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Top 10 reasons to buy a home vs. rent

July 29th, 2010

  1. Interest Rates – All-time low
  2. Tax Benefits – Deduct mortgage interest
  3. Appreciation – Buy low, sell high
  4. Increase of net worth – Median net worth of a renter $4,800 compared with $171,700 for homeowner
  5. Equity – Future credit or financing
  6. Selection- Vast right now – more homes on the market
  7. Health  – Homeowners score higher on health screenings and self esteem tests
  8. Financial Future – Enables a family to build financial security as the equity in the home grows.
  9. Savings - Fixed mortgage payment, making future financial commitments easier to estimate. 
  10. Neighborhood Stabilization -  Move far less frequently and invest in neighborhood

Market Update

July 9th, 2010

Greater Phoenix – Single Family Detached

Market Headlines

  • Demand falls sharply after expiry of tax credit, especially for entry level homes.
  • Supply increasing below $200,000 but decreasing above $200,000.
  • Sales pricing at a temporary peak around $93 per sq. ft. following brisk spring sales activity.

Overview

The lower end of the market cooled significantly during June with fewer listings under contract and lethargic buying activity in the absence of the tax credit which expired at the end of April. The tax credit inspired a large number of buyers to sign contracts prior to May 1 and so closed sales volumes have fallen only slightly so far as these contracts take a month or two to close escrow. We expect sales volumes to fall further over the next two months.

Higher end homes did not experience as much of a cooling trend and the supply/demand balance has actually improved for sellers over the last few months. This sector of the market did not participate in the sales boom of 2009, but competitive pricing is now bringing new buyer interest in luxury homes. 

Pending sales include far more short sales than in the spring – 38% now compared with 29% at the end of April. Normal listings comprised 32% of pending sales at the end of April but only 24% now. This change in mix will probably cause the average sales price per sq. ft. to fall over the next two months. Sales prices of individual properties are generally flat at the moment and likely to stay that way in the short term.

Foreclosures

While banks continue to order trustee sales at a high rate, the number of new foreclosure notices has been falling steadily since 2009. Cancellations of foreclosures are also quite high due mainly to more success with short sales, but also due to loan modifications. As a result the inventory of homes with pending foreclosures has been falling quite rapidly since March.

Contrasting Price Ranges

The market can be divided into price ranges, each of which has its own characteristics. We analyze five distinct price ranges below:

  1. 1.      Homes under $100,000
Market Information Source Reading 3 Month Trend
Supply Active Listings 7,829 Up 16.1%
Current Demand Pending Sales 3,188 Down 13.4%
Recent Demand Sales per Month 2,220 Up 16.0%
Sales Pricing Avg. Price per Sq. Ft. $48.36 Up 1.6%
Active Pricing Avg. Price per Sq. Ft. $50.00 Down 0.8%

Summary: This market was strong last year but has deteriorated sharply recently.

Single family homes priced under $100,000 saw a large increase in active listings, rising over 16% in the last three months. Lender owned listings grew over 26% while short sales rose less than 12%. The monthly sales rate also increased by 16% between March 26 and June 26 so months’ supply remained flat at 3.6 months. This is a modest sales increase based on normal seasonal patterns and less than the other price ranges. In addition the annual sales rate fell from 29,165 to 26,309 so when measured on an annual sales basis, inventory rose from 84 to 109 days

This price range is more dominated by REOs than any other, with lender owned homes rising from 23% to 25% of active listings and now comprising 60% of monthly sales, down from 64% in March. The market distress index remains very high at 84.3 but the contract ratio has fallen from 122.6 to 90.0 underscoring how much buyer interest has cooled. Active listing pricing is very close to average sales pricing suggesting that most sellers are pricing very realistically in this price range. The weakening demand is probably due to the expiry of the tax credit and a reduction in the number of buyers who are able to qualify for home loans. However this sector has deteriorated more than any other and it is possible that S.B. 1070 may also be having an impact, though it is too early to derive hard figures about this.

The most active ZIP codes for sales in this price range were Buckeye 85326, El Mirage 85335, Phoenix 85037, Phoenix 85041, Phoenix 85033, Peoria 85345 and San Tan Valley 85143.

  1. 2.      Homes Between $100,000 and $200,000
Market Information Source Reading 3 Month Trend
Supply Active Listings 12,303 Up 3.2%
Current Demand Pending Sales 4,001 Down 22.4%
Recent Demand Sales per Month 3,299 Up 28.6%
Sales Pricing Avg. Price per Sq. Ft. $72.82 Down 0.5%
Active Pricing Avg. Price per Sq. Ft. $75.56 Down 1.0%

Summary: This market was strong last year but is deteriorating following the expiry of the tax credit.

