are increasing rapidly, as  listings continue to decline and demand remains strong.

The median  sales price increased again (from the prior month) by 6% to $138,000, and the average sales price rose by 5% to $189,000.

In April, there were 8,435 sales, which is in line with the12-month average.  New listings declined by 3% to 9,176.  New inventory has declined in 8 of the last 12 months.

Months supply of inventory (MSI) is 2.5 months, whereas 5 to 6 months is considered equilibrium .  MSI was at or near 1.9 months for properties between $30,000 and $100,000 and 52.5 months for properties over $3,000,000.  Average days on market (DOM) is currently 86, compared to 106 during the prior 12 month on average, and 138 in February 2008.

Foreclosures pending were 18,056, down from 50,568 in November 2009.  Distressed sales (foreclosures and short sale) declined again as a percent of all sales. Distressed sales represent 44% of total sales, down from the high of 74%.

The Bureau of Labor Statistics recently reported unemployment rates for March in Phoenix/Mesa/Glendale at 7.6%, down from 8.8% a year earlier.  Phoenix added 40,300 jobs over the past year.

This is a break neck speed of recovery and what all the buyer and agents are hoping for is MORE GOOD LISITNGS!

This chart compares a single month March 2011 to March 2012. It is plain to se that the volume of listings have decreased dramatically. Short sales have increased by 50% and REO [real estate owned by banks] have decreased by 75%.

I have been hearing about shadow inventory but the term shadow is perfect for this category as no one can clearly identify what or even where the shadow is.

My clients looking for homes to live in are frustrated and the lending community seems to feel that buyers should be grateful to be able to get a mortgage. Even highly qualified buyers are being made to jump through a documentation set of hoops that appear to be simply delaying the process.

The market has suddenly gotten as competitive as it was in the boom. Mind you, pricing is much better and sellers are experiencing multiple offers. The wholesale community, buying at the trustee sales, are over paying according to the professionals. So what’s in the future?

The Federal Housing Administration (FHA) rule preventing potential borrowers with outstanding collections debt of $1,000 or more from getting an FHA-insured loan is on hold until July 1. The original rule was posted here and outlined the original time lines and conditions which are now revised

The rule, which many in the industry warn would prevent consumers from originating an FHA loan at a time when lending has tightened, took effect April 1, but will be delayed now until July 1, 2012. According to the FHA, the delay is to allow mortgagees additional time to adapt their procedures to implement portions of the new guidance. Before the effective date, FHA said it intends to seek additional input on the rule, which was created to lower default rates. The new rule does include exceptions, such as debt disputed due to identity or credit card theft or if a hardship was faced such as death, divorce, or loss of employment.

FHA-insured loans accounted for 25 percent of the new market share in February, according to Ellie Mae’s Origination Insight Report. FHA currently has 4.8 million insured single family mortgages, according to the agency’s website.

Seems like FHA is having difficulty not only implementing new criteria but also creating an environment where loans can actually be originated in a reasonable time frame. I have a transaction which is a short sale this month which was provided 45 days to process. In discussing with the loan with the processor which missed the date and is looking for an additional week. She revealed to me that 45 day is not enough. If that is indeed the case then buyers in this market can expect considerable disappointment when attempting to compete with all of the cash buyers out there taking advantage of the market upturn.

Increases in monthly home sales (demand) and declines in existing and new listings (supply) is putting upward pressure on prices.  The average list price of $229,700 increased $41,000 in February since July 2011, and the median list price of $144,900 increased $20,000 since August.  The average concluded sales price rose to $166,600, a gain of $15,258 or (9%) since August, while the median sales price of $122,000 increased by $13,700 (or 11%) since May.

There were 7,249 home sales in the Phoenix Metro area in February, a 12% increase over January and a 1% increase from the same month a year ago.  The number of new listings declined by 10% to 8,884 from the prior month and by 16% from last year.  Total inventory for February was 23,736,  a 5% decrease from last month and 42% below a year ago.  The months supply of inventory (MSI) declined in February to 3.3, from 3.9 last month.

The number of foreclosures pending declined again to 17,833 from 50,568 in November 2009 (a 65% decrease).  There were 3,723 distressed sales in February (1,687 lender owned and 2,036 short sales), which was 51% of total sales, down from 74% in September 2010.  The number of short sales displaced foreclosures, which is good news for distressed sellers and reflects more efficient processing of short sales by lenders

2 out of 3 Trustee sales are now going to third parties and the prices at the trustee sales are rising. The foreclosure sales are disposing of properties rather than the lenders ending up with them.

