Why Do Home Values in Some Phoenix Area Communities Seem to Be Decreasing??

Currently in many real estate sales, Fannie Mae and Freddie Mac,the leaders in the lending industry, are trying to demand approx. 20% over market price on the homes they are selling nationwide. They are attempting to drive prices up.

In other areas of the country where they are in the pit of the distressed market, with low values, this 20% tactic is fine. However, in our area which is the #1 recovery area in the US and where values have miraculously risen, this 20% tactic artificially drives the values even higher. The higher home value is OK if a cash buyer is willing to pay the inflated value, but if the buyer needs a loan, usually the buyer's lender will see the artificial high price, value the house lower than list price and in many cases, Fannie Mae will have to lower their expectations(and the contract price!).

Because the Phoenix area prices rose quickly and our area is no longer viewed as an "extreme" bargain area, many of the cash investors have left for Florida, Nebraska and Iowa. This leaves the bulk of our sales to the buyers that waited patiently and who need loans. So we are seeing the slight downward price corrections on the distressed properties at the time of the buyer's appraisal more and more.

In a few communities that are attracting many FHA buyers, there may appear to be a slight decrease in home values. Many of today's buyers are the "boomerang buyers" i.e buyers that experienced a short sale or foreclosure in the past 3-5 years and are now getting back into the market. An FHA loan is usually their first choice because of the relaxed standards and the low down payment. These FHA friendly neighborhoods are not necessarily declining in desirability, but simply going through a valuation correction. Usually these corrections are short lived... less than 6 months... because our market is so healthy and we have swift sales.

So, if you have seen homes valued slightly lower or are concerned that the values are not rising as quickly as they were in the beginning of the year in your community, don't fret. Phoenix is on a healthy path of recovery and we will continue to climb onwards and upwards!

The Scoop on Flipping in the Phoenix Market

Flipping (purchasing a distressed home, fixing it up and reselling it) has declined in the Phoenix area by 35%. This is because we have fewer distressed homes available in our market and our real estate prices are rising. This decline in flipping is a postive sign that our housing market is recovering.

We are, however, seeing flipping increases in other areas of the country. While Nevada and California are also seeing a decline in flipping, areas like Dayton Beach Florida, Palm Coast, Florida and Omaha, Nebraska are seeing a huge upswing in the number of flips. In some areas of Florida, they are reporting a whopping 85% return on their investment!

Mortgage Interest Rate Increase = Slow in Housing Appreciation

The housing market is coming back nicely. As sellers, we need to not be over exuberant when it comes to pricing. There is little doubt that house prices have appreciated over the last twelve months in most regions of the country. However, with both the inventory of homes for sale AND interest rates increasing, we have to be careful to not over judge what the market can bare.

 The rate of price appreciation may slow as rates and inventories increase. Investors will begin to slow their purchases and the first-time buyers expected to take their place may be working within a pre-set budget.

 Let’s look at an example: A young couple is looking for a home and have predetermined that their budget will only allow them to spend $1,000 a month on a mortgage. At today’s mortgage rate of 4.5%, they could afford a $200,000 mortgage ($1,013 principal & interest). However, if rates jump to 5%, they would have to lower their mortgage amount to $190,000 in order to keep their monthly payment where they need it ($1,020). At 5.5%, the mortgage would need to be no more than $180,000 ($1,022).

This decrease in buyers’ purchasing power will have an impact on home values going forward. We do not believe it will cause a decrease in prices. However, we do believe it will likely cause current rates of appreciation to slow.

Who's Responsible for Phoenix's Real Estate Miraculous Recovery ?

The latest article from Money Magazine explains who is responsible for the miraculous rebound in the Phoenix Housing Market. In Phoenix, we went from a glut of homes on the market to a seller's market in less than a year. Phoenicians did not rely on the government or Wall Street conglomerates to bail them out. We relied on "Mom and Pop" investors.

I would also like to add that savvy real estate agents and loan officers in the Phoenix area also helped us quickly move through a flooded market. By reaching out to investors in other states and in other countries, real estate agents showed buyers our tremendous potential and attracted them to invest in AZ.

We must also acknowledge that there are agents in the Phoenix area that lead the nation as Short Sale "pioneers". As short sale advisors to the major lenders, these agents helped the major banks revamp and refine the short sale process so that it became more efficient. They helped pave the way for the more efficient short sales process that is now available to the rest of the nation.

So kudos to the Phoenix area for pulling together and getting us out of crisis mode quickly. Between the realtors, investors and loan officers, we definitely have some of the best and brightest in the nation!