June 29 2013
Is it a good time to buy, sell or hold off? YOU DECIDE.
For those of you who are in the business day in, day out and watching the price changes, this is almost an old news. In the past 45 days, we have seen a large number of homes for sale on MLS with a substantial price reduction especially in Scottsdale, Chandler, Gilbert, N. Peoria and N. Phoenix.
From October 2012 to mid May 2013 we have seen an unanticipated price increase as much as 40% in some Phoenix Metro Areas. This was mainly due a combination of things such as:
A) Lenders not foreclosing. We have managed properties for Major financial institutions including Fannie Mae. Fannie Mae will do almost anything to keep the tenants in place.
B) Institutional Investors: Almost 70 percent of purchases in the same time period have been done by institutional investors, Private Equity Funds and Forign Investors.
C) New Buyers: There has been a surge of new buyers, the ones that did a BK, short sale or foreclosure a few years ago and are tired of renting. They re-qualify to buy an home using FHA loan. They are a small percentage and have not had much success competing against big investors but have been putting some crazy offers together with 3% cash back towards escrow fees.
D) Low interest rate: this needs no explanation.
E) New home builder: Rising the prices to offer bigger incentives to lure buyers in.
E) New home builder: Rising the prices to offer bigger incentives to lure buyers in.
On the contrarily we are seeing the trend changing fast:
A) Fannie Mae Owned Properties: Regardless of the low rents, a lot of tenants are moving out of these rentals, mostly due to maintenance issues and lack of TLC. They have been tossed around to several property management companies in less than 3 years and tenants just want out. We have seen over 50 percent of them moving out in the past 90 days. These homes are not in the best condition and won't rent easily. So they are being put back on the market.
B) Institutional Investors: Carrington Financial Services, a major player in the industry stopped purchasing residential renal properties about 3 weeks ago and a few others have followed suit since. (See the article below). Blackstone and Colony American have slowed down quite a bit, 50 percent of their rental inventory is sitting empty. As the result, in most Phoenix Metro Areas rents have either stayed the same or even gone down comparing to this time last year.
C) Canadian Investors: Canadian dollar has been falling steadily and we have seen a lot less of them buying properties down here in Phoenix
D) Buyers sitting on the side line: Recently, we have been receiving an unusual amount of rental applicants from applicants with steady jobs, good income and 700 to 800 plus FICO scores! When asked why they are not buying, they say, they are waiting for the market to level off and believe the prices are going to go back down (Perception is a reality). Plus the rents are so low that it beats the total monthly payments with all the expenses and headaches associated with home ownership.
E) Rate increase: Mortgage rates have gone up by nearly 1% in the past 45 days pushing home buyers already in escrow to take variable loans which in a major way contributed to the whole housing boom and bust. On the contrary belief that a lot of buyers are going to jump on the ban wagon to take advantage of the yet lower rate before it goes any higher, there are still quite a few who are hesitate to take the plunge. Unemployment is still at 7.5% and the ones who are working are barely making the ends meet.
F) The Musical Chair affect: : As more tenants hop from one rental to another for a better deal, the homeowners who are upside down in their mortgage are no longer able to hang on to these properties. They are throwing in the towel and putting their houses on the market either to short sale it or just getting barely getting from under them as well. We have been getting calls from these home owners to sell their properties once the tenants move out or even with a tenant in place. They seem to be fed up with the costs associated with rental properties and the cost of maintaining them as these homes are getting older needing additional maintenance. On the other hand, institutional investors are offering lower deposits and lower rents just to fill in their vacancies making it more difficult for the smaller investors or these home owners to compete with.
G) Investors taking some money off the table: We are seeing investors are paying very close attention to these details. In the six months we must have at least sold 50 of these properties and just in the past 30 days we have received more calls from investors wanting to know what their properties are worth and what their options are. It seems they are getting a bit concerned about the market. Foreign investors specially the Canadians are getting really jittery.
Luckily, we live in a county that is economically much more stable comparing to the rest of the world and our people have shown time and again they are more resilient to these market upheavals. However the world is now much more inter-connected than ever before and we need to pay closer attention at not only what is happening around us but about the globe.
It is hard for me to advise you what to do these days. YOU DECIDE.There is not such a thing as the "NORMAL" any more! To get a better insight of what is happening worldwide in the money market, I called a good buddy of mine Stan Serklew, a seasoned financial Adviser in Scottsdale Arizona
Here is Stan.
Written by Stan Serklew . June 28, 2,013........Resident manager...'Private Equity Advisory Services' in Scottsdale , Az
As an aside, my comments are a disclaimer, as to the numerical processes, which seem to influence an overall residential market based price restructuring, however interest rates, as they influence derivatives option costs have had a nuclear effect in June, as the sudden decline of bond fund prices based on a furious drop in U.S. Treasuries. In the past week, generated a flurry of appearances and commentaries of a goodly number of Fed. Governors, who functioned to hit the brakes on Treasury prices, with a sudden increase and decrease in yields. The struggle to lower rates has been a source of headaches for money managers, and their clients, who are having difficulty in determining, how effective the Fed's attempts to re balance, an accurate interpretation of Chairman, Bernanke intent in his most recent report on progress of 'recovery' in the U.S. economy, as it relates to the effectiveness of the QE 2,3, bond buying process......Those of us who were paying attention to the efforts of the PBOC . (Peoples Bank Of China) to act quickly to extinguish the consistent increase in bank over night lending rates, which reached 15% in the 1st. 5 months of the year, played into the massive selling by institutions, as well as retail investors of bond funds, approximately 44 billion this month, adding to an already jittery market, the sudden rate increases of U.S. credit instruments...........The battle continues, between the Central Banks of the world, and the bond vigilanties which appear with shark like attacks, in world wide debt markets., no doubt bear significant observation, as Dallas Fed Gov. Stanley Fisher commented this past week, with a somewhat stern admonition, that winning over the Fed is impossible......however, as we endure a slow recovery in the housing market, which is dependent on our domestic mortgage capabilities, there is no doubt, that the so called 'Perfect Storm' has subsided in recent days...........And now comes the steepest decline in the price of Gold, in any period since 1920.. closing at 1,201. per oz......to days close wit an Aug. 13 futures in the 1,100 handle ......The traditional interpretation is the war on inflation domestically has been won, however, as everyone with consistency is grappling with this 'Phenomenon' referred to as the 'New Normal', with sudden changes in pricing of all hard goods that are 'marked to the market' priced on the up and downside, and we certainly have to be alert to changes in price structure in the residential housing market......In short, buyers, and sellers have little margin of time to 'think it over'...The Caveat is 'act quickly'..for the retail buyer........More to come with vigor, as we progress to make U.S. housing, the New Gold Standard in our domestic market, for all who dwell in our Dynamic Country.
Please forward all your questions to psraouf@aol.com. Thank you and Happy investing.
Please forward all your questions to psraouf@aol.com. Thank you and Happy investing.