The consumer seems confused about the market statistics for two reasons.

First and foremost the average buyer utilizes various MLS sources to search for property. Because the ARMLS data feed generates all active listings (which include 60-70% of the Short Sale listings awaiting approval) it appears there is much more inventory. To accurately search for home use the property search on this site and select “Active” listings not “AWC” these are under contract.

Second because the national media is not talking about Arizona as an exception and the back log of foreclosures nationally is very high. Remember All Real Estate is LOCAL.

EFFECTIVE 4/01/12

Currently, borrowers do not have to pay off collections on their credit report, ONLY judgments.  Effective 4/01/12, IF the collections cumulatively total $1000 or more, THEY MUST either be paid off in full at closing OR the borrower has to have an approved payment plan with the collection agency for repayment, must provide a copy of that repayment plan to the lender, must have paid three or more payments towards the collection and the payments for the collection(s) must be included in the DTI (debt to income).

There’s another little gem in there, too, for self-employed borrowers.   P&L and Balance Sheet required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal-year end tax return was filed  by the borrower with no exceptions. Additionally, if income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax return obtained from IRS are required.

A survey of 188 home building executives last month turned up a very
interesting, and disturbing, finding.  More builders are shying away from
selling homes to Vets because VA appraisers have become so conservative
that the homes rarely close.  In addition, the low appraisals impact the
value of future community sales, costing the builders significant money.
Particularly disturbing are some of the VA procedures that make it
difficult to challenge mistakes, as well as the impact the appraisals are
having on other homes available for sale in the community.

The appraisals required to close VA loans are intended to protect veterans
from overpaying, but end up preventing many from buying the homes they
want.  When the appraised value comes in significantly below the
contracted sales price of the home, and well below the appraisals for FHA
and conventional loans for like homes, builders are likely to cancel the
sale.  Because of the timing, veteran families can be devastated by a
cancellation of their home purchase only days before their scheduled
closing and move-in.

Across the country, builders tell us the VA appraisal program is broken,
and so frustrating that some may eliminate sales to buyers using VA
financing. The fact that the low VA appraisal affects a community’s sales
for six months adds insult to injury.  Builders shared these common
complaints about the VA appraisal process:
1)      Appraisers lack market knowledge – Builders see a higher
incidence of VA appraisers from outside the metro area, and who
lack local market knowledge and experience.  This rarely occurs
for appraisals supporting FHA and conventional loans.  A builder
stated in our monthly survey “The biggest problem has been with
incompetent appraisers that are on the VA approved appraiser list.
We’ve seen significant FACTUAL errors.”
2)      VA appraisals take longer – The appraiser typically has 14 days
to establish the value, and the VA appraisals tend to come in at the
end of this period, while appraisals for FHA and conventional
loans come in faster.  The timing is a problem because it is so close
to the closing and moving day.
3)      Focusing on the lowest comps, not most relevant – The VA
appraisers focus on the lowest comparable sales within the range
they were given or researched, often ignoring more relevant comps
that support a higher price.  They may also ignore adjustments to
the comps to account for differences that support a higher value. A
survey participant added “The appraisal issue is mainly with VA
appraisals.  The values are coming in at the low end of the comps;
the appraisers don’t use an average. We are considering
restricting VA sales.”
4)      No value given to options – The VA appraisers refuse to assign
any value to the options buyers have selected, if they don’t add
space.  This refusal used to be limited to more unusual options and
upgrades, but now seems to be across the board.
5)      A feedback gap – The VA appraiser is required to notify the lender
of a low value that doesn’t support the loan at least three days prior
to closing, but not the scope of the gap.  The builder can rush
around finding additional comps, with a very low likelihood of
impacting the final result.  For FHA and conventional loans,
builders see the whole appraisal with an opportunity to point out
errors and provide additional information.
6)      Effectively no way to correct or modify the appraisal – The VA
appraisal is final by the time the builder and lender receive it, and
the process to refute the value or correct factual errors is
ineffective.  The builder or lender has to appeal to the Department
of Veterans Affairs, which takes a minimum of 60 days and rarely
results in a change in value.  One builder adds “You can’t go to a
second lender if you get a low appraisal on a VA.”
7)      Low value impacts all appraisals for the next 6 months – The
builder is stuck with the low appraised value at that community for
6 months, and the value impacts the FHA and conventional loan
appraisals as well.  Realtors and resale home sellers also complain
about this, and sometimes will resort to delisting a home until the
clock runs out.  The dollars can be significant.  In one recent
example, an appraisal was short $11,000 or 8% on a $138k
California home.  Another appraisal was $14,000 off an affordable
Washington D.C. townhome, and the builder has seen appraisals
$60-70k short for detached homes.  In both cases, using average
comps instead of the lowest comps would have established the
needed value to close.
8)      Lenders can’t avoid specific VA appraisers known for lowball
values – Lenders have some say over which appraisers within an
assigned panel will be used for FHA and conventional loans, but
no input regarding VA appraisers.  The lender and builder can both
get stuck with a string of loan applications that won’t close, costing
time and money.

