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Roberto Ribas' Blog

By Roberto Ribas | Agent in Scottsdale, AZ
  • Spending $20K to get an $8K credit???

    Posted Under: Home Buying in Phoenix  |  September 7, 2009 5:57 PM  |  2,067 views  |  1 comment
    1. When the $7500 loan ran out, it was replaced by the even more lucrative $8k gift. who knows if they offer something better next?

    2. In most starter home areas, there is now fierce competition for homes. Multiple bidders, and bidding over list price are common, even $20K and more over list price. Prices in some areas have quickly jumped by $20K and more. If paying $20K more to get the $8k credit seems like a good deal, you might want to brush up on your math.

    3. Estimates from NAR are that 1/3 of all first time buyers are buying due to the credit. If correct, this means that we will have a 30% drop in demand immediately when the credit expires. Furthermore, even among those who did not buy directly for the credit, a substantial percent will have hurried their purchase in order to beat the deadline. There will be little incentive to hurry. a 50% drop in buyer demand does not seem out of the realm of likely outcomes (and winter is always slower anyways)

    4. the number of homes in foreclosure, and/or delinquent on their mortgages has continued to climb. Short of just letting everyone who can't afford their homes keep them, it seems clear that supply will be coming eventually. [In phoenix, we had 23,000 homes in foreclosure in january, today we have over 50,000. The local mls only has 39,000 homes for sale, so any clearing out of the pending foreclosures will change the supply of homes by 50% at least, even if nobody else falls behind on their mortgage]

    racing to buy today, and you might actually have done better by losing the credit, and buying a much cheaper home in 6 to 12 months.
  • Phoenix sales jump over 60% Must be a bottom right? right???

    Posted Under: Market Conditions in Phoenix  |  March 1, 2009 8:11 PM  |  2,306 views  |  No comments

    Well, lets look more carefully at these sales numbers:

    5600 sales, 3508 bank owned, 529 short sales 1370 regular people (with some foreclosure flips thrown in for good measure)

    Thus, outside of distressed properties only 1370 regular transactions happened. This is 1000+ less than last February, so clearly for a real person trying to sell their own non-distressed home, the market is much worse this year than last year.

    In addition, the median price declined to $125K, from January's $130K, and December's $143K... Prices, despite increased sales, continued to drop.

    Inventory for sale is dropping slowly, mostly due to regular owners withdrawing from the market. As my own buying decisions are now moving closer to reality, I have started tracking some different numbers, not typically mentioned.

    REO (Bank owned inventory) Now = 11457, a drop of 950 from a month ago. SS (short sale inventory) Now = 10307, up 100 from a month ago.

    So, the total distressed inventory has declined by 850 in one month, but still remains way too high for a healthy market. Until those two numbers combined drop down to a couple thousand each, the pressure is still on.

    Meanwhile, monthly foreclosures shattered all existing records.
    5300 homes were foreclosed in February in the county. That bares some serious thought: The number of recorded sales barely beat the number of foreclosures, and in fact this is the worst those two numbers have ever looked. Meanwhile, 8500 homes entered the foreclosure process.

    Pending sales have flown up to 9500 (70% are short sale/REO properties)

    Job losses. Arizona lost 70,000 jobs in January alone, a monthly record, and well over 120,000 jobs in the last 4 months of 2008. These job losses have not likely contributed to foreclosures yet, as it takes a minimum of six months from the first missed payment to lose a home in Arizona. Expect an increase in foreclosures, for which there is no possible workout, starting in late 2009. (these are net job losses, not unemployment filings)

    I expect the spring bounce in buying will slow price declines down through the August time frame. But after August, prices will continue to be driven down my foreclosure inventory. I see almost certainly a median price under $100K, and a case-shiller index under 100 by years end, meaning pre 2000 pricing.

    I am sure most other "professionals" will be screaming to 'buy now!!!!' remember me, when you need truthful, honest, hardworking real estate services without the BS!

  • Stimulus: Probably not that stimulating after all!!!

    Posted Under: Market Conditions in Scottsdale  |  February 6, 2009 8:19 PM  |  2,355 views  |  2 comments

    It seems today, the stimulus package is all but done, so maybe by next week, the final details are known. One idea which is being kicked around alot, is the $15,000 tax credit for home buyers. If this passes, you will no doubt hear tons of realtor experts claiming, "this will really change the housing market, better buy now!" My belief is that it will make almost no difference to the housing market long term, and probably very little short term as well.

