen Creek arena - well, it is true - multiple offers on FINALLY reasonable REO (bank owned)properties. We are still dealing with short sales (should be called “wait” sales) in the area. If the owners are still in the home, they are frustrated by the slow responses of banks to get processed and passed to the next decision maker. Some of these make it through the process, but others, the banks move to slow, buyers walk away, then the bank take the property back or it is sold to a private individual with cash. This area is in the target area for specialty money. I have noticed with this process of specialty money…..inflated values to close a deal. i,e. home foreclosed for 70K, could not be sold in the open market in 270 days for 115k, 105k, then 95K but within 30 days of the trustee sale, miraculously with specialty dollars a sale of 115K…..and foreclosures all around and more falling. The cycle continues! Bottom……..I do not think so, chess pieces have just been moved around!!! If you have already done a post on that I have missed it, if not, I welcome your thoughts on it! Great job once again.
AmySellers
I’m not a real estate expert by any means, but haven’t these bidding wars on bank owned homes been going on for awhile now? I bought my first house (a bank owned home in Gilbert) in June ‘08 and I competed against 5 other bids. Isn’t multiple bidders a sign of a low priced (good deal) house as opposed to the “bottom” of the slump?
Carl Nordman
Bidding wars on REO properties is a common occurrence in every market, during all phases of the real estate cycle. In my experience (1987-1993) and this 2006 top - ???? cycle, bidding wars DO NOT signal a bottom at all and the data available is unreliable for determining anything at all.
Several cases in point over the past 18 months, across multiple markets in the U.S.
1. Our investment group bid on upwards of 40 Bank REO properties in the Sacramento California area from Oct, 2007- April, 2008. In all these offers, we acquired only 2 properties, where there was one other bidder offering the same or more, but our conditions were more favorable (all cash, 15 day close, waive a bunch of things). Since then, the REO sales prices on comparable homes have continued to FALL, and FALL HARD. So as far back as 18 months ago, bidding wars on REO properties failed to signal a bottom.
2. Ditto this experience in two Florida markets our investor group attempted to purchase properties -we got NONE
3. Ditto this experience in two Arizona markets our investor group attempted to purchase properties - we got NONE
4. Ditto this experience in two Nevada markets, our investor group attempted to purchase properties - we got NONE
One explanation for our inability to secure properties (lose on multiple bid situations) has to do with the commitment we have to our investment philosophy. We examine each property with extreme due diligence in order to evaluate either 1) Flip potential or 2) Income potential (cash on cash return and tax benefits) We never go into a bidding war, starting with an initial offer 10-15 below our maximum purchase price and working up to our Max.
Needless to say, we expect high returns and are therefore very conservative. While this has kept us from getting some properties, the good news is 1) we’ve never overpaid and 2) we’ve stayed out of the market while it continues to decline in all these markets.
Does individuals entering a bidding war on REO properties signal a market bottom - using the same criteria as investors, I think it also fails to signal a bottom because individuals purchasing homes for primary residence are more inclined to let “emotion” influence their behavior and consequently we’ll see many continue to overpay even on a REO.
just my two cents.
Luis Pena
I’d like to share this observation in Orange County, CA.
The REO’s on the market tend to fall in one of two categories, fairly priced, and not fairly priced.
Those that are not fairly priced sit, and sit, and sit, till they eventually become fairly priced.
Once a property is fairly priced, the bids come en masse. I’m a single first time home buyer here, and I’ve lost every bid (many at or above asking price once in the fair region) for the past 4 months, it’s honestly becoming frustrating.
I’d like to think that this activity signals ‘where’ the bottom is, but banks aren’t totally willing to acknowledge this to actually get us there. It’s a tough call, I do feel bad for the banks.
Brian Brady
Here’s more:
1- Oceanside, CA.
