Arizona Housing Market Update
To say that 2009 was a tough year for most would be an understatement. There were a few positives to highlight in 2009 and opportunities will be abundant for those willing to seek them out in 2010
Inventory is being absorbed: The foreclosure-to-sales ratio has consistently been near or at 1:1 for the last 24 months. This number sagged in the first quarter of 2009 but has since stabilized. Comparatively, Nevada has an almost 2:1 foreclosure-to-sale ratio. The fact that inventory is consistently being absorbed bodes well for us locally.
Builders are investing here: Though builders in the market have been extremely conservative this year with home starts, several have been rather aggressive with lot purchases recently. The fact that builders are willing to buy land means they have not given up on our market
An increase in foreclosure filings after the holidays has not occurred so far in 2010: Following lender initiated moratoriums on foreclosures during the 2008 holiday season, foreclosure filings literally exploded in the first quarter of 2009. So far, this has not been the case in 2010. In fact, if filings continue at this pace, new notice filings will be at their lowest point since the early part of 2008
* Please note the charts and numbers are a regional look at Maricopa, Pinal, and Pima counties as a whole. Building permit data includes only Maricopa and Pinal counties as we did not have Pima permits until the beginning of 2009.
The Good: Home Sales across the country were at their highest levels in 2.5 years. Locally, home sales shot up an average of 7.5% with Maricopa County leading the charge — increasing 27% year over year. Affordability, federal incentives, and low mortgage rates attracted first time homebuyers to the market and represented a very large share of buyers. However, this changed the profile of the typical homebuyer — according to the NAR’s Housing Affordability Index, Qualifying Income fell from $54,288 in 2006 to a low of $35,153 in the first quarter of 2009. Thusly, the typical homebuyer has become younger, is earlier in their career, and has a fairly moderate income. With prices as low as they are, buyers are seizing what could be a once in a lifetime opportunity.
The Bad: So far federal programs to deter foreclosures have not been as successful as most had hoped. In fact, foreclosures have dominated the resale market and continue to do so. Banks and financial institutions represented almost 50% of all property sellers in Maricopa County alone. It could even be stated that foreclosure affected properties including short sales and investor trustee sale purchases could very well push that number closer to 80% of all sales. New Homes represented only 9% of all sales in 2009.
Outlook: Of note, the extended and expanded Home Buyer Tax Credit is due to expire at the end of April 2010. So far the sense of urgency buyers were feeling in November hasn’t shown up yet in 2010. Beyond that the success of the real estate market will largely depend on a recovery in the job market. Unfortunately, this is unlikely to happen in 5 short months so it can be expected that either the credit will be extended again or the market is in for a bumpy ride in 2010.
The Good: Notice of Trustee Sale recordings saw month-to-month declines through much of 2009 opposed to monthly increases seen in 2008. In fact, it could be said that initial filings may have peaked at the end of the third quarter of 2009. Following a record March (13,211 notices in the three county area), foreclosures consistently fell 7 of 9 months approaching the end of the year.
The Bad: Notices did increase in December, jumping 20.56% in Maricopa County, 9.7% in Pinal County, and 3.06% in Pima County. Trustee Deed recordings rocketed in December to their highest levels on record, jumping an unprecedented 38.19% in Maricopa and Pima Counties combined. Overall, Notice of Trustee Sale filings in the three county area were up 31.46% year over year and Trustee Sales 23.19% year over year. The woes are beginning to spill over into the commercial sector with retail, apartment, industrial, and other commercial properties appearing quite frequently in foreclosure. In fact, commercial foreclosures accounted for over $4.5 billion in new foreclosure filings in the 4th quarter. Also, don’t forget there are a lot of loan resets due in 2010 so extreme declines are not expected this year.
Outlook: The most optimistic of people would consider the fact that foreclosures have leveled off is a good sign. However, leveling off at this volume is hardly good news. Once again, jobs are the key issue when talks of stemming foreclosures come up. Until we see substantial improvement in the job market it is unlikely we will see substantial decreases in foreclosure activity in 2010.
Building Permits: Is The Worst Behind Us?
The Good: Despite the extreme drop in permitting towards the end of 2008, the year over year declines in permitting appear to have leveled off. Permitting actually increased 18% year over year for December and went up 14% over the previous month. Though it is unlikely there will be large increases in permitting in 2010 the same levels of activity can be expected unless new home construction suffers further declines. Builders in Arizona have been extremely conservative throughout the year on the projects they are starting and finishing so further drops would be a surprise. Where there has been some strength is in the existing residential market, such as remodels and additions, with plenty of federal dollars on the table for those buying foreclosures.
The Bad: New Home Permits accounted for 35% of all permit activity in 2009. This was actually up from 30% in 2008. The health of the construction sector is directly tied to home construction so any trouble from the major builders in the state could further erode the already unstable market. Commercial permits, which consistently accounted for over 50% of all construction dollars spent in Arizona, fell 48% in 2009 and will most likely stay at extremely low levels throughout 2010 as unfilled inventory sits on the market. In fact, it is very likely that few commercial buildings could be started for perhaps the next 2 years.
Outlook: In the past two years there has been a definitive shift by many companies working in construction related industries. Since commercial dollars have declined significantly contractors working now will need to refocus on the residential market. Federal neighborhood stabilization dollars are available to homeowners who purchase REO properties which means that opportunity exists in the existing residential market. If there is any growth in the construction sector it will be in the existing residential sector in 2010.
Source: Ion Data Express, Publishers of Home Sales, Building and Foreclosure Reports. Toll-free phone: 877-466-5478