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Adieu, investor frenzy. At least for now.
Today there are only 78 bank foreclosures and HUD homes in the entire Phoenix metro in active status. Add the 39 short sales and 20 pre-foreclosures and the whole lot adds up to less than 150 distressed listings across all residential property types. So tiny.
That is great news for Valley home prices and the stability of the local housing market. Yet there is no fanfare to mark the occasion nor parade scheduled.
Perhaps it’s appropriate then to close the book on the 12-year foreclosure era that characterized the housing crisis. It began with a Lehman-style bang in 2008, but has tapered out today to a whimper.
Foreclosures in Maricopa County now make up less than 1% of all residential real estate transactions. That’s even lower than the market share that they commanded in the 2004 heydey “my bartender owns 4 rentals” run-up to the housing crisis.
In the red-hot real estate days of 2004, there were still about 1,700 foreclosure sales in Phoenix annually. Today, the number is around 550 sales.
When the bubble burst, 2009 brought an avalanche of foreclosures to Phoenix. That was the peak year for foreclosure activity in dollar terms. Six billion in bank sales over twelve months, according to Michael Orr’s Cromford Report. Then 2010 and 2011 clocked in at $5 billion and $4 billion in foreclosure sales, respectively.
By contrast, when 2019 began, there were only 39 foreclosures sold per month across the metro. That’s approximately $110 million in annual sales for Phoenix lender sales. For perspective, it’s only 1.8% of the 2009 peak foreclosure activity in dollar terms. Like an avalanche, the foreclosure crisis has run its course.
It is not just a Phoenix phenomenon. Nationally, the number of foreclosure starts just reached an 18-year low.
In the chart below from The Cromford Report, orange represents lender foreclosures (REO). Gray is HUD (former FHA loans) foreclosures. Light blue is short-sale activity. Royal blue represents normal transaction activity.
REO (in the chart legend) is an acronym for real estate owned. It’s industry jargon for the property inventory that a bank holds for investment or as the result of a foreclosure action. It is synonymous with lender foreclosure in this context.
The number of bank foreclosures, HUD transactions and short sales have consistently diminished since the 2009 peak:
Foreclosure activity peaked in 2009 at $6 billion in annual sales for the Phoenix metro. However, REO activity remained strong for many years thereafter. Twelve years after foreclosures exploded onto the scene in Arizona, foreclosures have tapered off to less than 1% of all real estate transactions closed in Maricopa County. Chart and data provided by The Cromford Report and ARMLS.
The rock-bottom deals for investors are gone. The REO listings that you find in 2019 are priced close enough to fair market value that the numbers only make sense for owner-occupants, not investors. Even the mom-and-pop flippers have largely moved on to wholesale buying opportunities and probate court deals. Single-family investors operate on much smaller profit margins than a decade ago.
Large-scale investors like Cerberus Capital Mangement and Invitation Homes have moved on from accumulating foreclosures. Each is buying non-distressed properties to add to their rental inventory in the wake of rapidly rising rental rates in Phoenix since 2014.
Ten years ago, the landscape was ugly. Lenders couldn’t keep up with the pace of foreclosures. Now they have a handle on managing the inventory and even have time to spruce them up.
Many foreclosures are now cleaned, repaired and coated with fresh paint before they are marketed. At the apex of the housing crisis, it wasn’t uncommon to walk into foreclosures with broken glass, missing toilets, chirping smoke alarms and cigarette burns on mucky tan builder-grade carpeting.
It’s a different experience today.
The key to house prices is the share of foreclosure or short sales in the total housing market. When that share rises, house prices will fall, because distressed properties sell for significantly less – currently around 25 percent below non-distressed houses.
– Mark Zandi, chief economist of Moody’s Analytics in a March 22, 2012 real estate article in Washington Post
