WE’RE HEARING…If you want to see what a housing recovery looks like on the ground, it’s time to visit Phoenix, as I did recently for the first time in a couple of years.
Gone are the rows of “for sale” signs that cluttered many streets two years ago. Instead, observers of the Phoenix market today say the metropolitan area faces a different problem: too few homes for sale.
Mark Stapp, director of the real estate development program for the W.P. Carey School of Business at Arizona State University, told me the Phoenix metropolitan area is experiencing “a full-fledged recovery” in housing. And the data support his optimism. The single-family delinquency rate in Arizona in the fourth quarter of last year was 6.02%, down 42 basis points from one year earlier, according to theMortgage Bankers Association. That’s actually more than a full percent below the national average delinquency rate. Just 2.02% of Arizona mortgages were in foreclosure status, down 49 basis points from a year earlier.
In January, lender-owned properties accounted for 12% of metro Phoenix home sales. Short sales accounted for 18% of the market, according to the Wilcox Report on local real estate conditions, which is produced by Fletcher Wilcox of the Grand Canyon Title Agency.
“One of the things that has happened in this market is the sale of previously owned homes has been so strong that right now, the problem is an inventory shortage,” Stapp said.
He said one of the reasons Arizona—among the states hardest hit by the foreclosure crisis—has been able to recovery so quickly is that it’s a nonjudicial foreclosure state, which allows servicers to repossess homes quickly when a borrower defaults. That has limited the backlog or shadow inventory of foreclosed homes on the market and allowed the state to work through its defaulted loans faster than in states with a slower foreclosure process. The banks also got help from distressed real estate investors, who came into the market buying REO in bulk from lenders. Many distressed homes have been converted into rental properties.
At the nadir of the market, existing homes were selling well below replacement value, a factor that attracted investment capital to the Phoenix housing market, Stapp said.
“A lot of this recovery has initially been driven on the backs of investors,” Stapp said.
In addition, the recovering housing market has led banks to change their default management strategy. Rather than foreclosing, banks are encouraging troubled borrowers to sell their homes through a short sale.
The Arizona economy also has helped the housing market recover. The population continues to grow and Arizona ranks third in job growth nationally.
While the double digit gains in housing prices look impressive, Stapp said you have to consider how far the market had fallen when considering the increase.
“We are getting back to what a normal market may be, however we are not there yet.”
Still, the inventory shortage is doing more than just helping investors and servicers work through their distressed portfolios. It is also rejuvenating Arizona’s home building industry, which had drifted into dormancy in the wake of the housing crisis.
Now, developers are gobbling up lots that were finished but never built upon during the crisis. Those finished lots have been mostly absorbed and some developers are starting to look at land development again, Stapp said.
One risk, Stapp believes, is overconfidence. With so many people jumping back into the housing market so quickly, the market could get ahead of real demand.
“The market feels very positive right now. But we need to be careful we don’t overdo it until we get real solid employment growth.”
The recovery is also being felt on the loan origination side of the business. Kelly Powers, vice president for advocacy at the Arizona Mortgage Lenders Associationand national production manager for AmeriFirst Financial, said the housing recovery is fueling a resurgence of correspondent lending. That’s good news for people working at companies like AmeriFirst.
“We aren’t all sitting around looking at each other anymore. We are all working again,” she told me.
The correspondent market, which some had thought was left for dead, is now attracting new investors willing to buy closed loans without establishing a “sticks and bricks” presence in markets like Phoenix. That means correspondent originators have more options to offer to their customers, Powers noted.
For me, the confirmation that Phoenix is in the midst of a housing revival came after a drive past my late grandmother’s 1950s era house on Mulberry Drive in the Arcadia neighborhood of Phoenix. It’s a neighborhood of older, mostly brick and concrete ramblers not too far from Camelback Mountain. It’s a neighborhood that fell out of favor at one time but is very much back in vogue now.
After my visit, I got a call from my mom who had seen a notice about the recent sale of the house in a local newspaper. My uninformed guess as to the price was $175,000. Turns out, the two bedroom with a den home sold for $350,000.
Now, if we could just share a little of Phoenix’s good fortune with Detroit and Miami, we might be able to say the housing crisis has officially ended. In Florida, more than 12% of mortgages remain in the foreclosure process, a factor that is putting a drag on the state’s ability to pull out of the housing mess.
Source: Ted Cornwell, National Mortgage News, March 4, 2013.
Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.
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