    To understand my position, we must first turn to the economics of housing prices. Houses are not commodoties, housing is an 'asset class', a thing of value, but houses are not interchangeable. Furthermore, the sales practices of housing, and purchasing patterns, make transactions both expensive and very very  slow. Compare this to buying say a ton of rice or a barrel of oil on a commodity exchange, which is done instantly,with little transaction overhead, and each ton of rice is interchangeable with another ton. The reason this is important, has to do with the SPEED of price corrections of each. Commodity markets reset prices to market information instantly. A stock can drop 100% in 24 hours. In housing, it takes many many months, sometimes years, for the reality of a market to affect prices. The prices are notoriously sticky, so what happens in the meantime, is the supply of homes for sale increases, and prices slowly trend downward, until that oversupply clears.

    So lets assume the $15000 tax credit for all homebuyers passes. What will the effects be?
    Supply side: Basically, zero effect. The problem today is there are too many homes for sale, too many vacant homes, and too many homes in/going into foreclosure. Foreclosures especially are non producing assets on a banks books, so they want them sold quickly, and will cut prices to do so. In the Phoenix market, the number of foreclosures/short sales for sale has been climbing at roughly 1000 a month for quite some time. This number would have to stabalize just to stop the market form continuing to get worse, and actually drop significantly from some 20,000 today, for the market to have a prayer of getting better. This credit will do nothing to stop foreclosure supply form coming on the market! In fact with 4000 new foreclosures on average each month, and 8000 new filings of future foreclosures, the evidence is that supply market factors will be bad all 2009. Phoenix metro has lost over 100,000 jobs, mostly in the last 4 months. SInce it takes longer than that to get into foreclosure, it is verly likely that we will be seeing even more foreclosures based on job losses by the end of 2009.

    Demand side. Obviously, a free $15000 does change the value of a possible purchase to a buyer. But, in many zip codes in the Phoenix metro, paticularly all of scottsdale, home prices have been dropping that much in 2 or 3 months time. Are many buyers really going to jump instantly, just for the credit? Furthermore, today, a buyer needs: 1. A job history, 2. good credit, 3. a downpayment, and 4 the desire to buy now. How many people meet these criteria, and yet weren't going to buy a home anyways? The only way this makes a difference, is if it influences someone to buy a home that wouldn't have otherwise bought one;  Over the longrun, I believe this number is negligable. The one effect it may have, is cause buyers to move up their buying decision. For example, I want to buy another home, for my personal residence. If this credit passes, and lets say it goes to december 2009, I might very well try to buy in november/december 2009. At the speed which Phoenix housing prices are diving, I should be able to buy at far under price/rent ratios that would make buying sensible even to 'the professor of doom' as I have been called; Thus, the $15000 credit might cause me to try a bit harder to effect my purchase before it ends. So, it moves a few purchase forward. What happens afterwards? obviously, a drop off in demand, and housing prices head right back to the lows they are already heading towards. (so, if the market fundamentals still look really bad, I might let the credit timeframe expire and just keep watching, since prices are really likely to drop after it ends, muting its effecive benefit anyways)

    If you are still with me, perhaps you should contact me to be added to my mailing list!

  • Just for Paula :-) magic zip 85254 preliminary analysis.

    Posted Under: Home Buying in Scottsdale  |  February 3, 2009 9:34 PM  |  2,581 views  |  No comments
    examination of 85254 (the magic zip code)

    I too am thinking of moving to 85254 someday, so I started a search of shortsale/foreclosures in the zip. Last march, when it started, there were 57 such homes. Today, there are 150.  So, clearly, troubled inventory is climbing in this, a nicer area of town.

    Market snapshot: 390 single family homes for sale, 33 sold in january (16 lender owned, 4 short sale, preforclosures) . 12 months supply, more than double a healty market average, and most of the sales are distressed.

    Median list price per square foot: march 2008 $219, now $190. A nearly 20% drop in effective asking prices in less than a year.

    Inventory trend (slightly different data set than my personal home search): has gone up and down in a range from 440 to 420. the high it hit was 470, and now is at 420, so this might be the only positive news in the zipcode, that inventory is not actually going up presently.

    Average days on the market: up from 120 to 155. So, even though inventory has gone down, sales have dropped even faster, meaning the market is not clearing.

    Some thoughts:

    Zero down is gone. To buy a single family home in this zip, a buyer really needs job history, good credit, and a minium of $10k in cash.

