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Excellent Phoenix Real Estate Analysis from The Cromford Report

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Blog by Doug Ingersoll | January 14th, 2015

More excellent market observations from Mike Orr at The Cromford Report:

January 12 - Overall we are seeing light numbers of new listings coming onto the market in 2015. So far we have the lowest number year to date since we started counting in 2000. However there are plenty of listings over $800,000. For this range we have the highest new listing total since 2009. Luxury buyers look like they will have lots of choice in 2015.

In contrast new listings for the price range under $200,000 is very low with a fall of 27% between last year and this year. If first time home buyer demand does come back this year it is going to have very little to choose from.

January 11 - Sales volumes were lower in 2014 than 2013, especially for single family homes. Over the longer term, we can see an increasing trend away from single family homes towards condos, townhomes and mobile homes. Compared with 5 years ago sales in 2014 were down 22% for single family homes, up 11% for apartments, up 13% for townhomes and up 29% for mobile homes. This suggests a trend in favor of denser and more urban living which is common elsewhere but comparatively rare in the Phoenix area. It is probably a consequence of land prices rising faster than home prices, but also reflects changing buyer needs and priorities.

January 10 - For several years from 2008 through 2013 a large number of people spread false fears based on the concept of a huge "shadow inventory". Most of them based their fears on data supplied by RealtyTrac® which came from their database of bank owned homes. No-one seemed to question the accuracy of this database. In fact the database was inaccurate to a degree that is almost beyond anyone's imagination. RealtyTrac made two enormous errors when compiling this data:

  • they failed to remove homes which sold to third parties at the trustee sale
  • they failed to remove homes that were resold by the banks to third parties

This is probably due to laziness, because doing this takes a lot more effort than acquiring the trustee deed data from the counties. Even now the RealtyTrac REO database is still at least 90% incorrect - in Phoenix more than 9 out of 10 homes in that list are NOT in fact owned by banks. Many have never been owned by banks. Many people still believe banks are hiding homes, but in fact they disposed of them long ago, or never acquired them in the first place.

I have not seen a single apology from anyone for falsely alarming the public by blindly accepting and passing on the bogus data given to them by RealtyTrac. The concept of shadow inventory just seems to have faded away. This was very similar to the earlier fears of the so-called Y2K disaster which failed to appear and was quickly forgotten

These days similar bogus information is being spread about "Wall Street Landlords". As an example there is this report from RealtyTrac® themselves. This analysis is fundamentally flawed and the obvious flaw is stated quite clearly by RealtyTrac: "First, we looked at all institutional investors — which RealtyTrac defines as any entity that purchases more than 10 properties in a calendar year."

This is a patently stupid definition. In many places, and particularly in Phoenix, they are hundreds of local entities who buy 10 or more properties in a calendar year. The vast majority are no more part of Wall Street than I am. More than 95% of entities that buy more than 10 properties in a calendar year are NOT institutional investors. These include entities such as cites, homeowners associations, developers, banks and utilities as well as dozens of active local investors.

2014 was an unusually slow year for investors, but there were 436 entities that acquired more than 10 real estate parcels in Maricopa and Pinal County during the year. There was only 1 institutional investor actively buying in Greater Phoenix in 2014 - Blackstone purchased a few dozen homes and all 10 of the other institutions picked up no more than a handful. So many of the institutional investors failed RealtyTrac's test while most of the entities they counted as "Wall Street Landlords" were in fact nothing of the sort.

It dismays me that the media laps up RealtyTrac releases without the slightest effort to verify the bogus information. My advice is that if you wish to correctly understand what is happening in real estate, please take no notice at all of any report from RealtyTrac or any reporter who lists RealtyTrac as one of their sources.