Builders point out that veterans do the same diligence in assessing housing choices as other buyers, and are willing buyers at the contracted prices.
Qualified families want to buy with VA financing because they can do so
with no down payment or mortgage insurance premiums. As a result, only
a small percentage can be redirected into FHA programs to successfully
complete the home purchase.

The VA appraisers believe they are protecting veterans from overpaying
for homes, and have stated this to our builder contacts.  We believe they
are also interested in protecting the agency, and ultimately taxpayers, from
losses that could arise from these no down payment loans.  We contacted
managers at the VA home loan program, who stated they are not permitted
to address our concerns.

John Burns  is a Real Estate Consulting performing U.S. Building Market Intelligence and receives attribution for this post.

STAT 2011 Year in Review.This report focuses on the state of the Valley’s recovery over the last twelve months, placing the gains and losses over the year in perspective. Overall, the tale is positive

SALES
Sales rebounded in 2011 enthusiastically, topping out at 101,436, the second highest total sales of the decade. It was surpassed only by 2005 with 104,725 sales, at the height of the real estate bubble. STAT and other conventional wisdom have focused on late mid 2002 and 2003 to mid 2004 as our last normal markets.1 Total sales for 2002, 2003 and 2004 were 67,950, 80,052 and 98,922 respectively, and 2011 compares favorably.

INVENTORY
Total new listings in 2011 (121,041) fell slightly below the 2002 figure of 125,738. Correcting itself from the decade high 173,363 after the housing bubble burst in 2006.

FORECLOSURES PENDING
Foreclosures pending, which fuel the Valley’s foreclosure sales, reached their pinnacle in November 2009 at 50,568, and finished 2011 at 19,979, 60.49% below the decade high. The average foreclosures pending per year stubbornly held at 44,237 and 44,698 for 2009 and 2010. In 2011 it took an abrupt downward turn all year.

DISTRESSED SALES
Distressed properties as a percent of sales started the year at 70.2%. Despite a series of hic-cups in direction over the course of 2011, it crashed through the 60% barrier the last two months of the year, at 59.4% and 59.8% respectively. Not only did the percent drop 10.4% over 2011, but the short sale to foreclosure mix shifted by year end, to see short sales over- take foreclosures for the first time, albeit by a small amount.

PRICING
Pricing remains the last bastion of resistance to the Valley’s recovery. Both List and Sales median and average prices showed very little movement over the course of 2011, stagnating at the presumed bottom. Median List price started 2011 at $124,900 and finished the year not much higher at $129,900. Average List price followed the same pattern, starting at $204,300 in January and finishing in December at $200,200.
Sales pricing mimicked the same lackluster performance of List pricing. Median Sales price began with $110,000 and ended 2011 at $117,000, well below the median List price. Average Sales price in January was $157,000 and ended at $162,200. All four pricing metrics, List and Sales, took a full twelve months to go practically nowhere. On a positive note, given how long pricing has stalled, the Valley’s pricing has probably hit bottom. What is in dispute is how long it will stay there.
Pricing cannot correct itself until the forces of supply and demand4 equalize. Both List and Sales pricing are cur-rently unduly influenced by the large numbers of distressed properties that compete for buyers. The slowing of foreclosures pending, if continued at the current rate, should stabilize in 2012, leading to a gradual decline to normal levels of foreclosures in the active property pool. Likewise, growing lender appetite for short sales over foreclosure will also diminish foreclosure influence on pricing.
National predictions on home prices are a slow but steady upward climb in 2012.5 Given 2011’s underpinning metrics (inventory, sales, MSI and foreclosures pending), the Valley’s pricing is poised to gain traction in 2012.