    Loans above 270K are now much harder/more expensive to get. This zipcode straddles that price. In fact, only a small percentage of its single family homes are under that value, most are over. Virtually everything North/East of it is over the $300K range, most by a large margin. Effectively, a buyer needs 20% down to buy, and will still pay a higher interest rate. The scottsdale market above 500K has a multi year supply of inventory at current sales rates, and seems likely to continue to fall all year. This will put pressure on the next tier down in pricing. After all, as 400K prices fall to $300K, due to loan difficulty, what can the formerly $300K home do to compete? It must drop in price.

    Job losses. Phoenix is hemhoraging jobs right now. I can name a dozen friends who though they haven't lost their jobs, have been asked to take a week or two of leave without pay. Others whose employers are late paying them. These are not confidance inspiring trends, and will definitely reduce buying sentiment.

    Option ARMs. This crisis is just staring, and is going to smash scottsdale prices. Despite the reputation of Scottsdale as one of the 'wealthy' parts of town, having lived there, I can assure readers that a substantial number are fully mortgage leased cars. I knew more loan officers and realtors as neighbors there than anywhere else I have ever lived. 2009 will prove interesting.
  • Phoenix Housing market, new data

    Posted Under: Home Buying in Phoenix  |  February 1, 2009 1:29 PM  |  2,339 views  |  1 comment
    Foreclosures for january : 4280, reversing a recent (slight) slowdown.
    Notice of trustee sales (NTR) filing: 8550 worst ever.
    Sales: 4670. (increase of 1700 from last year) No doubt, this increase will be hugely overblown in the media, but consider this fact they will fail to mention: Last January, there were only 2100 foreclosures. So, we have a bigger increase in actual foreclousures year over year, than in sales. The market is effectively worse now, than one year ago.

    Pricing information:
    MedianJanuary 2009 =130K, average = 182K. These are STUNNING one month price drops, from december 2009's median of 143K, and average of 192.7K. In fact, if price drops continued at these rates, home prices would be $0 in about 11 months (median) and 18 months (average). The median has dropped 50% since its peak, in June 2006.

    I would expect price drops to slow during the spring buyers months, however the continuing wave of foreclosures makes any reversal to real price appreciation basically impossible for the next year. I would advise any potential buyer, to save money and wait at least six more months, possibly one more year to buy. If you value my advice, save this page, and contact me when you are ready to buy. I have given straight forward advice on here and zillow for 2+ years, that this market correction would be horrific, so you know you can trust me to accurately measure the market, and your possible buying scenario.

    Roberto Ribas
  • Job loss and the future of Housing

    Posted Under: Home Buying in Phoenix  |  January 15, 2009 10:55 PM  |  2,361 views  |  1 comment

    According to a recent Arizona Republic article, The Arizona deparment of unemployment saw a surge in activity through December. Though final numbers have not been released, some weeks saw as many as 10,000 applications per week for new unemployment benefits. This followed on the heels of steep pickups in october and november.

    I spent a little time on the bureau of labor statistics website, but honestly its hard to make head or tails from their data: 1. the data are seasonally adjusted. Well, I'm not sure this season things are going according to the typical patterns. 2. They get their data by interviewing a few companies employment increases/decreases. Then, they assume new companies are being formed/dying at the same rate as usual. Now I ask you, sliding into a recession, do you really think as many people are quitting jobs today and starting their own succesful business as say two years ago? Well nevertheless, the data showed some increasing job losses in Arizona up till November, the latest months they had data for.

    So instead, lets use a few pieces of data that are a bit clearer: 1. umemployment applications have gone throught the roof, and 2. state income tax receipts have nosedived by about 10%. So clearly, some bad things are happening in the employment realm, though it may be a few months before we have the most accurate headcount of the damage.

    How does this affect housing? Well, lets take the 60,000 or so new unemployment benefit applications from october to december. 70% of phoenix residents own homes, and though we can't be sure that 70% of those losing jobs owned homes, its as good of a guesstimate as any. So, we have 42,000 home owner without jobs. Now, obviously, some of these home owners have sufficient spousal income to manage the debt, some will get other jobs quickly. But, without exaggeration, given the extreme economic situations we see today, it would not surprise me if 1/3 to 1/2 of them are forced into home liquidation by the job loss.