Single family homes between $100,000 and $200,000 experienced a modest increase in active listings, rising 3.2% in the last three months. This increase did not affect all types equally since active lender owned listings rose over 13% while short sales rose only 2% and normal listings remained flat. The monthly sales rate increased by a healthy 28.6% between March 26 and June 26 so months’ supply declined from 4.6 to 3.7 months. The annual sales rate grew from 31,276 to 32,857 so when measured on an annual sales basis, inventory fell slightly only from 139 to 137 days.

REOs grew from 16% to 17.4% of active listings, but declined from 40% to 38% of monthly sales. Short sales grew from 21% to 24% of monthly sales. The market distress index deteriorated from 63.8 to 64.9 and the contract ratio has fallen from 87.0 to 71.8 underscoring how buyer interest has cooled following the end of the tax credit program. Active listing pricing is close to average sales pricing suggesting that the majority of sellers are pricing realistically in this price range.

The most active ZIP codes for sales in this price range were Laveen 85339, Surprise 85379, Queen Creek 85142, Goodyear 85338, Maricopa 85138, Surprise 85388 and Glendale 85308.

  1. 3.      Homes Between $200,000 and $400,000
Market Information Source Reading 3 Month Trend
Supply Active Listings 7,032 Down 10.4%
Current Demand Pending Sales 1,986 Down 14.5%
Recent Demand Sales per Month 1,632 Up 28.4%
Sales Pricing Avg. Price per Sq. Ft. $103.07 Down 2.2%
Active Pricing Avg. Price per Sq. Ft. $113.43 Down 1.3%

Summary: This market remains well balanced despite the expiry of the tax credit.

Single family homes between $200,000 and $400,000 experienced a reduction in active listings, falling 10.4% in the last three months. This reduction affected all types with active lender owned listings down over 7% while short sales were down 5% and normal listings down 14%. The monthly sales rate increased by a healthy 28.4% between March 26 and June 26 so months’ supply declined from 6.2 to 4.3 months. The annual sales rate also grew from 16,003 to 16,289 so when measured on an annual sales basis, inventory fell significantly from 179 to 158 days.

REOs grew slightly from 9.2% to 9.5% of active listings, but declined from 26% to 23% of monthly sales. Short sales grew from 17% to 20% of monthly sales. The market distress index deteriorated from 42.7 to 43.7 but the contract ratio rose from 54.3 to 57.0 indicating that buyer interest has improved relative to supply in this price range despite the end of the tax credit program. Active listing pricing is noticeably higher than average sales pricing suggesting that not all sellers are pricing realistically in this price range.

The most active ZIP codes for sales in this price range were Phoenix 85086, Peoria 85383, Scottsdale 85254, Chandler 85249, Chandler 85286, Queen Creek 85142 and Gilbert 85298.

  1. 4.      Homes Between $400,000 and $800,000
Market Information Source Reading 3 Month Trend
Supply Active Listings 2,851 Down 16.5%
Current Demand Pending Sales 519 Down 11.1%
Recent Demand Sales per Month 454 Up 38.0%
Sales Pricing Avg. Price per Sq. Ft. $150.83 Up 2.9%
Active Pricing Avg. Price per Sq. Ft. $171.01 Down 1.9%

Summary: This market is improving with supply falling faster than demand.

Single family homes between $400,000 and $800,000 experienced a large reduction in active listings, falling by 16.5% in the last three months. This reduction affected all types with active lender owned listings down over 15% while short sales were down over 8% and normal listings down nearly 19%. The monthly sales rate increased by a strong 38% between March 26 and June 26 so months’ supply declined dramatically from 10.4 to 6.3 months. The annual sales rate grew from 4,040 to 4,224 so when measured on an annual sales basis, inventory fell significantly from 309 to 246 days.

REO supply remained relatively low at 5.2% of active listings, and declined from 19% to 14% of monthly sales. Short sales grew from 16% to 20% of monthly sales. The market distress index deteriorated very slightly from 30.3 to 30.5 but the contract ratio rose from 29.7 to 32.5 indicating that buyer interest has increased relative to supply despite the end of the tax credit program. Active listing pricing is quite a bit higher than average sales pricing so we can tell that many sellers are still not pricing realistically in this price range.

