By Stuart and Destyn Young, Young Team, Homesmart

Oil prices are high; food prices are on the rise; the cost of energy, including water use, is skyrocketing; and unemployment is increasing. And of course, there is the mortgage meltdown. How does Phoenix stand in this arena?

Actually, there is good news. Home sales are up and home prices are more affordable. According to the Arizona Regional Multiple Listing Service Second Quarter report for 2008, home sales during this period have surpassed total homes sold since June of 2007.

What factor is fueling home sales? The answer is simply this: affordable prices and attractive financing options.

The Federal Housing Administration (FHA) has taken action by offering seller down payment assistance programs and by increasing the loan limits. Currently, the FHA loan limit for Maricopa County is at $346,250. This increase has expanded options for home buyers and brought relief to home sellers whose list prices were just out of reach before the loan limit increase. FHA loan programs also offer down-payment and closing-cost assistance for first-time home buyers. These popular programs, known as Nehemiah and Ameridream, allow sellers to assist buyers with up to 6 percent of purchase price toward down-payment assistance and closing costs. These programs are also available in bank-owned and short-sale transactions. Furthermore, fixed interest rates are still reasonable.

What caused the insurgence of home sales during the Phoenix housing boom were price and climate. The climate’s a given, and now price is making a return. Affordable prices help reduce inventory. The majority of affordable homes is largely due to bank-owned properties and short sales. In order for the market to return to normal, the supply needs to be decreased, which requires price reductions. Short sales and bank-owned properties will not be driving the market forever, but they will need to run their course in order for the market to stabilize.

Many home sellers are faced with the challenge of selling a home whose value is less than what is owed on the mortgage. This is called a short sale. Short sales are making up at least 33 percent of homes sold. If you are considering a short sale, it is suggested that you ask a realtor who is seasoned in the short-sale market, as these transactions can be arduous. Home buyers with patience are good candidates for short-sale transactions, because the reward is worth the wait. For home buyers looking for a quicker turnaround, bank-owned properties close on an average of thirty days. You may need to get your hands dirty with an REO (Real Estate Owned), a property that has gone through foreclosure and owned by lender, but the price point is worth the sweat equity. There are also really great deals on standard listings that are priced right and in turnkey condition, and can close quickly.

So what will the future bring? Only time will tell, but the present brings good news: Inventory is being reduced, and prices are more affordable.

By Paula Hubbs Cohen

Arizona’s nearly year-round indoor/outdoor lifestyle brings a lot of new residents, both full- and part-time, to our world-famous Valley of the Sun. To showcase the ease of blurring the line between indoor and outdoor living, many builders and home designers use architectural elements such as disappearing glass doors that open to courtyards, atriums, and well-appointed alfresco dining and entertaining patios. Particularly during our beautiful winter months, pavered terraces and expansive view verandas are wonderful extensions of a home’s interior living spaces.

Sandra Baldwin of Baldwin Luxury Properties/Equitable Real Estate explains that the basic covered patio has been a part of most Arizona homes for years. “These patios were mostly afterthoughts that were just a place to put some outdoor furniture and store the rolling grill,” she says. “What we see now is the creation of outdoor living rooms where truly fine furniture can be placed, along with complete kitchens, elaborate entertainment systems and even pool tables.”

As Baldwin described, these outdoor living areas run the gamut of covered patios decked out with casual furniture, sturdy umbrellas, and built-in barbecues to magnificent fresh-air kitchens, romantic gazebos, and open-air gathering places—even dance floors. Flagstone, pavers, and varieties of Saltillo tile, including upside-down tile installations, are frequently used to spice up what’s already a luxuriously laid-back ambience. For homes with rustic, Spanish, or hacienda décor, thick-roped sticks, called latillas , laid among the ceiling beams, and stunning lodgelike ceilings made of rich hardwoods add indoor beauty with an outdoor twist.

