Residential real estate has always been more of an emotional business than fact based one – probably due to the fact that buying and selling a home ranks high on the stress list. So the battle in a recovery is one of the mind more than the realities of the market place. Reality shifts first and eventually the mind follows. Here are a few of the fallacies we hear from both sellers and buyers and even more surprisingly agents (gasp!).
Myth number one: The banks have a large “shadow” inventory they are waiting to release
This is probably the number one falsehood that is bandied about at dinner parties and even by the media. We have been hearing this rumor for years now and each year it proves to be unfounded. What causes such a persistent rumor? Our guess is twofold – one, conspiracy theories always rise over fear. When something seems out of control or unpredictable it seems that human nature forces an invention of “facts” when the facts seem unconfrontable or unknowable. Secondarily, the argument for shadow inventory arises due to the “reported” foreclosure numbers vs. the foreclosures that can be traced through resale methods. Because the “reported” numbers are so much higher than the foreclosures that can be traced, it prompts the belief that the banks are strategically holding back a “shadow inventory”. The fact of the matter is that reporting methods for foreclosures are routinely filled with errors. Here are just some of the errors that lead to the erroneous belief that a shadow inventory exists. Some properties have multiple lots with only one home, but are reported as if each parcel was a foreclosed home. Some reporting sources count the notice of default as well as the actual foreclosure – which alone doubles the number of “foreclosures”. Even worse are the sources that count each notice of default as a “foreclosure” – which is ludicrous considering that ten notices to the same house (and believe me delinquent homeowners usually receive at least 7 certified notices of default) does not equate to ten foreclosures. One delinquent homeowner is still one foreclosure – even if ten notices were sent! Also, notices of default are sent to homeowners who are mid-modification or mid- short sale. These are often resolved without foreclosure – but are counted as a “hidden foreclosure”. The examples of errors are numerous – the point being this is often behind the reporting of hidden inventory. Recently a Wells Fargo local representative confirmed publicly that Wells “has no shadow inventory”.
Myth number two: Prices are still dropping This is not only untrue, the opposite is true – overall the Valley home prices are rising and rapidly. Yes it is going to take time to dig out of the hole from the crash of 2007-2011, but the recovery is underway. The luxury market and the 55+ communities did not see the same level of drop in pricing and therefore are not experiencing the same leap in pricing as we are seeing in the lower price ranges. But as inventory levels are lower than demand, pricing is moving upward. We expect this trend to continue through the year at least.
Interest rates will stay low forever because the government will make it that way
Yes, there are people who believe this even though there is no basis in fact for this idea at all. In the first place, long term rates (10 year bonds and mortgages) are not “set by the government” in any way, shape or form. The government can’t control these long term rates (up or down) even when they have tried to do just that. The government (via The Federal Reserve Bank) sets short term rates. Overnight rates – the rates that bank charge each other. Not long term rates at all. The “rental rate” for money (current interest being charged) is set by the market – supply and demand. Money is a commodity. How much it will rent for is based on how much is available and how great the demand is at that time. Long term rates are “regulated”, if you will, by what investors believe is going to happen with future inflation. So what does this mean to the homeowner? Our belief is that the currently low interest rates will not last indefinitely. This is a signal to buyers and the move-up seller to pull the trigger on any purchase sooner rather than later. Interest rates will impact the monthly payment for a home far more than minor pricing fluctuations.
Arizona is one of the top 10 states for delinquent loans
A couple years ago this would have been true as Arizona was number four out of all the states for delinquency. Now Arizona ranks at number 33 – and our delinquent loans are now at only 6.6% (compare that to over 12% in February of 2010 when we were number 4 in the country). In fact, our delinquency ranking is the most improved in the last 2 years, another signal that recovery is underway.
So again, we stress that our market is in recovery. For sellers this is good news; the home that once may have felt like an anchor dragging down homeowners, may be on the road to becoming an asset again. If you have been waiting to sell, feel free to contact us to see if current pricing allows that to become an option for you once again.
Thank you as always to Michael Orr of the Cromford Report and our loyal friends and clients. We are better for you in our lives!
The problem with national housing news is that housing has always been a local market issue – never a “national” one. Home sales in Georgia have very little to do with home sales in Arizona. So when the chief economist for Zillow, Dr. Stan Humphries states on April 25th “For people who have been waiting to time their home purchases close to the market bottom, it’s time to start shopping” – is it really time?
The answer depends on where you live. For those of us dwelling in the valley, the time to buy “at bottom” passed in October of 2011. Does that mean that it is a bad time to buy now? Of course not – in fact with prices going up at the moment at around 3% per month it would be beyond wise to shop sooner rather than later! Combine that with historically low interest rates and affordability is unlikely to be this good for years and years. So buyers, if you can and wish to buy – do so immediately. Supply is continuing to drop and prices are continuing their crawl out of the deepest and longest hole we have personally ever seen. Sellers, this is the time you have waited so long for – the return of price appreciation.