NEW YORK (CNNMoney) — Buying a home may never get any cheaper than this. Several housing experts are predicting that this year will be the last chance for bargain hunters to cash in on the best deals of the weak housing market.
With home prices down 34% nationally since 2006 and mortgage rates at historic lows, homes have never been more affordable — but it won’t stay this way for much longer.
Keep in mind, as always, that these articles are written from a national perspective; in other words, when they talk about a weak housing market, they sure don’t mean the one we have going in Phoenix right now. (For those so interested, 8,004 single family detached homes across Maricopa County as of this morning and falling faster than the barometer ahead of a Class 5 Hurricane.)
If you’ve read this website even once, you know that I agree with the above sentiment. It’s the logic the article uses to get to the conclusion that is horribly flawed.
Stuart Hoffman, chief economist for PNC Financial Services (PNC,Fortune 500), said he expects home prices to flatten out by the third quarter and start climbing by next year. A number of factors will help bolster the housing market, he said, including a decline in the number of foreclosures and continued job growth. In addition, homebuyers will have better access to mortgages as they get their finances in order and improve their credit scores.
Mr. Hoffman is guessing a little bit on that last part; lenders have thrown up roadblocks just as quickly as buyers have gotten their credit in order. And also take note of the line about the decline in the number of foreclosures as it comes up again, well, here …
Foreclosures start to fade. One major factor that will drive the trend is the cooling of the foreclosure crisis. Stan Humphries, chief economist for Zillow, said that the percentage of mortgage loans 90 days or more late, a good predictor of future foreclosures, is “falling fast.” That percentage dropped 15% year-over-year to 3.1% through the end of 2011, according to the Mortgage Bankers Association. And the decline is accelerating: More than 70% of the decline came in the last three months of the year.
No, really … I didn’t go out of my way to pick on Zillow’s chief witch doctor. He just made it a little bit too easy. And the writer, with the phrase “the cooling of the foreclosure crisis” didn’t help matters a great deal.
As has been discussed at length here with Jeff Brown and our intrepid reader, Another Investor, and as documented at least anecdotally through reports of Broker Price Opinions being ordered en masse for the first time in months, there is an increase in foreclosure inventory coming. Where Jeff and I differ is in our opinion of the impact this will have locally – given there is essentially no inventory to speak of right now, I think you’d have to see 15,000 homes dropped on the home tomorrow to stem the current market increases; he’s a little dubious as to my guarded optimism, though there are moments I think I have him coming around.
The point is, at no point are any of us who really pay attention to things believing there has been a cooling in the foreclosure crisis for reasons other than the robosigning scandals that caused several banks simply to start ignoring files. Then again, Zillow says there are 15,500 detached homes for sale in Maricopa County so that company’s hold on reality appears tenuous at best.
(As a quick aside, if anyone knows how these companies track 90 day lates, I’d like to know. If it’s by Notices of Default it seems rather sketchy, and the only other way I can think of is by tracking credit reports, which can’t be done – unless there’s an internal industry tracking/reporting system of which I’m not aware. Let me know below.)
Speaking of sketchy statistics …
Some economists, like Trulia’s Jed Kolko, expect home prices to pick up even more quickly. Trulia’s data shows that the national average for asking prices already increased 1.4% in the first quarter of 2012, compared with the last three months of 2011.
“This is a strong indicator that we will start seeing home price indexes, like the S&P/Case-Shiller, start to report home price increases this summer,” he said.
Mr. Kolko may be an economist but it’s clear he’s never sold a home for a living. Asking prices, by and large, are irrelevant in determining the direction of the market as they’re based almost as much on optimism and seller confidence than the market at hand. Put another way, just because asking prices rise that doesn’t mean sales prices necessarily are going to follow, especially when we’re talking about a slim 1.4 percent increase.
Of course, since Mr. Kolko works for Trulia – an advertising site that happens to use real estate as the hook – and not in the real estate industry, he’s waiting for Case-Shiller to come along and confirm what those of us on the ground already know. Prices are moving and a bit more quickly than he believes, at least in some areas of Phoenix.
(Another aside … it’s always entertaining to see Trulia’s statistics quoted in the media, as nearly every statistic is based on what Trulia sees on its own site. According to Trulia, there are more than 16,000 homes for sale in Maricopa County – double what really exists. So, if Trulia’s site doesn’t have accurate information about the state of the current market, of what real value are statistics based on the listings uploaded there. Think on that one, CNN/Money.)
Back on point … what’s interesting, at least to me, is I don’t disagree with the general tone of the article. I just happen to think Mr. Christie either reached these conclusions largely by accident or was simply looking for quotes to plug into copy already written (take it from a journalism major – we do write that way) and didn’t concern himself about how much sense the data provided from dubious sources really made.
Incidentally, drill down a little further in the article and you’ll see that when I say Phoenix is different, I’m not alone …
Many of the bank-owned properties currently coming out of the foreclosure pipeline are being snapped up by investors who are fixing them up and renting them out — often to those who were displaced by the foreclosure of their own home. That has helped to lift prices on foreclosed properties, according to Alex Villacorte, the director of analytics for Clear Capital, which specializes in housing market valuations.
In some markets hit hard by foreclosures, the turnaround in prices is already underway. Phoenix recorded an 8.4% jump in home prices during the three months ended April 30, compared with the three months ended January 31, according to Clear Capital.
“It’s crazy,” said Tanya Marchiol, founder of Team Investments, a Phoenix real estate investing firm. “Stuff I was selling six months ago for $60,000 to $80,000 is now $90,000 to $110,000.”
True enough. I have investors who passed on a home at $84,000 a couple of months ago; odds are, they’ll have to pay closer to $95,000 to get the same home right now, at least until some additional inventory hits the market.
And that’s really the key here in Phoenix. We need more inventory, plain and simple, and before buyers finally get frustrated and scrap the entire idea. As long as the increases some before Labor Day (and preferably after my Memorial Day vacation, though we all know Murphy’s Law of Vacations dictates everything will hit the moment I start the van for SoCal), it will be absorbed in short order by buyers grateful to escape the hell of multiple offers.