2- Avondale, AZ
3- Chula Vista, CA (particularly EastLake)
4- El Cajon, CA
5- Buckeye, AZ
5- Bakersfield, CA
What do these areas have in common? Multiple offers on properly priced properties where…OWNING is less expensive than renting, with 3.5% down on a FHA loan. For about 5 or 10 grand, the buyers can paint the walls purple if they want for the same monthly payment.
Maybe prices will continue to decline in those areas BUT…maybe they won’t. Sometimes a bird in the hand is worth two in the bush. If you buy a home in Queen Creek, and it drops another 10%, you still locked in an historically low mortgage rate and secured your piece of the American Dream, affordably.
Justin McHood
@Gay,
Thanks for stopping by! If this turns out to be the bottom, save this post. If it doesn’t and prices fall another 25%, forget I ever wrote it.
I really don’t know if it is the bottom or not, but I can say that I have seen quite a few more families/individuals lose bidding wars than I have in the past.
Does that mean we are at or near the bottom? I don’t think we will really know… until a few years from now when we can look back and see when it occurred.
But it is different than what I have seen in most of 2008.
@Amy,
Thanks for stopping by! Yes, multiple offers on a home are a good sign of a “good deal”. Multiple offers on multiple homes? Closer sign to a bottom I think. Is it the bottom? If you know me, you know that I am not smart enough to call a true bottom.
But multiple bidding wars being waged by individuals/families are a good sign that home values are reasonable… or at least I think so.
And as always, I reserve the right to be completely wrong.
@Carl,
Thanks for sharing your expertise. If this is “normal”, it is just something that I haven’t seen here working in this local market. It could easily be an anomaly - and I guess time will tell.
Stop by and put your .02 cents in anytime!
@Luis,
Thanks for sharing your frustration - if it is any help at all, I have a handful of families in the same situation. Don’t give up!
@Brian,
Thanks for sharing what is happening in similar markets. I also like your point about “if you buy a home in Queen Creek and it drops another 10%, you still locked in a historically low mortgage rate and secured your piece of the American dream, affordably.”
I hadn’t thought about that.
If house prices go down another 10% and mortgage rates go up to 7% - are you better or worse off?
Ah, I will save that for another post.
Thanks all,
Justin
Gay Potter
You are doing an awesome job keeping up with your comments! I would like to commend you for sharing and for taking all the opinions (some heated)in stride from all the “expertise” you encounter on these topics. Your the best!
Ditech Home Loans
It makes sense that prices should stabilize when potential mortgage payments become closer to the cost of renting.
Justin McHood
@Gay,
Thanks for the compliments.
As you can imagine… when you grow up with flame-orange hair and wear pop-bottle glasses in Junior High, you either get tough or turn into an electrical engineer.
And since I am just a local loan officer, that probably means that I am qualified to be “tough” and take it all in stride.
If you are an electrical engineer and just read that and think you want to say something - don’t. Some days I wish I was an electrical engineer and not a loan officer!
As anyone who works in the real estate industry already knows, there are really smart people saying polar opposite things (house prices are at bottom! house prices are going to drop 45% more!) and over time, it all just becomes noise.
And if anyone *really* thinks that they know what is going to happen, please let President Obama know so he can promote you to some kind of “housing czar” and help us all get out of this mess.
@Ditech Home Loans,
Thanks for stopping by and commenting and bringing out a good point: when the monthly cost of owning a home approaches the cost of renting - at some point close to that, prices should logically stabilize.
But I did learn one thing from my economics profs - that the “logical” thing should happen *in the long run*. I always found it funny when a student would ask “how long exactly is the long run?” and the uber-smart PhD profs could never quite put their finger on an exact number of what “the long run” was.
Justin
Troy Reynolds
So let’s say someone looking to upgrade and wants to buy either a custom lot or a newer, existing home in the Goodyear area. Is now the right time? Should they be pouring money into a new home or just save, save and save?
ROI isn’t an issue here, but I’m sure they’d like to make money in the long run.
Is now the time?
Justin McHood
@Troy,
Yes.
Now is the time.
I had to wait a couple of months to say that though.
Justin