Recent reports show that nationally, home prices have fallen for the third consecutive quarter. Interestingly, here in Arizona we were reporting lower sales, but sales prices were actually increasing. What does this all mean? Well, let’s not forget that anyone can extract a set of stats and interpret them to suit their own purposes. In this case, nothing nefarious happens, but we need to analyze the statistics carefully. What’s happening in the Phoenix metro area is that while the number of homes sold has decreased, those that have sold are at the higher end of the price range. This reflects a couple of interesting points in the Arizona real estate market. First, the fact that the most expensive houses are still selling reveals a larger fact of life: The wealthiest among us are not as affected as the less financially fortunate by the economy in general or the ups and downs of a country. picky real estate market. Second, people in entry-level homes who want to trade up for something bigger or better (and this is a great time to do so) are having a hard time selling their current homes due to unrealistic prices and oversupply. Inventory The pricing problem is one I run into all the time. Otherwise, smart people can’t seem to fathom that the “investor-fueled” craze of two years ago is over. I point to recent comparable sales and the answer is universal. Those people simply “unloaded” the property below market prices. The old “grassy mound” conspiracy trick!

The overall economy is generally healthy. In the Pacific Northwest, prices were flat or slightly lower due to excellent job growth. Here in Arizona, the economy has to catch up to help divert excess inventory. That can take time. In addition, banks are tightening credit parameters; make loans, particularly “low” or “unqualified” loans, much more difficult to obtain. Lenders are now seeing a spike in foreclosures, Arizona ranked seventh in the nation, as its previously lax requirements are coming back to haunt them.

Lenders are also beginning to process “short payments.” This is a situation where a bank forgives a portion of the debt secured by a home to allow it to be sold. Traditionally, in a foreclosure, a bank would receive, after expenses, about 70-75% of the proceeds from the sale, while a short payment could reach up to 90% of the proceeds. Consult your real estate agent or accountant for more details on both procedures.

Not everything is pessimism and fatality. There will be no catastrophic drop in house prices, as we saw in the 1990s, due to the underlying strength of the economy. Some of the huge increases pushed by “investors” will inevitably be paid back. However, the market will remain strong, but it will take a year or more to get rid of so-called investors, foreclosures, and for inventory levels to return to normal.

Look on the bright side, at least the weather is great!

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