UNEMPLOYMENT and JOB GROWTH
Phoenix Metro started the year with a 9.28 unemployment rate,2 with the rate’s overall trend line for 2011 downward. Preliminary figures for November are estimated at 7.7%3, a drop of 1.58% from January, wetting our appetite for the December’s final. Arizona ended 2011 as a top ten growth state, now adding jobs faster than the national average.6

THE 2011 FINAL TALLEY
In the 2011 “gaining momentum” column, STAT places unit sales, total inventory, market wide MSI, falling DOM, declining foreclosures pending, distressed property’s falling % of sales, falling unemployment and job growth. In the stagnant “needs improvement” column, STAT cites all four pricing metrics: median and average List and Sales prices. In the loss column, STAT sees little that is moving in the wrong direction.
All in all, 2011 was a pretty good year on the road to recovery.

STAT 2011 Year in Review is produced by ARMLS and is reproduced in total including the following foot notes.

1 http://content.yudu.com/A1s4h3/JuneJuly2011/resources/index.htm?referrerUrl=http%A%F%2Fwww.armls.com%2Fnews%2Fwave-ezine
2 EBEller Online
3 US Bureau of Labor Statistics
4 http://en.wikipedia.org/wiki/Supply_and_demand
5 http://www.kiplinger.com/magazine/archives/where-home-prices-are-headed.html
6 http://knowledge.wpcarey.asu.edu/article.cfm?aid=1115

As of December 2011, the median home sale price again increased, the number of foreclosures and listings declined, and monthly sales reached a near record pace in metro Phoenix.

The median price of a metro Phoenix home rose to $117,000 in December, its highest level since November 2010 and the first December since 2005 that the median price didn’t decline. 

Foreclosures pending declined to less than 20,000 or 60% below the high of 50,568 in November 2009.  Only 9% of listed homes were lender-owned foreclosures, compared to 20% a year ago. 

The number of new listings in December declined to 7,339 from a high of 12,312 in March.  Total inventory declined 42% to 24,712 from a high of 42,881 in January. 

Months supply of inventory (MSI), declined to 3.2 months or 16% lower than November and 80% lower than December 2007, when MSI was 16.0 months.  The number of sales in December rose 10% over November to 7,840.  The total number of homes sold in 2011 was nearly 95,000, the highest level since the market peaked in 2006.

Multiple offers (often 15-20) and over-biding on the more desirable properties is the norm.  Investors are snatching up both foreclosure and short sale properties at a record pace.  Owner/occupant buyers needing financing are over-bidding listed prices in order to compete with all-cash investors.

Because Home Owners Associations have in the past been caught by dues deficiencies due to vacancies and foreclosures. They have been forced into attempting to recover fees and adjusting fees upwards to make up for it. As usual abuse occurs so it is then time for legislation to institute new rules and laws. These changes are the result of the most recent version.

1. HOAs can only charge up to $400 for preparation of documents for resale (CC&Rs, By Laws, etc.).

2. If the HOA is currently charging less than $400, they can only raise the fee up to 20% per year to reach $400.

3. The $400 preparation fee does not include any transfer fee, community enhancement fee or other fees charged by an HOA for resale.

4. The $400 fee can only be collected at the close of escrow, and not before (HOAs can no longer hold the documents hostage and require up-front payment).

5. If no close of escrow occurs, the HOA can’t collect their fee.  If a transaction cancels, they can’t charge another fee on the next transaction.

The rumor mill believes that #5  may be challenged by some HOA lawyers.  At least one HOA law firm in particular feels that an HOA can charge the seller (at COE) for as many times they prepared the documents for different buyers even if those buyers cancelled.….Time will tell

The Financing Flip Requires Preperation

Last week the guidelines for FHA flips were revised.  With that update came numerous questions about the flip guidelines for Conventional loans.  First of all – lets  address a question on flip properties

Q: What date do you use to determine if a property is a flip or not?  The date the Deed was recorded or the auction date?

A: Some underwriters use the auction date when the recorded instrument is a Trustee Deed.  Some banks use the date the deed is recorded – this is an important question to ask upfront.

Conventional financing on a Primary Home with a  credit score as low as 660 with 5% down is available.

Conventional mortgage insurance companies requirements on  a flip purchase to:

1. Seller must be owner of record
2. No back-to-back, simultaneous closings, or double closings are allowed
3. Increases in the property value must be explained, documented and supported by an appraisal AND
4. Improvements and renovations must be substantiated with receipts, contractor invoices, building permits or other documentation and reflected by the appraiser

Conventional loans do not require 2 appraisals like FHA. However it is a good idea to perform the two following actions

1. The lender must obtain receipts for improvements from the listing agent or seller ASAP to provide the appraiser before the appraisal is completed
2. The appraiser is required to note that improvements he/she has receipts for were completed and the increase in value is supported.