Here in Arizona, pools are definitely part and parcel of the Southwestern lifestyle. As with patios, pools can be simple and fun, perhaps with a sensuous rolled-bond beam outline or a scattering of boulders. But pools can also be considered “liquid luxury,” with elaborately themed waterfalls, grottos, fiber-optic lighting, and spillover spas. Infinity-edge pools that seem to hover on the horizon are often framed by gas-flamed firepots to create a razzle-dazzle nighttime scene.

Of course, no room indoors or out is complete without furnishings and decorative pieces, and there are plenty of choices to make your out-of-doors living spaces fabulous as well as functional. Energetic color and various types of stone can be used to blend the indoor and outdoor décor, with sophisticated desert sandstone hues, milk-chocolate mochas, or a splash of vibrant colors “spunking up” sedate furniture and accent pieces. Travertine, granite, and Mexican tile can be used almost anywhere, especially on counters, as backsplashes or along baseboards. Dramatic decorative tiles add a playful sense of pizzazz to any room, and visually tie together a home’s interior and exterior décor.

Backyard furniture hasn’t been left out in the cold when it comes to new designs and components, with more colors and faux finishes available each year. These furnishings and appliances are generally made of robust materials, including marine-grade stainless steel designed to withstand our summer heat and sun.

But what does indoor/outdoor living mean in terms of property values? One argument is that when an area is not heated or cooled, it is not livable year-round and is therefore less valuable.

“In the U.S., especially in Arizona, we only count a home’s square footage in terms of climate-controlled space,” Baldwin says. “We don’t include garage space or covered patios as living areas. The rest of the world talks in terms of ‘under roof’—all the space of a home that is covered by the roof. However, that is not necessarily the case with today’s outdoor spaces being designed to make them year-round living areas. Fans, misters, fireplaces and radiant heaters have all been used to make our outdoor living areas more comfortable and more valuable, no matter what the season. All of these features expand the livable square footage of a home, and therefore the value.”

By Justin A. Lombard, MBA, e-PRO, Keller Williams Realty Platinum

Turn on the TV or browse through the newspaper, and you’ll notice that it’s difficult to miss the negative press about the Greater Phoenix residential real estate market. Diverse opinions describe the Valley’s housing market as anywhere from “undergoing a moderate correction” to “one of the weakest housing markets in the U.S.” Which statement is more accurate? A brief look at a few key numbers in historical context can give us a truer sense of the state of our market today.

While no one can accurately predict where our housing market is headed, we can make some inferences about where our market might be going based on a consistent track record of more than five decades of growth data.

Then versus Now: The Past Five Years

The Arizona Regional Multiple Listing Service (ARMLS) aggregates and publishes sales data from the five Realtor associations that serve Maricopa and western Pinal Counties. ARMLS data does not include properties that are not entered into the MLS, such as those for sale by owner or exclusive listings. At the time of this writing, the most current report available is from May 2007. The accompanying chart offers a comparative snapshot of a few key metrics for the month of May from 2002–07

Historical Sales Data Comparison (2002–07)
Year Inventory Avg Days on Market (ADOM) Sales
(Units) Median Sales Price
May 2002    25,928    63.88    6,321    $151,414
May 2003    26,141    66.50    7,122    $160,696
May 2004    19,850    55.95    8,591    $174,123
May 2005    9,451    25.28    9,080    $249,814
May 2006    41,797    59.99    6,931    $279,566
May 2007     51,013    89.83    5,337    $272,921
Source: Arizona Regional Multiple Listing Service—Home Sales Reports

From this data, we can clearly observe the boom cycle of 2004–05, when inventory levels and days on market fell to historical lows and were mirrored by increases in the number of units sold and median sales prices. This is an elegant example of the law of supply and demand at work.

Just as quickly as the market heated up, we see evidence of the cooldown that has been in progress since 2005. The supply of homes for sale jumped rapidly as investors exited the Valley en masse in pursuit of the next great opportunity. The increase in supply, coupled with a drop in the actual number of buyers, has lessened the total number of units sold and is beginning to affect sales prices.

