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home / Real Estate
Arizona Market Update: 2nd Quarter, 2010
Received article
Sunday, July 25, 2010
With half the year behind us, we have the usual mix of good and bad to report. There are broad implications from the expiration of the homebuyer tax credit that will undoubtedly be felt throughout the housing sector.
- In the last 18 months, new home construction’s share of total permitting soared to 33% of all permitting but has since dropped considerably and will continue to drop heading to the end of the year. With homebuilders’ overall sentiment at their lowest levels in over a year it is likely that their contribution to the market will continue to decline as they dial back construction in the face of an uncertain market. However, opposed to large tract homebuilders, Custom Home construction has steadily increased since the beginning of this year due to low construction costs.
- The first half of the year had the highest levels of property sales activity in quite some time. However, now that the homebuyer tax credit is officially off the table, we are seeing a steep drop in buying activity heading into the second part of the year. So far in July, property sales are down over 30% since June and this trend will likely continue throughout the 3rd quarter.
- Initial Notice of Trustee Sales are down 21.95% since this time last year in the three county area. However, trustee sales have stayed at extremely high levels and will probably stay there for the next six months. Properties “stuck” in foreclosure are finally making their way out and back onto the market.
Home Sales: Cashing in tomorrow's demand today
The Good: Sales rocketed throughout the first half of the year due to the home buyer tax credit. Sales in Maricopa County closed out the quarter at their highest totals since 2007. This culling of inventory in the first half of the year should ease market conditions for what could very well turn out to be a crowded market by the end of 2010.
The Bad: Early totals in July so far show a very steep decline now that the homebuyer tax credit has expired. Some may have hoped that the natural momentum of summer buying activity and historically low mortgage rates would help carry the market without the housing credit but that may take a while to materialize. Sellers should be prepared for lower prices as demand wanes for the rest of the year
Outlook: Demand for housing is likely to continue to drop throughout the summer. This period of adjustment was inevitable as sales that may have naturally occurred in the summer were pushed into the first quarter of the year due to the homebuyer tax credit. From here, we expect prices to soften again, which should work in the favor of buyers who opted to wait. However, those working in housing-related industries must prepare themselves for what will definitely be a difficult summer of transition.
Foreclosures: A new strategy on the horizon?
The Good: New foreclosure filings dropped a total of 11.68% since the first quarter and more importantly, new Notice of Trustee Sale filings in Maricopa, Pinal, and Pima counties are down 21.95% since last year.
The Bad: Trustee Sales stayed at extremely high levels throughout the first half of the year. Quarter to quarter actualization rates remain above 60% in the three county area and is likely to stay at these levels as failed modification and delayed sales finally occur. The pressure from the added inventory from this increase in actualized foreclosures may end up putting downward pressure on price as demand wanes after government incentives expire.
Outlook: 90% of foreclosure activity in the last three years can be directly attributed to loans originated in the “bubble years,” of ’05, ’06, ’07. As time moves forward, the pool of loans to foreclose is simply getting smaller. Government efforts to keep homeowners in their properties and banks’ readjusting their strategy to accommodate an uncertain market climate may also be contributing to the decline in initial notices. These factors should continue to put downward pressure on foreclosure activity through the end of the year. However, finalized trustee sales levels are likely to stay high as the estimated 40,000 homes in some stage of foreclosure make their way out.
Building Permits: Prepare for a bumpy ride
The Good: Construction remains stable, almost exactly matching the output of the first quarter in Maricopa, Pinal, and Pima counties. Pool builders are having their busiest season in almost three years this summer, which has propped up permit totals across the board.
The Bad: It is very possible that with the expiration of the first time home buyers' tax credit that new residential construction might fall off in the second half of the year. Early indications of activity in June (New Home Permits: Maricopa: 390; Pima: 107; Pinal: 72) lead us to believe that tract builders will probably slow their pace for the rest of the summer and possibly beyond as they adjust back from a government incentivized market to a free market.
Outlook: Permitting illustrates the market’s continued dependence on government incentive and what is coming is a steep drop off from a market with it to a market without it. Fortunately, some homeowners are still owed their $8,000/$6,500 and may pump some of that back into their homes, so existing residential alterations should stay fairly stable for the rest of the year. But, with plenty of foreclosure inventory and potential price drops on the horizon, it will not be this year that new home builders regain their market share.
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affordablehousinginstitute.org/CopaNews.com
Foreclosures: A New Strategy On The Horizon?
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