The most active ZIP codes for sales in this price range were Scottsdale 85255, Scottsdale 85259, Scottsdale 85266, Scottsdale 85262, Fountain Hills 85268, Mesa 85207 and Cave Creek 85331

  1. 5.      Homes over $800,000
Market Information Source Reading 3 Month Trend
Supply Active Listings 2,200 Down 18.1%
Current Demand Pending Sales 160 Down 8.0%
Recent Demand Sales per Month 163 Up 22.6%
Sales Pricing Avg. Price per Sq. Ft. $254.74 Down 0.5%
Active Pricing Avg. Price per Sq. Ft. $365.32 Down 0.5%

Summary: This market was very slow last year but has improved significantly in the last three months.

Single family homes over $800,000 experienced a large reduction in active listings, falling sharply by 18.1% in the last three months. Note however that the total supply remains quite high relative to the sales rate. The reduction in supply affected all types with active lender owned listings down over 3% while short sales were down over 10% and normal listings down nearly 20%. The monthly sales rate increased by a healthy 23% between March 26 and June 26 so months’ supply declined dramatically from 20.2 to 13.5 months. The annual sales rate grew from 1,365 to 1,460 so when measured on an annual sales basis, inventory fell significantly from 718 to 550 days.

REO supply remained relatively low but increased from 3.5% to 4.1% of active listings, and stayed steady at 19% of monthly sales. Short sales grew from 14% to 17% of monthly sales. The market distress index deteriorated from 23.1 to 25.5 but the contract ratio rose from 10.2 to 12.5 indicating that buyer interest has increased relative to supply. Active listing pricing is much higher than average sales pricing so we can tell that many sellers are still not pricing realistically in this price range. However there are now sufficient bargain priced properties to cause demand to rise.

The most active ZIP codes for sales in this price range were Scottsdale 85262, Paradise Valley 85253, Scottsdale 85255, Scottsdale 85259, Scottsdale 85266, Phoenix 85018 and Carefree 85377.

Forecast

In the next two months we expect most trends reported above to continue. The present increase in supply and falling demand at the low end will continue and contrast with improved strength at the high end, while the mid-range remains fairly neutral. However the low end market tends to swamp the overall market statistics due to its higher sales volumes, so expect poor results to be reported in the media.

Because of the increasing number of short sales and a fall in normal sales among the pending sales, we anticipate sales pricing falling back to between $89 and $91 per sq. ft. over the next four to six weeks.

Active list price per sq. ft. will probably continue to fall across all price ranges as asking prices continue to get more realistic.

Explanations of Terms Used

Active Listings Listings of homes for sale on ARMLS with status active. They include those with a contingent offer if the home is still being marketed. Measured on the first day of each calendar month.
Annual Sales Listings successfully closed on ARMLS during the twelve months that ended on the last day of the month shown.
Contract Ratio This is a key indicator of the current balance of supply and demand. It is based on the ratio between listings under contract (pending or AWC) and listings for sale (Active). A typical value for a balanced market is 30. Values under 20 indicate a cold market with low demand and/or high supply while values above 40 indicate a hot market with high demand and/or low supply. Low price sectors tend to show much higher numbers than luxury sectors.
Days Inventory Measures the time it would take to sell all the active listings based on the current rate of sales per year. It is a conservative seasonally-adjusted measure of the inventory of homes available for sale.
Foreclosure Notice The first step in a foreclosure, officially known as a Notice of Trustee Sale.
Market Distress Index Based on the percentage of REOs, short sales and pre-foreclosures among the active listings and monthly sales, this index provides an indicator of how much the market is dominated by distressed properties. The minimum is 0 and the maximum is 100.
Monthly Sales Listings successfully closed during the month shown.
Months’ Supply Measures the time it would take to sell all the active listings based on the current rate of sales per month. It is a volatile and seasonal measure of the inventory of homes available for sale.
Normal Sales Sales which were not lender owned, short sales or pre-foreclosures among the monthly sales.
Pending Foreclosure A home with an outstanding foreclosure notice that has not yet had its trustee sale  or been cancelled.
Pending Sales Listings of homes for sale on ARMLS with status pending. This means they have an accepted contract and are currently in escrow and are no longer being actively marketed.
Sales per Month The number of listings successfully closed during the calendar month. Also referred to as the Monthly Sales Rate.
Sales per Year Listings successfully closed on ARMLS during the twelve months that ended on the last day of the month shown.
Short Sales Cannot be sold without the approval of the lender(s) because the expected proceeds are insufficient to repay the existing loan(s). Pre-foreclosures are included in the short sale counts.
REO Lender owned properties (Real Estate Owned) among the monthly sales
Trustee Sales Completed foreclosures. The final step in a foreclosure is when the trustee sale occurs.
Sales Price per Sq. Ft. Average pricing expressed in dollars per square foot. Less volatile than median price or average price.

