The Phoenix Real Estate Blog

These questions below will help you decide whether you’re ready for a home that’s larger or in a more desirable location.  If you answer yes to most of the questions, you may be ready to move up.

1. Have you built substantial equity in your current home?  Look at your annual mortgage statement or call your lender to find out.  Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.

2. Has your income or financial situation improved?  If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving.

3. Have you outgrown your neighborhood?  The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good.  For example, you may have realized that you’d like to be closer to your job or live in a different school district.

4. Are there reasons why you can’t remodel or add on?  Sometimes you can create a bigger home by adding a new room or building up.  If your lot isn’t large enough to do so, your municipality/HOA doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.

5. Are you comfortable moving in the current housing market?  If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.

6. Are interest rates attractive?  A low rate not only helps you buy a larger home, but also makes it easier to find a buyer for your current home.

If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale.  A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency.  A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.

1. Consider loan modification first.  If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home.  Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary.  When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:

• Your property is worth less than the total mortgage you owe on it.
• You have a financial hardship, such as a job loss or major medical bills.
• You have contacted your lender and it is willing to entertain a short sale.

2. Hire a qualified team.  The first step to a short sale is to hire a qualified real estate professional/team and a real estate attorney who specialize in short sales.  Interview at least three candidates for each and look for prior short-sale experience.  Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales.  You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest.  A qualified real estate professional/team can:

• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold.
• Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
• Ease the process of working with your lender or lenders.
• Negotiate the contract with the buyers.
• Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval.  You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.

3. Begin gathering documentation before any offers come in.  Your lender will give you a list of documents it requires to consider a short sale.  The short-sale “package” that accompanies any offer typically must include: 

• A hardship letter detailing your financial situation and why you need the short sale
• A copy of the purchase contract and listing agreement
• Proof of your income and assets
• Copies of your federal income tax returns for the past two years

4. Prepare buyers for a lengthy waiting period.  Even if you’re well organized and have all the documents in place, be prepared for a long process.  Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:

• If you have only one mortgage, the review can take about two months.
• With a first and second mortgage with the same lender, the review can take about three months.
• With two or more mortgages with different lenders, it can take four months or longer.

When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale.  The last two actions can lengthen the process or put you back at square one.  (Your real estate attorney and real estate professional/team, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)

5. Don’t expect a short sale to solve your financial problems.  Even if your lender does approve the short sale, it may not be the end of all your financial woes.  Here are some things to keep in mind:

• You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale.  If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
• Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount.  Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012.  Be sure to consult your real estate attorney and your accountant to see whether you qualify.
• Having a portion of your debt forgiven may have an adverse effect on your credit score.  However, a short sale will impact your credit score less than foreclosure and bankruptcy.

Although our local law enforcement officers, teachers, firefighters, and emergency medical technicians will never receive enough appreciation, the U.S. Department of Housing and Urban Development (HUD) has an extraordinary program designed to help stabilize the national housing market while giving individuals in these professions an exclusive opportunity.  More specifically, individuals meeting the requirements for a law enforcement officers, teachers, firefighters, and emergency medical technicians set forth by HUD may buy HUD-owned single family (one-unit) homes in designated revitalization areas on the Good Neighbor Next Door (GNND) website for 50% of the HUD appraised value.  They must use a real estate agent/broker in the purchase of the home, but they do not need to be first time homebuyers.  Participants may simply not already own any residential real property at the time of their offer or within one year prior to that date.  As long as the GNND participant lives in the home as his/her sole residence for at least a full 36 months, he/she can then sell the property and keep any equity/appreciation paid at close of escrow, without re-paying the 50% discount that the participant received originally.

You may, of course, still have questions about the program.  If so, check out the Good Neighbor Sales Frequently Asked Questions.

As we mentioned in a recent blog entry, real estate is a commodity with market fluctuations that are common to other commodities like stocks.  After years of annual increases, home prices have gone the other way in most areas.  Yet, most homeowners who bought during those years of price appreciation have earned positive equity in their home.  Some homeowners who did not need to sell at the market peak, but need to sell now are remembering those peak prices and feeling that they are losing money by selling at today’s market-influenced prices.

One way to look at this is to compare a similar situation with another commodity.  What if someone bought stock in a blue chip company at $70 per share and then watched it rise to $130 per share and then fall to $100 at the time they needed to sell it.  Did that person lose $30 per share or gain $30?  If they focus on the peak price, they lost an imaginary $30.  However, since they paid only $70 and sold it at $100, they actually gained $30 per share, an excellent return.  Today’s sellers should see their situation in a similar light.

