Jay Butler, director of ASU’s Realty Studies has released his Phoenix home sales report for May. Butler reports:
In May 2008, a total of 5,740 resale homes recorded sold. This sales activity includes 1,475 recorded foreclosed home transactions and 4,265 traditional market transactions, while a year ago it was 305 and 4,915 recorded sales, respectively. Foreclosed transactions represent home owners losing their property to successful individual bidders or the lender of record. In April 2008, the spilt was 1,825 foreclosed homes and 3,760 traditional transactions.
Historically, May is a strong month and the 4,265 recorded sales represent the best month of 2008 and the best since 4,570 homes were recorded sold in June 2007. The 2008 year-to-date total is 16,280 traditional sales and 6,435 foreclosures.
Ah, come on! Can’t we emphasize the traditional year-over-year figure rather than the "year-over-eleven-months-ago" figure? YOY, sales are down 13.2%.
Last month, Butler’s reports were called into question when the Arizona Republic reported that his sales numbers were too high, as he was including trustee sales. Butler said at the time:
He agrees that trustee sales should not be lumped in with routine resales and would be reported separately from now on.
The market has changed so rapidly, he said, that the methodology he once relied on for accurate sales data suddenly has become obsolete.
Until recently, Butler said, trustee sales represented a very small portion of overall sales activity and often involved an actual sale, such as at a foreclosure auction, which is why he has always included them.
But as the foreclosure rate began to climb in late 2007, more and more cases involved lenders simply assuming ownership of the home, still considered a trustee sale and still included in Butler’s reports.
I appreciate Butler separating out the foreclosures. In May 2007, trustee sales represented 6% of his reported sales– in May 2008 they represent 26% of the total. Foreclosures can skew the sales numbers as well as the median price. Back in January, The Arizona Republic was reporting that 90% of properties auctioned at the courthouse went back to the lender, so these are not true sales, and the price at which they are transferred is often not a true representation of a property’s market value.
Because Butler has only provided the separated numbers for selected months, making an "apples to apples" comparison is difficult, but we’ll try and keep things straight here.
For the median appreciation [or depreciation, if you prefer] graph, I have kept the old figures prior to May 2008. I will use the data minus the foreclosures starting in May 2008. Based on the non-foreclosure sales [Butler is referring to these as "traditional sales"] the median price fell 15.7% in May. Based on the old methodology, the median price fell 19.3%:
Butler has always provided data for selected cities in his reports, but this month he has provided the data in table form, and provided a table for both May 07 and May 08, using the old and new numbers. I have calculated the percent changes, and provide them here:
Using the old methodology, sales would be considered to be up 10%, but with the new methodology, sales are down. Obviously, foreclosures have risen at an incredible rate.
We at Doom take exception to Butler’s headline, Greater Phoenix resale numbers gain from new investors, first-time buyers. [Yes I know that writers and reporters often do not choose their headlines in the newspapers, but this was the title on the press release.] First of all, the resale numbers showed a loss, not a gain- unless you included foreclosures. So shouldn’t the headline say "Greater Phoenix resale numbers gain from foreclosure sales"? [Note- some communities in the Valley ARE showing YOY gains in sales, but not "Greater Phoenix".]
L also had some great points:
How does he or anybody know if they are investors or first time buyers?He might think they are investors if they own another property, but these could also be some of those people that are buying and walking.
My second criticism is, how does he know if any of the foreclosures are ones that also show as solds on the other side? Some investors make deals where they will buy a property after the trustee’s sale at a specific price, and sometimes the lender will take that offer. The investor might have a quick buyer lined up and make a fast buck with a hard money loan. So now we have one foreclosure and two sales In less than a week on the same house…
Conclusion:
Whatever your methodology, the reality is that sales are still lousy and prices are still dropping– and it’s going to stay that way for awhile.
[Note: For those of you who haven't been with us long enough to remember, I got into the "Doom" business when tracking prices in my hometown of Gilbert, but got distracted along the way. I continue to follow Gilbert prices though, which have dropped 21% YOY with the new methodology.]
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From OC Register’s Lansner on Real Eatate
http://lansner.freedomblogging.com/2008/06/20/socal-home-woes-could-mean-50-price-drop/
nice quote
“homallucinations,” or the ability to convince oneself that while the price of everyone else’s home will fall, your neighborhood is clearly different.
Said Thornberg: “That’s what people go through — until reality kicks them in the butt.” ”
Same spin going on in Lost Wages, Nevada also. Larry Murphy of Salestrac said “We’re not on life support, and we’re not even in critical condition anymore, but we’re still in the hospital.” 2600 reales for a may increase of 5.2% half were foreclosures and there were 2500 new foreclosures put on the market. Sounds like critical condition to my Doom trained mind.
I understand the arguments for breaking distressed sales out from “traditional,” but I disagree with them.
IMO, it’s one real estate market, not two and distressed property sales are an integral part of it.
nice work twist, as always.
nvmike, with all due respect, i think you’re wrong. a trustee sale is one that is not of free will and is “forced”, for lack of a better term; it would not have otherwise occurred had the borrower not been unable (or unwilling) to service the debt. therefore, adding these “forced” transactions into the sales count and coming up with a number that is higher than some previous month and concluding the market is rebounding is imbecility.
Joe’s shoe store has a sale and sells 15 pair of shoes. Five of the sales, the checks bounce due to insufficient funds. Joe calls each of them and they return the shoes, as they can’t afford them. First however, they offered them to all their friends and family so they could pay Joe, but nobody wanted them.
Joe resells the returned shoes the next day.
Were there 25 actual pairs of shoes sold? 15 out, 5 back, 5 out or only 15 actual sales?
Now if the wholesaler tells all his other clients Joe sold 25 pair of shoes in two days,? Or did he, and did he discount the 5 pair that were returned when he resold them?
Important question when this is used to influence and help make a large decision about buying and selling.
How do you think sales should be counted and tabulated?
Igor says
Calamity
In AZ, are “trustee sales” only those sales back to the lender?
If so, then I misunderstood and agree that they should be segregated.
NVMike-
Trustee sales aren’t only homes that go back to the lender, but only about 5%-10% actually sell at the courthouse steps. The lender often takes homes back for the amount owed on the loan. Then the properties eventually sell as REOs for less.
I must say, for any of these homes the price drops can be misleading. Sometimes you can have a house that sold at 350K originally, and sells for 200K as a REO. Of course, when it sold originally it had appliances, cabinets, copper pipe and no giant holes in the walls. Then again, some homes have dropped a lot because the previous sell was fraudulent.
In Butler’s defense, trying to determine the “true” median price in the current market is a challenge.
While I agree the numbers are fraudulent and the idea that sales picked up misleading it doesn`t matter. It`s what the market psychology believes. A few more months of skewed reporting and those seated on the fence will start to hop off and we really will begin to see the market slowly turn around.