“Nearly all men can stand adversity, but if you want to test a man’s character, give him power”
WE’RE HEARING that the full-fledged recovery in the closely watched metropolitan Phoenix housing market shows no signs of abating. And it’s yielding a dramatic drop in distressed property sales.
In fact, according to the Wilcox Report, which tracks Phoenix housing trends, the era of plummeting property values, high foreclosure rates, cheap lender-owned sales, job losses and tight lending standards is history. In August, the report declared the housing recession officially over.
“We are out of the recession and we are definitely in the recovery,” Fletcher Wilcoxtold me.
Still, the market looks different than it did during the boom days in the nation’s 12th largest metropolitan area, with a population of more than four million people. Six months ago, I wrote about the emerging recovery in the Phoenix area’s housing values. Now, the area’s foreclosure inventory is dropping to levels last seen a decade ago.
A big reason for Phoenix’s fast turnaround from being inundated with foreclosed properties to experiencing a shortage of inventory is the state’s status as a nonjudicial foreclosure state. Once a borrower falls behind the lender can file a notice of a trustee sale. The lender can go to auction 90 days after that notice is recorded. That allowed for a painful but quick recovery period.
And it prevented the kind of foreclosure backlog or “shadow inventory” that has stalled the process of cleaning up yesteryear’s mortgage defaults in some markets where the foreclosure process can take well over a year.
“We cleaned through our stuff quite some time ago. Our foreclosure starts are back to a normal market now,” Wilcox said. “There is not a backlog.”
The number of lender-owned home sales this June was down 92% from the number of lender sales in June of 2009, when hard-hit Phoenix was in the throes of the housing crisis. Short sales were down 19% from 2009, according to the Wilcox Report.
While REO hasn’t quite vanished in the Phoenix area, it’s no longer dragging down the market. In fact, the Phoenix foreclosure environment in 2013 looking a lot like Phoenix in 2003, a time that Fletcher pegs as a normal market.
Based on figures from the first half of this year, Fletcher predicts that the Phoenix metro market will see 15,500 foreclosure starts this year, comparable to the 13,271 recorded in 2003. By comparison, foreclosure starts topped 86,000 in 2009.
And numbers for the month of June suggest the foreclosure recovery is gaining steam. The number of foreclosure starts in June, at 1,164, was identical to the number of foreclosure starts in 2003.
Still, Phoenix housing values remain well shy of their peak. In June of 2006, the median existing home sale price was $287,500. In June of this year, it was $206,000. While some experts worry that the quick recovery could create a renewed housing bubble in states like Arizona and Nevada, Wilcox does not see this happening in Phoenix. He said that because much of the region’s homebuilding capacity disappeared during the crisis, demand is likely to exceed supply for the next several years.
And investors remain a big part of the recovery. About a third of all home purchases are cash deals, with no mortgage financing, Wilcox said. But that seems to be changing.
In March, there were more conventional mortgage purchases of single family homes than cash purchases. That marked the first time in 51 months that conventional mortgage purchases exceeded all cash deals, and conventional mortgage purchases have continued to exceed cash deals for five consecutive months.
And lending standards are no longer tightening. Some lenders are even starting to offer 3% down financing on conventional loans with mortgage insurance, Wilcox told me. Still, buyers need to have good credit scores and more assets and reserves than in the past.
Wilcox isn’t alone in noticing the strength of Arizona’s housing recovery. TransUnionrecently reported that the rate of overdue home loans in the second quarter fell more in Arizona than in any other state. The 60-day-plus overdue rate was 3.58% in June of this year, down from 6.14% in June of 2012. It marked the fourth quarter in a row in which Arizona led the nation in year-over-year improvement in its delinquency rate.
It also means Arizona’s overdue rate was significantly below the national overdue rate of 4.09%. Not that long ago, Arizona was one of the states with the highest delinquency rates.
Not every state that was hit hard in the foreclosure crisis has bounced back so handily. In Florida, the percentage of loans at least 60 days past due remains at nearly 10%. New Jersey and Nevada also have overdue rates that exceed 7%.
That underscore’s the disparity between judicial and nonjudicial foreclosure states. The percentage of loans in foreclosure in judicial states during the second quarter was three times higher than in nonjudicial states, according to the CalculatedRiskfinance and economic blog’s interpretation of the MBA’s delinquency report.
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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