"How's the Market?"
I'm asked this question all the time. Since the market is varied, the answer is different depending on the sector. If we were to take the pulse of the market right now here are a few trends we'd notice:
New Homes: It's not a great time to be a builder. Profit margins are down- and it will probably stay that way for a while. This is good news for the buyer. The selection is phenomenal. New home starts are down to a 17 year low nationwide. This is bound to happen. The builder inventory is still high... not at an all time high but high enough to keep the prices low for the time being. New home buyers should select an agent who stays on top of this sector. There are hundreds of floor plans to choose from and dozens and dozens of builders. It's nice to have an advisor who does the homework and knows this sector inside-out.
Short Sales: We're going to see more of these. First, what is a short sale? If someone owns a home but the market conditions are such that the house is worth less than the owner's current loan amount there is a gap. The owner is "short" the amount of money that is owed to the bank. As a pre-foreclosure strategy the owner attempts to sell the home for less than is owed. The bank will consider offers and weigh them in lieu taking the expensive step of foreclosure proceedings. Not all short sales are successful and may end up in foreclosure, where the bank becomes the new "owner." These homes are sold "as is." If someone wishes to purchase a short sale they could be in for a long wait. The bank becomes more negotiable as the foreclosure date becomes approaches. Buyers who have their finances in order may be able to find bargains among the short sale market- especially with those that have a few weeks remaining until foreclosure.
Bank Owned Properties: These are homes that the bank owns. Typically they result from foreclosure. If a home is not sold short it may come back into possession of the bank. The banks tend not to broadcast their presence. Why? There is probably a little bit of face-saving going on. No bank wants to advertise that they own a lot of non-income producing notes. Instead they'll select agents to list the homes at a competitive price. They are also sold "as is". In the Phoenix area there exists and ever-increasing quantity of homes owned by banks. As is typical of short sales, many agents shy away from this arena as homes that are sold without warranties and full seller participation tend to be fraught with peril. It's definitely a "shop at your own risk" market but many bargains can be found. Rule of thumb: If you're looking at short sales or bank owned property check for the following:
a) are there new homes near the short sale or bank owned property? If so is the price competitive? If the pricing is competitive consider that the newer home will have a warranty and will usually be in a more pristine condition. Also, down payment assistance and incentives may make the new home a better "deal"... of course, attractive financing may also be available for the bank owned properties.
b) factor in the cost of updating. Some of these homes will need major repairs or remodeling. Such costs may turn that bargain into a money pit. Always do the math. Sometimes the bargain is costly.
Existing Homes: Unlike new homes, these communities are easier to research. The established neighborhoods simply have more public data. The schools have a longer track record. The neighborhood may have mature landscaping and other amenities that can be seen in their full glory (as opposed to an artist rendering). Also, buyers can perform inspections before closing on the home. If anything is amiss the buyer is in the driver's seat. Some neighborhoods in the Phoenix metro area are currently selling quickly and at increasing prices. Your agent will be able to perform a comparative market analysis that will show the trends. This is a free service. It's nice to know where things are headed in the neighborhood.
Rentals: With credit requirements tightening over the past few months, some people find themselves unable to purchase a home. This creates a larger pool of renters. Also, some investors and homeowners are waiting for a market correction before deciding to sell their homes. This creates a larger supply of rental properties. One new wrinkle in the rental trend is this: some families who have hit hard times are moving back in with the parents. It's not a large piece of the rental puzzle but it is a new factor.
Business Condos: Businesses either rent or own their property. Some builders specialize in selling properties at a cost below, or competive with, rent. These types of properties may exist in a cluster of buildings with similar looks. They're commonly called business condos because they share many of the same characteristics as residential condos. This market is being heralded by some as the new wave of business ownership. It's also being treated with a skeptical eye by those who feel the market is becoming too saturated with inventory. I feel it's more a question of location, affordability and traffic.
Land: Land is cheap. I realize that's a blanket statement. However, in general, land is being transacted at prices well below peak. This is, in part, due to the reluctance of lenders to write loans on dirt. It's much easier to speculate about the value of an income producing property. It's more of a stretch to ask a lender to see your vision. For the time being- land is, in large part, the domain of people who have plenty of cash. Since there are fewer buyers and an increasing inventory land is, in my opinion, nicely priced... especially for those with deep pockets who can hold on for a market correction.
There you have it, the market pulse for the Phoenix metro area. These views are based on a snapshot of August 2008. With the ever-changing marketplace, some of these conditions will change mildly or wildly. I tend to keep track of these areas constantly. If you have further questions about any of these market sectors feel free to contact me. We can speak in breadth or depth on any one topic.
Chuck Willman - Gentry Realty - www.AZvest.com - 480.292.0600
