Housing Doom

Here’s a story from Maricopa, AZ.  Maricopa is on the far fringes of the Phoenix metro area, and hard hit by the housing bust.  One thing that struck me about this story was one of the comments made afterwards.  This story is being told thousands of times across the nation- only the name and place changes:

A total of 325 homes in Maricopa were foreclosed during the first quarter of 2009. In 2008, there were 1,055.

There are five foreclosed properties alone in Christopher Fortin’s cul-de-sac on Windsor Drive.

And Fortin’s home may be next.

In August, the house he purchased in February 2006 is scheduled for auction on the steps of Pinal County Superior Court in Florence.

"I’m still working on it; I’ve been working on it since December," Fortin, 36, said of trying to renegotiate his loans. "It would almost be easier to let it go at this point."

Fortin, his wife and two children, ages 10 and 12, live in the Alterra subdivision of Maricopa. He bought a 1,300-square-foot home for $212,000 after friends encouraged him to check out the area.

Fortin said he probably made some poor financial decisions - a second adjustable-rate mortgage, heavy dependence on credit cards.

He’s currently working with his lender to stay in the home. It’s near his children’s school, and the family enjoys living in Maricopa.

Fortin has thought about moving back to Niagara Falls, N.Y., where they lived before a cross-country relocation in 2003, but "there’s nothing there but high taxes and cold weather."

"To be honest, I’m to the point where the house itself means nothing to me," he said. "To me it’s just a structure, right? My interest is to make sure my wife and kids have as little disruption as possible. If that means we rent a house, so be it."

Here’s the comment from "AZMaestro" that seems incongruous to me:

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According to Forbes magazine, Phoenix is the second best metro area in the United States to buy a home.  They used a formula based on sales activity to come to that conclusion.

One would think however, that a good housing market would be one with the least possible downside risk and the greatest upside potential.  While individual homes and areas may be holding their value better than others, the Phoenix area in general remains a risky place to purchase a home. Even former permabull Jay Butler, director of Realty Studies at ASU admits the risk:

There is increasing hope that the housing troubles are beginning to ebb, and the bottom, along with a potential recovery, are  in sight. However, many problems continue to exist that could hinder the timing of any recovery. The impact of foreclosures on the market has been the primary concern of the last year and will continue to be in the coming months, especially with the end of many hiatus programs and the weak job market.

It is fair to say that the huge number of foreclosures are the worst threat to the stability of the housing market in Phoenix, and the situation is deteriorating: [Hat tip Freedom's Phoenix!]

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In our last episode of "As Elevation Chandler Turns", we saw that Jeff Cline, the developer of the long abandoned condominium/hotel in Chandler, AZ was in dire straights. He was trying to sell the project before it went into foreclosure.  Cline lost it however, and the lender now has it, but the lender’s not happy: [Thanks M and L!]

A trustee sale was held Monday, and there were no buyers, leading the mortgage holder, California-based Point Center Financial, to believe it has taken the property.

A bankruptcy hearing was held at the same time the trustee sale was going on down the street.

Cline was not in court. His attorney, Michael Walker, was asked after the hearing how Cline felt about losing the property, and Walker replied, "No comment."

Joe Cotterman, the Phoenix attorney representing PCF, said the new owner took no joy in foreclosing.

"Like any lender, they would have preferred to be paid rather than take the property back," he said.

Cotterman was asked what sunk Cline.

A combination of factors likely led to the downfall, he said.

"A situation this big and complicated is rarely caused by one reason," Cotterman said.

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Here’s another lender that is looking at some big dollar defaults- the State of Arizona. [Thanks M!]

In 2005, the state of Arizona sold a land parcel for it’s highest price ever- $135 million.  Two years later 269 acres sold for $149.5 million- but it’s been downhill since then:

[B]oth of those record sales, along with roughly 20 others, have either defaulted or are teetering on the brink of collapse, propped up by multiple payment extensions granted by the land department to the developers who agreed to pay top dollar at public auctions over the last six years.

Almost $970 million worth of sales from the land department made since 2003 have been canceled or had at least one extension, according to an analysis of agency records by the Tribune. Some have already failed. Others have had default notices issued. Many remain viable only because the land department has agreed to delay the deadlines on principal and interest payments on sales it financed.

The land department has issued notices of default or canceled the deals on properties that sold for a total of about $554 million, according to an analysis of agency records.

The properties that have either failed or are in jeopardy represent more than half of the land sales made by the state in the last six years when figured on the basis of price.

