Our market is changing before our very eyes – we can see it and feel it happening. Inventory in the local MLS is down to lower levels than we’ve seen in over 5 years. The pending foreclosure “pipeline” is slowing from a gushing torrent to a steady roar. There are multiple offers on REO’s and short sales, and even some retail listings, according to many realtors.
Prices at the trustee sales have climbed steadily. This morning I took a group down to the “Courthouse Steps” auction to educate them and observe the process. While there I watched the auction of a small condo in Phoenix. It opened at $21,800 with two active bidders. Bidding climbed initially to $26,000 and looked like it would stop there. Then another bidder jumped in, raising any bid $100 at a time. The two remaining competitors kept raising bids in $100 increments until one finally yielded. It sold for $37,500.
When I got back to my office I looked up the property in our AZ Auction Bidder foreclosure research database. The “Current Market Value” estimate of this property was $35,755. This estimate is based on an algorithm developed over several years. Based on this number, the property sold for 105% of “market value.” If you add a likely bidding fee of $3,000 +/-, the end buyer of this property may have paid over 113% of market value!
Prices Will Rise
When a surfer sits on the water they read to coming swells to determine the quality of a coming wave. Once chosen they turn, paddle, then ride the wave. The trick is to learn how to read the wave, then how to ride it.
If history is any teacher (and it should be), we are bound for higher property prices and higher rental rates. Strong demand patterns, evidenced by a declining supply of inventory and robust sales volume, signal this coming wave.
Yet national news is filled with stories of “double-dip” price weakness in the real estate sector. It sure doesn’t look or feel that way in the Greater Phoenix market. Remember that all real estate is local. Arizona, and more specifically Maricopa County, will be a market that’s a leading indicator of things to come. Our highs are higher and lows are lower than other markets, so we feel the effects of changing conditions faster and stronger than elsewhere.
The wildcard that could cause sudden or unexpected change in market trajectory is government intervention. As we come into what promises to be a very contentious election season, this is quite possible.
The bottom line is this – if prices are bound to rise (and rents with them), real estate investors should be taking aggressive positions in income properties. Flip margins may be temporarily squeezed, but income properties intelligently bought should yield above-average returns.
There are still great deals to be had. But you must be disciplined in your purchase decisions to avoid future pain. We probably pass on 75% of our purchase opportunities because others will pay more than we think properties are currently worth. The 25% we buy though are great deals.
Let our 10+ years of experience work for you. Whether it’s through AZ Auction Bidder or Arizona Property Wholesalers, we’ll help you position for the coming wave. We serve the investor – YOU!
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.