What about those sellers with negative equity owing more than their property is worth?  There are many reasons why sellers have found themselves in this situation: refinancing, taking out a home equity loan on equity valued during the peak, or buying at the peak.  If they don’t need to sell for a while, they know that commodities that go down will come up as real estate always has.  If they do need to sell now, there are multiple ways to get to the settlement table with a buyer depending on the situation.

Sellers and buyers can both benefit from the concept of obvious value.  When sellers offer their property in both price and condition as an obvious value compared to the other homes on the market, their home will sell in any market.  Conversely, when other homes are positioned as obvious values as compared to the seller’s property, the seller’s property will be used as justification for buyers to buy other properties.

If prices are declining, utilizing the obvious value strategy will often net the seller the most money.  If it is not used, sellers will often find them self chasing the market down and ultimately selling for less.

For buyers, acknowledging obvious value is probably the best barometer of whether their decision is a good one or not.  The media will talk about the market, but they will never be able to compete with a buyer’s knowledge after comparing properties.

Buyers sometimes hesitate because they want to be sure their decision is the correct one to make.  The media will talk about the market being up or down versus this month or the same period last year, prices up or down as compared to the same, or increases or decreases in the number of sales.  It’s no wonder a buyer may second guess him/herself or want to wait for better media signals.  The other confusion comes from whether the media is talking about the national numbers, the state’s numbers, or the local housing numbers.  What they are never talking about are the obvious values that exist in every market.

Finally, obvious value applies to not only price and condition, but also terms.  Interest rates, seller concessions, and contract specifics can often be used to sweeten or cause a property to become an obvious value.  For a more detailed analysis, or for help in determining obvious value, consult your local REALTOR.

Winter is officially over and with the arrival of Spring comes the not-so-welcome words ‘It’s time for Spring Cleaning‘.  If you’re ready to put away the holiday doormat, sweep away the cobwebs and make way for a new season, here are some tips that will help you do just that.

*  Doormats:  Go shopping for a new front door mat.  It will freshen up the front of your home and will help to stimulate the economy with the Spring spending.

*  Carpets:  Hire a professional carpet cleaner to clean those carpets you’ve been walking on with your muddy, snowy and wet shoes for the last several months.  It’s always a good idea to give your carpets a good vacuuming before they get cleaned. Remember to move all of the furniture and vacuum beneath it.

*  Windows: Wash all of your windows inside and out.  While you’re at it, clean all of your inside and outdoor light fixtures.

*  Dusting:  Dust your entire home room-by-room.  Remember to get all of those hard to reach places you’ve missed.  Dust your books, windowsills and baseboards.

*  Walls:  Wipe down all of your walls with a soft, damp cloth.

*  Roof:  Inspect your roof for damage.  Call your local licensed roofer and ask if they give free inspections.  Most of them will.

*  Heating & Cooling: Have your heating and cooling system inspected by a licensed HVAC contractor.  Remember to replace your filters.

*  Landscaping:  Now’s the time to clear away dead plants and trees and plant some flowers.  If you live in a homeowner’s association, remember to check with them first on what you are allowed to plant.

*  Paint:  Check the paint on your home.  Scrape, prime and paint where needed.  Remember to properly prepare the surface before painting.

*  Garage Sale:  Now’s a good time to enlist the help of your family members to arrange a garage sale.  It’s a great way to help pay for some of those Spring cleaning expenses.

It’s not always fun to do your Spring Cleaning but just think of how good you’ll feel when you’re finished!  When you’re done, sit back on your freshly cleaned deck and enjoy a cold lemonade while you congratulate yourself on a job well-done.

Valleywide, all dwellings

Actives: 55,937

Unsold: 49,542

Under Contract in the Last 30 Days: 6,395 (11% of actives)

Valleywide, single family dwellings

Actives: 45,872

Unsold: 40,297

Under Contract in the Last 30 Days: 5,575 (12% of actives)

Valleywide, luxury homes

Actives: 3,332

Unsold: 3,173

Under Contract in the Last 30 Days: 159 (5% of actives)

East Valley, all dwellings

Actives: 19,304

Unsold: 16,781

Under Contract in the Last 30 Days: 2,523 (13% of actives)

Analysis

At first glance, this week’s Phoenix real estate market update may look less encouraging than last week’s did.  Afterall, the number of houses for sale across Phoenix and its suburbs rose.  However, upon further evaluation, one should note that the number of houses under contract also rose by 7.5%, which caused the Valleywide supply of houses to fall to 8.7 months.  Those are two far more signficant indicators than the total inventory climbing, which only grew by less than 1%.

