By Tim L. Greenfield Associate Broker, ABR
Coldwell Banker Residential Brokerage (4/2008)
tim.greenfield@azmoves.com     www.GreatScottsdaleLiving.com

Existing house sales across the metro area increased for the second month in a row. Should that happen again this month market forecasters are likely to call that the bottom on the market has been reached in the metro area. March sales / closings increased to 4335 units last month up from 3750 in February according to the Realty Studies center at Arizona State University.

Those numbers are far below the boom time days of 2004 and 2005. However the market is still feeling the effect of those overheated times. Once the correction in housing supply and demand is complete we should be back to a ‘normal’ housing market.

We still have to see what effect the weakening economy has on the housing recovery as well as cleaning up the subprime mess. However I believe that we are at or very near the bottom of the market in the metro area. I made that call about 60-90 days ago. There are numerous reasons that I will touch on below.

Mortgage interest rates are at near historic lows. We are seeing 30 year fixed rate loans under 6% which is basically free money in my opinion.

First time Buyer’s are back in the market, because of low interest rates and reduced prices on houses in the metro area.

There is pent up demand including first time, move up, move down, retirement, second home, vacation, and even investor buyers.

Congress is working on passing various housing relief bills. Congressional Democrats are pushing more aggressive plans for the Federal government to insure up to $400 billion in troubled mortgages. They would be refinanced at more affordable rates.

Legislators are also considering tax relief for mortgage lenders, and developers. This is driven by aggressive lobbying by both industries. The National Association of Home Builders alone has spent over $3 million lobbying in D.C. over the last year.

The administration is finally supporting government intervention in the marketplace. Something they have been resisting for months. Even with support from the Bush administration it remains to be seen what effect the government can really have on fixing the problems in the market.

However since 2008 is an election year I am sure there will be much more talk by elected officials about their plans to help homeowners (voters) with their housing based financial problems? This will no doubt be provided by the government whether it is deserved or not. Bailing out truly needed homeowners and family’s is noble. Taking care of deadbeats and investors is another matter.

I continue to tell all of my clients that if they are looking to buy now is the time. I think the window of opportunity may remain for the balance of 2008, however when it closes it is quite likely to happen very quickly.

(3/15/08)
What’s up in ‘Valley of the Sun’ Real Estate of Metro-Phoenix?

By Tim L. Greenfield
Associate Broker, Accredited Buyer Representative
Coldwell-Banker Residential Brokerage
www.greatscottsdaleliving.com

in association with Tony Pomykala REALTOR Arizona Mansions

We are in a major buyer’s market. There has not been a buyer’s market this strong in a very long time. If you are a buyer, then you are in demand! Despite all the negative media attention about real estate nationally as well as locally, 5000 houses are selling each month in the metro area.

Prices are down because inventory is up and mortgage rates are near historic lows (and forecast to go lower). That helps drive affordability. It helps first time home buyers, move up buyers, and even investors, who are starting to shop and buy houses again because conditions are currently stacked in their favor.

The question is `how much longer will the buyers market last’? Probably for the rest of 2008 the market will favor buyers. Therefore, the fence sitters need to get into the market now before it passes them by. Remember, once a lot of buyers jump in, the pendulum swings the other way and it becomes a seller’s market again. It’s always about the law of supply and demand. When you are among the few, sellers vie for your attention and offer incentives such as lower prices. If there are a lot of buyers though, sellers need not try so hard.

Arizona real estate is still a great long term investment. That will likely never change. The median house price in the metro area is up over 9000% over the last 38 years. Try getting that return in the stock market!

Prices across the metro area dipped about 10% from 2006 to 2007. That has not happened in the metro area for almost 40 years. Buyers that miss this unprecedented opportunity should expect a very long wait before the opportunity present in our current market is available once this buyer’s market cycle ends. This is truly a rare opportunity for purchasing property in the metro area before the market moves back to neutral, where buyers nor home sellers have any particular advantage.

Foreclosures are up, as are short sales, compounding the buying opportunity. Any one looking for bank owned property should focus first in the West valley. Tolleson, Litchfield Park, and Buckeye have the highest rate of foreclosures and, therefore, bank owned properties for sale in the metro area. See my article on Sub Prime Lending (February 2008) and you will understand why. If you want to invest in this type of property make sure that you have a Realtor that has experience in buying and selling these property types, as they are very different than a standard purchase or sale.