Inventory levels and average days on market (ADOM) in May 2007 remain well above recent historical norms for the month. In May, there were over 51,000 single-family homes for sale, which equates to a ten-month supply of inventory based on unit sales. A balanced market supports around a six-month supply with inventory of 25,000 to 30,000 units, so we should be prepared for a prolonged correction.

Surprisingly, sales prices have remained fairly steady over the past twelve months and have actually risen since the peak demand of 2005. I expect we’ll see continued downward pressure on pricing until the excess inventory is absorbed.

The Future is Bright: Five Decades of Growth, and Counting

While no one knows what the future has in store for Arizona, more than five decades of consistent growth and economic prosperity point to a bright future. Federal data reveals that Arizona has been among the top states in the nation for more than fifty years in key indicators, including population, employment, and personal income growth. Collectively, these growth indicators support a healthy housing market.

Arizona’s Ranking in Key Growth Indicators
Decade    Population Growth    Employment Growth    Personal Income Growth
1950-1960    4th    3rd    4th
1960-1970    3rd    3rd    4th
1970-1980    2nd    3rd    3rd
1980-1990    3rd    3rd    5th
1990-2000    2nd    2nd    3rd
Source: U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis

Economic and personal-income growth fuel population growth by making our state more attractive to nonresidents. High population growth is critical to a sustainable, healthy real estate market.

According to Arizona State University and the Arizona Department of Economic Security, Greater Phoenix has been growing at a pace of more than 100,000 new residents per year since 1995. Furthermore, the U.S. Census Bureau predicts that Arizona’s population will more than double between 2000 and 2030 from about 5.1 million residents to almost 11 million, and will move from its current position as the twentieth- to the tenth-most populous state. Even if we fall short of the government’s prediction by a few million residents, the overall effect on our housing market will remain positive.

Five Building Blocks to a Successful Sale in Any Market

While most industry experts agree that the long-term outlook for the Greater Phoenix real estate market is favorable and balanced, what about today’s home seller? What can he or she do to cope with the challenges of our market?

I’ve put together the following list of five qualities, or building blocks, that any home seller can follow to consistently yield above-average sales results regardless of market conditions. They’re equally important and just as relevant in a seller’s market as they are a buyer’s market.

1.    Right-on pricing The most accurate way to develop a pricing strategy is to put yourself in the shoes of a prospective buyer and visit several homes for sale in your community that are similar to yours. Only after you know how your home stacks up against the competition in terms of features, upgrades, and condition can you price it appropriately. Buyers today visit many homes and can immediately notice when a home is not priced consistently with similar homes.

2.    Standout staging You should never open your home up to a prospective buyer until it’s ready to show! Buyers in today’s market are rare and valuable commodities, and you will only get one chance to impress them. Whether you lean on the experience of your Realtor, hire a professional home stager, or do it yourself, make sure you’ve tidied up, decluttered, and made necessary repairs or alterations to prepare your home for sale before you put the sign in the yard.

3.    Aggressive marketing The goal of any home seller should be massive exposure of his or her home to as large a pool of prospective buyers as possible. Your marketing plan should include a print component to attract local homebuyers, as well as an extensive Internet strategy to attract global buyers. The fewer buyers there are in the market, the more important it is to extend the breadth and depth of your reach.

4.    Diligent follow-up Every single buyer who visits your home should receive a follow-up phone call for feedback the day after the showing. Over time, you may receive consistent criticisms that give you the opportunity to adjust on the fly and position yourself more favorably for the next visitor.

5.    Smart negotiating Many buyers and sellers focus so intently on getting their price that they overlook other factors that could mean the difference between a successful deal and a parting of ways. Before you rush to the negotiating table and risk losing a valuable buyer or the house of your dreams, take time to learn what’s important to the other party and compare them to your goals. Once you understand how your interests align, you’ll be in a better position to put together a win-win deal.

Justin A. Lombard, MBA, e-PRO is the team leader of award-winning Trust in Justin & the Casa Crew at Keller Williams Realty Platinum. You can visit Justin and his team at trust-in-justin.com.

