Sometimes it’s downright perplexing to understand what’s going on in the market. For the last several months we’ve been tracking price trends at the trustee sales (foreclosure auctions). The numbers confirm what we believed was happening – prices are going up, uP, UP!

According to our analysis, as a percentage of “Estimated Market Value” that 3rd Party trustee sale residential properties sold for during the 2nd Quarter of 2011, the numbers look like this:

April         93.7%

May         98.2%

June      114.2%

This June number is nothing short of astounding! In case it isn’t clear, this means trustee sales to 3rd party buyers sold for 114.2% of their current estimated market value. What makes this number even more amazing is that it calculates to $79 per SqFt for single-family residential units – almost as high as properties selling in the MLS!

It’s worth pointing out that “Estimated Market Value” is always based on trailing trends – what happened over the last several months, as opposed to what’s happening now. When prices are trending up, historic numbers are lower. When trending down, historic prices are higher. (This is why appraisals are so problematic right now.)

Our wholesale division – Arizona Property – currently has about 80 properties in owned inventory, with 5 being multi-family complexes from 22 to 61 units each. Our single-family properties are priced at an average of $45 per SqFt ($80K for an 1,800 SqFt house). About half of these are tenant occupied, cash-flowing units, while the other half are value-add investor opportunities.

Wholesale A Better Deal!

Right now, wholesale properties are a better deal than trustee sale properties – priced 44% less in this case. Many of these properties were acquired 30-60 days ago (or longer if part of a “buy & hold” portfolio) at better pricing than is now available.

To borrow a phrase from former Fed chief Alan Greenspan, what’s going on at the trustee sale may be “irrational exuberance.” On the other hand, it may be a sign of what’s to come. Or maybe a little bit of both.

In the meantime, median pricing for resale homes in the “retail” MLS market remains relatively flat, ranging between $110K-119K (depending on which index you watch). Prices have flat-lined since Aug ’10, and remain at about $82/SqFt.

The confounding thing is that you’d expect prices to be moving up as a result of market forces. Foreclosures in the pipeline are down, MLS inventory is down, REO inventory is down and sales are strong. Trustee sale prices are up sharply, yet retail market prices remain flat.

No doubt that constricted financing, conservative appraisals and a dominant share of cash buyers all play a role in this market conundrum. Buy why would any rational investor pay $79/SqFt for the same product they could get for $45/SqFt? Maybe it’s the illusion of a better deal. Don’t be fooled. The numbers don’t lie. Right now, wholesale is a better deal. That’s the way it looks to me. How about you?

PTE Real Estate Group is a Phoenix-based real estate investment company that owns Arizona Property,, US Investment Realty and other companies. They are the largest buyer and seller of distressed real estate in the Greater Phoenix market.