The U.S. Federal Government is assisting in the buyers market. The Economic Stimulus Act of 2008 which President Bush signed into law recently will inject $168 Billion to boost the economy through tax rebates, incentives for business, and raised limits for Fannie Mae and Freddie Mac. The National Association of Realtor’s estimates that the act will generate 348,000 additional home sales, 500,000 additional potential refinancing, and 140,000 to 210,000 fewer foreclosures... They expect that to translate into $44 Billion in increased economic activity. Additionally job creation has left a pent up demand for 2.1 million houses.

So we are back to the question of when the buyers market will end. I think the window of opportunity will last the balance of 2008, but like everyone else I do not have a crystal ball. When it does end the opportunity for buying with the market tipped to the advantage of the buyers will be over. The net translation here is this: if you do intend to buy a home or investment property, now is definitely the time to do so, or what may be your best opportunity could pass you by.

I am sure you have heard the nose about the sub-prime mortgage lending market crash which lead to the credit crunch and exacerbated the problems in the housing market nationwide.

Sub-prime mortgage loans were a small part of the overall mortgage lending industry, only about 5%. However a very large portion of those loans are in trouble. That number is about 50% nationwide. It is interesting that with all the media hype you would think sub-prime was in fact the mortgage lending industry.

The sub prime market is in fact dead. But that is not a bad thing. Imagine lending money without income verification which is what stated income loans were. Making loans with no Buyer equity what so ever in the property. That was 100% financing. Also the banks were sometimes lending more than 100%. That was to cover closing costs for Buyers who could not even come up with that amount of cash. None of these make any financial sense from an underwriting perspective.

The variable payment amount loans were another variation. They forgot to point out that they had negative amortization, which simply put any reduced payment on top of the loan balance. Some of the variable rate ARM’s with the teaser rates that increased drastically when it was time for the loan to adjust were another factor.

How this effected the market is simple. It made the pool of Buyers much larger. More Buyers equals more home purchases. More purchases mean more demand. More demand means higher prices. That is what really help feed the 2004-2005 housing boom in our market which drove prices up 50% in that period.

One of the points neglected is that the sub-prime market made it possible for people with poor credit to buy houses. The reason for poor credit is almost always that these folks do not pay their bills in a timely fashion. Those were the majority of the sub-prime borrowers, people who before sub-prime lending could not obtain mortgage’s to buy houses.

So why would Banks, Savings & Loans and other lenders generally thought of as a very conservative group be making sub-prime loans? In my opinion it is very simple, greed. By that I mean the Money Center banks and the Wall Street brokerages were looking for a new way to generate billions of dollars in additional profits. What better way than create a whole new group of borrowers? Thus sub-prime lending was created. I am sure over the objections of the underwriting community.

Sub-prime loan products were often not conforming, meaning the Fanny Mae & Freddie Mac were not buyers for the loans in the ‘Secondary Market’ that the mortgage brokers were originating. Wall Street brokerages were buying them and repacking them as Commercial Paper to be sold to investors globally. Somehow sub-prime high risk loans we sold to investors as ‘A Paper’. International investor’s (banks) were buying what they thought was ‘A Paper’ and in fact it was C or D (junk) paper.

The result as we now see clearly was a bubble in housing created by demand. When the housing market slowed down problems started to develop. Add the Arm’s adjusting upward together with people who were marginally credit worthy, or not credit worthy at all, and look what we ended up with.

It is too bad for the people and family’s loosing their homes to foreclosure, but could it not be expected? The market is suffering the hang over from this party created by greed.

The guilty parties here are the Money Center banks and the Wall Street brokerage houses that created this house of cards. Congress should be investigating this debacle. Some of the key players should be looking at jail time.

For those who remember the 1980’s this looks like Michael Milken ‘King of Junk Bonds’ with the Junk Bond bubble and insider trading scandal that was quite a debacle when it burst.

It also looks a lot like the housing bust in the late 80’s and early 90’s following deregulation of banking that allowed Saving and Loan’s to enter markets that they new nothing about which lead to the S&L crash and required the Federal government to step in and clean up the mess with the RTC. Of course who paid for the clean up, taxpayers as usual.

It is amazing how history manages to repeat itself. The market will stabilize and move forward in time. The good news in all of this is that there is plenty of mortgage money available for buyers with reasonable credit.