The state of Arizona, like so many others, got greedy during the boom:

The land department went on an aggressive sales binge since 2003, during a time when Arizona ranked among the fastest growing states in the country. In the last six years, almost $1.84 billion in state trust land has been auctioned off to the highest bidder. In the prior 90 years since statehood, about $1 billion of state land had been sold.

And the result of the state’s greed?

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You really had to be in Phoenix in 2005 to understand how out of control the housing market was.  Homes were flipping several times in a month, open houses were mobbed, agents would go door to door asking people if they were even thinking about selling.  Prices skyrocketed by the week.

Phoenix is now paying the price for its "irrational exhuberance".  Home values have been plummeting, foreclosures have been escalating, and tumbleweeds now fill many of the subdivisions instead of houses.  After seeing how many people were financially devastated by the mania, people are bound to be more cautious today, right? Wrong. The frenzy continues: [Hat tip to John and L!]

The low end of the real estate market here — and in some equally hard-hit places like inland California and coastal Florida — is becoming as wild as anything during the boom.

One real estate agent was showing a foreclosed house to a prospective client when a passer-by saw the open door, came in and snapped up the property. Another agent says she was having the lock changed on a bank-owned home when a man happened by, found out from the locksmith that it was available, and immediately bought it. Bidding wars are routine.

Absentee buyers, who can be either investors or individuals purchasing a vacation property, bought nearly 4 of every 10 homes sold in the Phoenix metropolitan area in April, according to the research firm MDA DataQuick. That is up 50 percent since late 2007, and is nearly the same ratio as at the 2005 peak.

Once again, just about everybody seems to be buying as many houses as they can, positive it will make them rich — or at least allow them to recoup some of their losses.

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Foreclosures are up in the Phoenix area- way, way, up.

Last June Doom looked at the Notice of Trustee Sales [NOTs] and Cancellation of Notice of Trustee Sales [CNOTs] issued in Maricopa County. [Phoenix area] Our data includes both residential and commercial property.

There was a record 2325 NOTs issued is June 2007.  As of last Frday, there were 6668 NOTs issued in Maricopa County for the month of June, and there is still one business day left. At the height of the S&L crisis in the 1980s, the record month for NOTs was March 1988 when 1431 NOTs were issued.  Here’s the historical graph:

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With nearly a 3 year supply of million dollar homes for sale in Scottsdale, AZ, [1,572 actives, 46 solds in the past month] something’s gotta give.  What is giving is asking prices.

M noted this trend:

Here’s an interesting search I set up a few months ago.  As you know Scottsdale has a glut of 1M+ homes, although it has shown "improvement" lately.  This is not because of an increase in sales however, but rather a decrease in the number of 1m+ homes.

This search:

Original list price: greater than  $1,000,000

Current list price: less than $1,000,000

 
These are homes that were at one time listed at or over $1,000,000, but now listed at or under $1,000,000.  The number of homes in this search increases every month.  There are currently at 208.

Expect to see that number increase- tighter lending and fewer buyers is making higher end homes a tougher sell.

[Many thanks to M for this one!]

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%:

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L sent me these numbers last night, and I thought they did a great job of illustrating just how slow sales have gotten around Phoenix:

Total number of properties found: 43,341  Active single family detached now on the market
 
 
Total number of properties found: 22,201  Single family detached more then 100 days on the market
 
Total number of properties found: 11,493 Single family detached more then 200 days on the market
 
Total number of properties found:    5830 Single family detached more then 300 days on the market
 
Total number of properties found:    2802  Single family detached more then 400 days on the market

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It keeps getting tougher to live in one of the West’s newest ghost town developments in Gilbert, AZ:  [Thanks M!]

Residents of Cooley Station North awoke Monday to 493 signs of more trouble for their half-empty subdivision.

Process servers had blanketed the Trend Homes community in east Gilbert with foreclosure notices, targeting 493 vacant lots owned by a Scottsdale "land bank," which has fallen behind on its loan payments.

The pending foreclosures are among many recent indications that communities on the fringes of suburban sprawl are likely to face more hardship before economic trends shift in their favor. Residents worry about the ghost-town effects of the half-built subdivision on their falling home values and what might happen if a developer were to come in with a new approach.

Cooley Station homeowner Krista Anderson said those empty lots, now scheduled for auction in late August, represent the future of her neighborhood, southeast of Higley and Warner roads.

"We’re living in a subdivision that’s half-full," Anderson said. "My main concern is what’s going to happen to the subdivision."

The land bank that holds the lots is Taro Properties, and they are having difficulties in other developments as well:

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