Market Update

April 6th, 2010

The market lost some steam during the first two and a half months of 2010, but appears to be hitting its stride as we enter the crucial second quarter. Sales during March totaled 8,963, 37% higher than February and 18% higher than March 2009.  20,794 listings are under contract.

Demand is still very strong, fueled by low prices, low interest rates, a tax credit that expires during the second quarter and strong buying interest from out of state. Supply of active listings also increased through the first quarter until mid-March, but has now started the usual seasonal declining pattern which should continue through the second quarter. In many areas we are now close to a balance between supply and demand.

Overall pricing has been fairly stable for the past 9 months across most of the market. Declines in the higher end of the market have been balanced by increases at the bottom end.  Overall annual appreciation turned positive in late February and is now reaching a peak. It is likely to fall back over the next several months but remain above zero.

FAQ on Tax Credit

April 6th, 2010

Regarding the Homebuyer’s Tax Credit

With the deadline for the Homebuyer’s tax credit fast approaching, some potential homebuyers have questions regarding the tax credit and how it works. Here are some of the most frequently asked questions.

 

 

 

How is the tax credit claimed? The tax credit is claimed as part of the homeowner’s Federal income tax return. This is done on IRSForm 5405 with a copy of the Settlement Statement for the home purchase attached. The Settlement Statement is typically a finalized Form HUD-1.

Must an existing homeowner sell his/her home in order to qualify for the $6,500 tax credit for repeat homebuyers? No. A homebuyer may continue to own his/her existing home as a rental or vacation home. The only requirement is that the new home be used as the homebuyer’s new principal residence. In order to qualify as the homebuyer’s principal residence, he/she must live in it for a minimum of 36 months.

Do married couples both have to meet the eligibility requirements of the Act in order to qualify for the tax credit? In general, the $8,000 and the $6,500 tax credits are only available for married couples who both qualify for the credit and who file joint returns. Exceptions exist for homebuyers who were unmarried when they purchased their first home, married someone who did not qualify for the credit and claim the credit in the year in which the marriage occurred.

What is the deadline for home purchases to be completed in order to qualify for the credit? In order to qualify, a buyer must enter into a binding contract for the purchase of a home by April 30, 2010 and close no later than June 30, 2010. There is an exception for members of the armed services, Foreign Service or employees of the intelligence community who have been on duty outside of the United States for at least 90 days between January 1, 2009 and April 30, 2010. For those individuals, the deadline to enter into a contract and close has been extended to April 30, 2011.

 

First Time Homebuyer Tax Credit

March 16th, 2010

First Time Homebuyer: If you have not owned a home in the past 3 years, you may be eligible for a tax credit of 10% of the purchase price up to $8,000.Current Home Owners: The tax credit program has been expanded to include you, giving you some additional incentives to move to a new home!  You’re now eligible for a tax credit up to $6,500 if you have owned and occupied your current residence for 5 consecutive years during the last 8 years. Here are some other eligibility requirements: The amount of income you can earn and still qualify for the full amount of the tax credit has been increased.  Single tax filers who earn up to $125,000 are eligible for the total credit amount.  Those who earn more than this cap, but less than $145,000 can receive a partial credit.  Joint filers who earn up to $225,000 are eligible for the total credit amount. T hose who earn more than this cap, but less than $245,000 cal also receive a partial credit. Important deadline: To qualify for either of these tax credits, you need to act now!!  All contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.  Qualifying buyers may purchase a property with a maximum sales price of $800,000.

Tax Credit vs. Tax Deduction: It’s important to consider that a tax credit is a dollar-for-dollar tax reduction, rather than a reduction in taxable income that would only save you a percentage of your deduction based on your tax rate.  Better still, the tax credit is refundable, which means you can receive a check for the credit if you have little or no tax liability to offset. Keep in mind the new tax credit program includes a number of details and qualification guidelines.  In addition, you may be able to benefit from additional housing-related provisions, such as funding for energy-efficient improvements.  For more information or answers to specific questions, please call or email me today.

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