Cash investors have taken control of the metro Phoenix real estate market. Three main factors are behind this change in market dynamic:
Rising residential foreclosures
- Extraordinarily low housing prices
- More restrictive mortgage lending practices
As a result, cash and privately financed investors have a more prominent presence in the Phoenix resale market, plus they now have increased buying power. And make no mistake about it, they are buying!
According to our analysis, cash buyers now make up nearly 70% of all recent purchase and sale transactions in the Phoenix metro market (Maricopa County). In the most recent three-month period, November 1, 2010 through January 31, 2011, cash buyers represented 68.3% of all transactions that occurred in Maricopa County. Here’s what the breakdown looks like:
Cash Buyers 24,640 68.3%
HUD (FHA) 4,119 11.4
Conventional 5,944 16.5
Seller Financed 577 1.6
VA 722 2.0
Agreement 87 .2
Source: Net Value Central, Nov 1, 2010 through Jan 31, 2011.
This represents a significant shift in market dynamic. Cash buyers are nimble and work with the speed lender-owned and foreclosed property owners like. Typically, they are ready to close quickly, are willing looking past minor flaws in property condition and are willing to look at less traditionally desirable neighborhoods.
Because the professional investor is either looking at the property to re-sell or hold as a rental, they never fall in love with the property, they fall in love with the numbers. After all, investors are not buying the property to live in, they are buying the property as an investment. (The first thing an investor needs to un-learn is to measure prospective investment properties by their own living standards.)
Example: I was looking at one of the inventory properties that our wholesale division (Arizona Property Wholesalers) owns the other day, considering it as a personal investment. It’s a 4-plex in one of the rougher parts of Phoenix. The unit mix is 3 1-Bd/1 Ba units and 1 free-standing studio cottage. To me the units looked very small, and the features were well below my personal standards. But I have trained myself to look past those things. Two units are already occupied and the other two are move-in ready, plus the numbers look great! As a result, I am moving toward a purchase. Again, it’s the numbers, not the property.
Lending Tightens Further
By: Mark Beauvais, CMO – PTE Real Estate Group
The second major factor shaping this trend is the pendulum swing in conventional mortgage lending. It has become increasingly restrictive since the “global financial crisis” which began in 2008 (and continues today). All aspects of financing have become very tight – FHA, conventional and especially jumbo. Current lender appraisal guidelines are not helping, either. Not only is it much more difficult to get a loan today, it is far more likely that there will be appraisal difficulties that will complicate or even blow up the deal.
Increasing foreclosures, coupled with restrictive financing conditions have continued to pressure prices in this market ever lower. This is why the growing presence of cash buyers (investors or otherwise) have such a strong position in the real estate market today. They can close quickly, without complications. Because of this they can usually get their price.
For these reasons, it is a particularly good time to be an investor in Arizona. It’s as true now as it has ever been – Cash is King! Phoenix just may be the best place to be a cash buyer, also. In fact, our company’s position is that the Phoenix metro real estate market may very well be the best investment market in the country, possibly the world.
Next month, we’ll discuss the biggest ownership shift in this country since the Great Depression and what that means for landlords and property owners.
PTE Real Estate Group is a Phoenix-based real estate holding company that owns Arizona Property Wholesalers, AZAuctionBidder.com, US Investment Realty and other companies. They are the largest buyer and seller of distressed real estate in the Greater Phoenix market.