Phoenix Real Estate Market & Foreclosures

We have seen tremendous improvement since the beginning of the year across the Phoenix real estate market as measured by the number of homes under contract for sale, available inventory, and increasing sales. Here’s some quick data…

Over 18,000 properties are currently under contract (Pending and Active with Contingency) at the moment representing an all-time record.
Inventory is now at 36,575 properties Valley-wide, down from above 52,000 in January.
Sales for 2009 are at 30,836 properties versus 18,130 up to this same point in 2008.

Clearly, buyer demand is affecting the performance in all other areas.

But, there is another aspect to the market that I have been calling out for some time and wanted again to highlight here. That is the topic of foreclosures and what could be coming.

Foreclosures on the Horizon

I have made it a point to talk with Realtors and mortgage professionals on this point in the past few weeks. From my experience of talking with Realtors who don’t list REO (Real Estate Owned) or bank-owned properties, the expectations are that the market is doing great andwe have seen the bottom. From discussions with Realtors who list foreclosed properties, the expectations are much different and based on their visibility to potential foreclosed inventory coming our way. What’s coming is the result of the termination of foreclosure moratoriums by Fannie Mae and Freddie Mac at the end of March.

In general, there is a sense that not enough conversation is taking place on this topic in the media. There is no doubt that real estate in the Phoenix area has been improving (as well as in other markets across the country) but this isn’t the whole story. We still have challenges ahead and the national media doesn’t seem to be placing enough emphasis on this. In fact, there seems to be a collective blind-spot right now to this on a national level (from a local standpoint, I believe the Arizona Republic has worked to call this out to some degree).

Having said that, I thought I would put up some potential numbers here based on my conversations.

10,635 Notices of Trustees Sale were issued in March of this year alone. This was an increase from the prior month according to the Arizona Republic.
Reportedly, another 10,000+ were issued in April (I haven’t seen the data here).

In my recent conversations, the expectation is that the Valley is going to see a good number of new foreclosures hit the market beginning in June. If you think about the lifting of moratoriums and the 90-day notice period here in Arizona, it makes sense that we should start to see the impact by some time in June.

Estimates are that we could see as many as 5,000 to 10,000 new foreclosures in the Phoenix area’s real estate market per month over the course of several months.

I’ve learned in business that there generally are no absolutes and that extremes rarely do actually happen. However, the numbers here, at least in the lower end of that range, seem reasonable to me given the notices filed and how the market feels in general.

What Will Be the Impact of More Foreclosures in the Phoenix Real Estate Market?

The question will be “to what extent is buyer strength able to absorb what hits the market?” My expectation is to see inventory begin to move upward. Buyer demand could move either way. If buyers sense that the market is getting worse, they may back off until they feel more confident again. Or, if buyers perceive that the getting just got even better, they may move more aggressively into the market to make purchases.

Will prices be pushed down further by these properties? There is certainly the possibility that this can happen. However, it may be that the potential deluge of properties means that the existing low level of pricing simply continues though prices don’t go much lower (dependent on the fever pitch of buyer demand).

Overall, there is still an opportunity here for buyers and challenges for sellers. Sellers looking to sell right now should consider moving quickly in terms of pricing in order to lock in a buyer.

Why I Wanted You to Know

Given the lack of emphasis on this issue across the media and because it is important for buyers and sellers alike to be aware of what we might see in the market, I wanted to call it out here.

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