Seven Big Reasons to Invest in Preforeclosure

By Ben Innes-Ker

Looking for an “in” to real estate investing? One of the more promising home-business opportunities is real estate investing. Real estate investing is the perennial wealth builder, and the transition from working a job to achieving wealth through real estate investing is becoming increasingly well documented. You’ve probably thought about investing in real estate yourself, but you’ve not gone for it because you thought you needed tens of thousands in savings for a down payment, and perfect credit along with strong banking relationships.

It doesn’t hurt to have those resources. But it’s not necessary to have a huge pile of cash and perfect credit to buy a house cheaply and resell it for a profit. It’s especially not necessary in the preforeclosure market. Preforeclosures are houses in the default phase of foreclosure, in which the bank has filed initial foreclosure papers but the sheriff sale or trustee sale in which the bank auctions off the property or repossesses it if no one buys at the auction hasn’t occurred yet. Buying during the preforeclosure period is one of the best ways for anyone to get involved in real estate investing. With little more than a few hundred dollars and some specialized knowledge, you can buy a house at a substantial discount and then resell it, picking up a five-figure profit check in the process.

1. When people default on their mortgages, they have stopped making payments to the bank. So, when you are negotiating with the seller and the bank right up until the point where you buy, no one is making the payments. For novice investors worried about holding costs, this is a huge advantage.

2. Preforeclosures are a very well-defined niche market. One of the most deadly mistakes rookie investors make is trying to be a jack-of-all-trades, going after any and everything they can lay their eyes on. The result of this lack of focus is that they are soon back at their jobs. As a defined market, preforeclosures allow you to develop focused marketing campaigns and standardized processes to get deals completed and closed.

3. One of the fundamentals of real estate investing is contacting and talking only to motivated sellers and avoiding everyone else. Sellers in preforeclosure are some of the most motivated that you will find. Their world has been turned upside down; they are about to lose their house, and their motivation is such that they just want out and the bank off their backs. By buying houses from people in preforeclosure, creating 30 percent-plus equity spreads on houses often in good condition is not a difficult thing to do.

4. Buying houses in preforeclosure enables you to create unusually large equity spreads. Recent economic uncertainty has resulted in many foreclosures, and rising rates will cause more in coming years. If banks had to take back all the properties that went into foreclosure, the FDIC would shut them down. They know this, so they try not to take properties back that they don’t have to. By requesting the lender discount that is owed on their payoff, large spreads of equity can be created on houses that are totally maxed out with loans. This can’t be done on loans that are not in default.

5. Because lenders are under pressure to liquidate bad loans rather than take the property back, large discounts can be negotiated. After becoming familiar with the issues that cause lenders to discount, larger and larger discounts can be achieved as you hone your negotiating skills.

6. If your plan is to buy and hold the property, having good enough credit and financials to get bank financing excludes a great many people from getting into real estate. On top of that, if you do get a bank loan, your financial exposure is at its maximum when everything is in your own name and personally guaranteed. Buying houses in preforeclosure allows you to simply take over the existing financing already in place. No qualifying needed. You can take title to the property in a land trust, begin making payments on the existing mortgage(s), and still get all the tax advantages, appreciation, and depreciation without any of the risk of being personally liable for the mortgage and the property.

7. If you have ever bid at auction for property at the courthouse steps, you are only too aware of the competition breathing down your neck. Lots of mind games. The forty thieves are talking trash to you trying to get you not to bid. If you are Larry Bird, no problem. Make sure you have $500K on your credit line, however. If you are not the Bird and you don’t pack half a mil of credit, you can sneak in and avoid this NBA showdown by buying the house during the preforeclosure period…before the auction.

Make no mistake about it, there are many ways to make healthy profits in real estate investing. But when you look at how easy preforeclosure makes it to buy houses cheaply and resell for five-figure profit checks, all the while helping people out of agonizing life circumstances, it makes little sense to pursue real estate investing any other way.

Before you make any real estate purchases, be sure to discuss them with your financial or real estate advisor.