Within the micro-markets that we watch, there was more positive news.  The percentage of Phoenix single family homes under contract jumped to 12%, and the percentage of Phoenix East Valley houses under contract jumped to 13%.  The only other micro-market that we track, Phoenix luxury homes, did not fair quite as well.  Among luxury homes, the total inventory grew slightly, and the number of homes under contract slipped.

Valleywide, all dwellings

Actives: 55,740

Unsold: 49,791

Under Contract in the Last 30 Days: 5,949 (11% of actives)

Valleywide, single family dwellings

Actives: 45,740

Unsold: 40,549

Under Contract in the Last 30 Days: 5,191 (11% of actives)

Valleywide, luxury homes

Actives: 3,318

Unsold: 3,153

Under Contract in the Last 30 Days: 165 (5% of actives)

East Valley, all dwellings

Actives: 19,269

Unsold: 16,896

Under Contract in the Last 30 Days: 2,373 (12% of actives)

Analysis

For the second week in a row, the number of homes for sale across Phoenix and its suburbs decreased.  Even better, this week, the number decreased by a significant 785 houses.  Also notable, the percentage of houses under contract climbed to 11%, which is an all-time high statistic since we began this Phoenix MLS Housing Inventory Update in October 2007.  87% of those houses under contract were single family homes. 

What was a 10.4 months’ supply of inventory two weeks ago is now a 9.4 months’ supply of inventory.  While that sudden drop in supply was remarkable, when you compare 9.4 months against what historically has been considered a balanced inventory of Phoenix homes for sale: 3-4 months of inventory, it becomes apparent that we still have a ways to go.

This week, the percentage of Phoenix East Valley houses under contract pulled ahead of the rest of the Valley to 12%.  This is important, because the number of houses under contract in the East Valley accounted for 40% of the total number of houses under contract throughout the Valley.  For clarification purposes, when we say East Valley in these updates, the East Valley includes all homes in Scottsdale, Chandler, Tempe, Gilbert, Mesa, Queen Creek, and Apache Junction.

With the help of our partners at Equity Title Agency, of course, here below is a new monthly analysis we’re going to start making of Phoenix real estate sales.  Buyers (especially investors) can use this information to help identify smart price ranges in which to buy.  Sellers can use this information to help choose the most effective list price.  Homeowners can use this information to stay ahead of the Phoenix real estate market, in case they are planning to enter the resale market soon.

In order to makes sense of the statistics below, you will need to understand the basic parameters of the analysis.  We will track all sales during a rolling three-month period up to $500,000.  Then, we will break down the sales into $50,000 tiers.  Lastly, we will display the percentage of sales that fell within each tier and what the average Cumulative Days on Market (commonly referred to as “average selling time”) was for each tier.  Together, these two sets of data will show you which price ranges are selling in greater numbers and the fastest.  So, without further adieu…

Home Sales by Price Range from January 1, 2008 - March 31, 2008

Cumulative Days on Market by Price Range from January 1, 2008 - March 31, 2008

Analysis

Houses that sold between $150,000 and $250,000 accounted for 48% of the houses sold between January 1, 2008 and March 31, 2008, and sold in an average of 125 days (just over 4 months).  Houses priced between $450,000 and $500,000 took an average of 65 days (over 2 months) longer to sell than those priced between $400,000 and $450,000.

Valleywide, all dwellings

Actives: 56,525

Unsold: 50,901

Under Contract in the Last 30 Days: 5,624 (10% of actives)

Valleywide, single family dwellings

Actives: 46,341

Unsold: 41,438

Under Contract in the Last 30 Days: 4,903 (11% of actives)

Valleywide, luxury homes

Actives: 3,300

Unsold: 3,144

Under Contract in the Last 30 Days: 156 (5% of actives)

East Valley, all dwellings

Actives: 19,532

Unsold: 17,342

Under Contract in the Last 30 Days: 2,190 (11% of actives)

Analysis

Though the improvements were meager this week, there were improvements across the board!  Both the active home inventory and the unsold home inventory dropped, while the number of homes under contract rose again.  On a clear upward trend now, the number of homes under contract has consistently risen each week since the beginning January 2008.  That 10.4 months of inventory that we talked about last week is now down to 10.1.  Hey, meager it may be, but it’s another step in the right direction, and we’ll take it!  You may also want to notice that single family homes throughout Phoenix and the Phoenix suburbs are now selling at a rate of 11%, the greatest rate at which they’ve sold in the last several months. 

With activity picking up, inventory starting to fall, and 30-year fixed loan rates averaging 5.88% (according to Freddie Mac), the Phoenix real estate market seems poised for recovery.