Arizona real estate investors are feeling the squeeze in the Greater Phoenix market. “Distressed” inventory is in shorter supply. Prices for trustee sale properties, bank-owned REOs and wholesale properties are rising. Deals are getting harder to find. Why?
Banks are putting the “Squeeze” on!
No one has been more critical of the bank’s role in the decline of our real estate market than I have. And Lord knows – they deserve it! After all, the moronic moves of most banks actually caused the massive declines we’ve seen in the market. However, it looks like they may be making their first smart decisions since this Global Financial Crisis began.
It appears as if the banks are holding back inventory and raising prices in the marketplace. This combination effectively regulates supply and is forcing investors to pay higher prices for discount (or “distressed”) properties.
Some may argue with this premise. After all, it can’t yet be proven that banks are colluding to hold back inventory, limit supply and lift prices. But I believe that’s exactly what’s happening.
According to Net Value Central there are nearly 18,000 REO properties that have gone back to the bank in Maricopa County (as of Sep 2011). At the same time, there are just under 11,000 REOs actively listed, pending or recently closed.
This suggests a “Shadow Inventory” of approximately 7,000 properties in Maricopa County, owned by the banks but not yet on the market. In addition, over 4,000 properties are in an “Unknown” status, meaning their status – foreclosure, REO or otherwise – is uncertain. They are in some state of limbo in the delinquency or foreclosure process.
The banks are dribbling out new REO listings. In November 2010 there were 8,600 active REO listings in MLS. Today there are 3,400. In fact, REO listings are down 80-90% in most Phoenix area submarkets since 2009.
Currently, pending foreclosures in Maricopa County are nearly 30,000 according to Net Value Central. Plus new foreclosure filings in August 2011 exceeded 5,000 for the first time since March 2011 in Greater Phoenix.
This didn’t just happen in Phoenix. According to RealtyTrac, new foreclosure filings were up 30% from July to August nationwide. This is national, not just local. The foreclosure pipeline is still full.
If I was a bank, I’d certainly want to limit my supply in order to protect my price. Wouldn’t you?
The trend for local REO pricing has been increasing rapidly. In Feb 2011 list prices for REOs in Maricopa County averaged $69/SqFt. In Sep 2011 REO list prices for the same market area was $84/SqFt – a 22% increase in just 7 months!
“Opening Bid” prices at the Trustee Sale foreclosure auctions have also been rising. Just 6-9 months ago it would be fairly common for an opening bid price to be 60-70% of current market value on a given property. That’s what it took to get a 3rd Party to bid and buy the properties.
Today it’s not uncommon for opening bid prices to be 80% or more of current market value. The banks have raised the bar. But demand has also increased, so there are more willing buyers at the higher prices. This is why 42% of properties that go to Trustee Sale are actually selling to 3rd parties instead of going back to the bank. From Aug 2009 – Feb 2011 sales to 3rd Party buyers was very steady at 21%. It has doubled in the last 6 months!
Current REO inventory available in the Greater Phoenix market is less than 1 month’s supply, based on today’s demand. Most REO listings are experiencing multiple offers and enjoying a “highest and best” counter offer scenario as investors race to get deals.
Only 13% of active MLS listings are REO today. Yet 43% of closed sales were REO listings. This is one reason why 81% of all Maricopa County sales were below $200K in the most recent month.
Whether it’s by design or by accident, the banks are putting the squeeze on. I don’t think it’s an accident.
Phone: 480-688-5900, Email: firstname.lastname@example.org
PTE Real Estate Group is a Phoenix-based real estate investment company that owns AZ Property Wholesalers.com, AZAuctionBidder.com, US Investment Realty and other companies. They are one of the largest buyers and sellers of distressed real estate in the Greater Phoenix market.