    14,000 to 21,000 new 'must sell' homes coming on the market. Coming onto a market which in 2008, prior to job losses, had 40,000 foreclosures. (and this in only counting the job losses from the last quarter of 2008) A market that had 60,000 sales, to give some reference for the signficance.

    In Arizona, it takes 3 missed mortgage payments for the bank to file an NTR (notice of trustee sale) and then another 3 months from that date for the foreclosure auction. BUT, a homeowner doesn't generally miss a payment the first day they lose their job, using savings etc, most will make payments for several months. I'd guess it will be at least a year from job loss till the average foreclosure, and maybe more.

    So, clearly, the Arizona real estate market, and Phoenix in particular have some fairly strong waves of bad impetus coming.

    Don't believe the hype that a bottom is forming or near. Nobody ever said the drop would be crisp and linear. I'll bet our new lower prices bring out more buyers this spring than last spring, only for these recent homeowner to be dismayed as prices begin dropping steeply again from the end of summer through the winter.

    Next post will be on the combination of Option Arms, new lower FHA rates, and the near certain death of the over $300K market (plus pressure on $200k to $300k)

    If you have a specific quetion about our Phoenix market, and want analytical answers rather than trite industry responses, feel free to contact me from my profile.

    Roberto Ribas

  • The Truth about Phoenix Tempe, Scottsdale, Mesa, Chandler Gilbert market, from an academic perspective.

    Posted Under: Market Conditions in Phoenix  |  January 7, 2009 6:46 PM  |  2,502 views  |  No comments

    Every day, a new piece of information comes out about real estate: Sales are up locally, long term are down, its near a bottom, its a buyers market. What is a buyer to do or think? Which pieces of information really matter, and what is going to happen next? THIS blog will attempt to parse the information in a fair and impartial manner. Before I can expect you to listen to or believe me, let me tell you a little bit about who I am and what I do. My name is Roberto Ribas. First and foremost I am a professor of mathematics, my graduate studies were completed at UC Berkeley, and my area of specialization is applied mathematics to econometric models. A long time ago, when I was teaching a business mathematics class at Arizona State University, and in the process of buying my very first home in Arizona, I began to study housing as a financial investment. I gave my students who wanted bonus points various assignments: find data for historical arizona housing prices, historical interest rates, historical rental rates, and in front of a large class of students, I performed a meta-data analysis of all the data they had procured. I asked the students what the data were telling us, and got various interesting answers about correlation between rents and price, the effect of rates, possible multi-variable correlations. But then I said the following quote: "Nobody has seen the obvious, I should get my real estate license and begin buying lots of rental properties!" everybody laughed, but I was dead serious, and followed that plan. The numbers were plain in front of my face that real estate was the best possible investment on the planet at that time!

    Well, years went by, prices went up, but rents didn't. I couldn't really understand why a condo I bought would double and triple in price, when the rent it brought in only went up by 10% over the timespan. So I began studying asset class price bubbles in general. My studies lead me to sell my investment properties and get out of the market. I attempted to get completely out, save my personal residence, but failed, I still own two homes today, but I did profit quite handsomely from this runup. I don't lose alot of sleep at night I will tell you that!

    So, here I sit, with a bunch of money in the bank ready to buy more real estate. And I study the market intensely: The decision of when to buy, and what to buy matter very much to me, I intend to maximize my profit out of this downturn. Now, whether you want to invest for longterm financial gain, or just buy your own place to live, these questions should matter to you. Buy too early, and you will either pay too much, or get less of a home; So despite all of the media/agents who say 'timing the market is impossible' or 'timing doesn't matter if you are in it for the long haul', well I have an extra half a million dollars thanks to not thinking that way!

    Now, for today's information foreclosures. 

    The following graph shows foreclosures and notice of trustee sales (NTR cannot be filed until the owner is 90 days late, and proceed the foreclosure by 90 days).    Much ado will be made about how 'foreclosures have dropped in the past couple of months. YOU look at the graph, do they seem to have dropped in any meaningful way? Nobody really ever claimed they would climb in an unrelenting line forever! Well, for now, we are running at about 40,000 foreclosure a year rate, in a market that sold about 63000 homes last year. The banks must sell these homes, and will underprice homeowner to do so.

    So far, our housing crisis has come about due to foreclosures, and until recently, in a fairly good economy. In the past, job losses and recession have preceeded housing downturns. But now, we actually are seeing job losses. My next posting will be an analysis of the current job market in the Phoenix metro market, and its likely effects on our market going forward.

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