I love how numbers make most decisions so much easier to navigate... yet, most people opt not to do the work, especially when it involves big financial decisions like buying a home vs. renting one.

Yesterday, the Cromford Report staff posted some info and a chart about the "Buy vs. Rent" argument for people living in the Phoenix & Scottsdale Metro area. I know lots of people are still having this debate with themselves... or not because they've prematurely ruled it out.

Remember, the Cromford Report is headed up by Michael Orr, the Director, Center for Real Estate Theory and Practice and actual statistics- there are no feelings involved here...

Here's what they wrote:

December 15 - Does anyone remember the days when 5% annual appreciation was considered really good?  These days it appears that some consumers now perceive anything under 10% as horrible, and reason enough to keep renting.  As our market returns to normal it may be beneficial to help future homeowners, specifically the millennial generation, visualize where they could be in 5 years with a “horrendous” 4% appreciation rate.  For the following example, we chose a $175,000 purchase with 3.5% down since it falls in line with where a first-time home buyer might start.

Home ownership in these circumstances gives the borrower a net equity of almost $60,000 after 5 years. Not bad compared with renting a property for the same 5 years. We assumed that the seller paid all the closing costs (which is quite a reasonable assumption these days).

The secret ingredient is leverage. The borrower puts only 3% down but gets to keep 100% of the appreciation. With interest rates as low as they are today, the millennial generation will probably want to kick itself in ten years time for the missed opportunity today.

Even with no appreciation the borrower gets net equity of $22,000 after 5 years, because a chunk of the monthly check goes to pay down the outstanding loan balance. However property taxes and maintenance will eat into that.

Realistically, 4% appreciation is over twice as high as inflation and a very satisfactory rate for the realistic homeowner.

Even if your ideal home isn't in the $175K range, I've seen a lot of really great options for buyers like 3.5% down on an FHA loan (up to $271,050), 5% down and sometimes as low as 3% on a conventional (up to $417K) loan; 10% down on a jumbo loan (over $417K) up to $1M.

Yesterday a client who was planning to relocate here likely to the Desert Ridge Area was floored to find out that the homes she was considering renting cost about the same as what she would pay if she bought. Even better was the realization that she wouldn't have to put 20% down to do it!

There are a lot of different loan programs for different borrowers' needs- even the ones with less than perfect credit. You just have to know who to ask about them. At the end of the day, would you rather pay your mortgage or someone else's? That's kind of what you're doing when you rent...

Still not convinced you want to do the actual math and figure it out for yourself?? I get it- math isn't everyone's cup of tea, but even if you can't do it yourself, sometimes it pays to do the work even if you have to get someone else to do it for you... I'm pretty good at math myself and am only a call or email away (AND happy to help)!

Happy Holidays!

Related:

A Few Reasons 2015 Will Be a Good Year for Phoenix Real Estate

2003-2014: Is the Average Phoenix Mortgage Payment Up Or Down?

6 Tips for Buying a Home in a “Buyer’s Market”

If you spent any time studying economics in school, you probably remember something about supply & demand... it impacts pricing... blah, blah. What you may not remember is that this delicate balance impacts just about every marketplace and every industry. Real estate, is no exception.

Year to date, Maricopa county has experienced an unusually low supply of inventory (homes for sale) in our market. Data from the Cromford Report shows that 2014 has had the lowest number of listings to come to market since before 2001.

Look back to a few of my previous posts from 2011-2012 (Where Have all the Properties Gone??? ARMLS: Active 10,014 listings in Maricopa County). You could easily see that we had few active listings. Then in 2012, our "normal" resale market rebounded in a big way.

Low inventory and high demand throughout the Phoenix & Scottsdale area maintained record sales volume & continued to boost pricing. From Paradise Valley, to Tempe, Avondale & beyond, Buyers took advantage of the low rates and fiercely competed with cash-rich investors to buy up all of the cheap, distressed inventory (REO, HUD & short sale). Eventually as "distressed" inventory fell back sharply, "normal" sales began to make up the bulk of the market.

Sales surged and prices spiked in the middle of 2013. Which, in turn, spurred pent up supply of supply from all of the sellers who had been sitting on the side lines for years waiting for precisely the right moment to sell. They jumped in with asking prices that seemed unsustainable. Some analysts even started to cry "bubble".

What's the difference between then (seller's market) and now (buyer's market)? The answer lies with demand. According the the Cromford Report, "it is only the tepid demand that is preventing us from experiencing a shortage of homes for sale."

At about that point in mid-2013, buyers started to reign themselves in... Even though today's existing homes on the market sell for a premium over their challenged foreclosure & short sale counter parts, the median sales price continues to increase but at a much slower pace.

Concurrently, the boom in the stock market that's occurred over the last few years fuel luxury home sales  of $1M+) (the DJIA is awfully close to 18,000 after nearly dropping to 7,000 in '09...). This artificially inflates the median sale price because there are more homes selling at the higher price points so the median or "point where exactly half of the data points are higher and half are lower" rises due to lower sales volume in the lower price ranges. Today, demand is at about the lowest it's been since the collapse of the sub-prime lending market in mid-2007 to mid-2008.

Another place where market weakness is evident? "Days on Market"- or the amount of time it takes to sell a home.

At the spike in sales volume in August 2013, days on market was 58.7 days. Six months later in Feb of this year, we were at 85.4 days (45% increase in time a home spent on the market).

The lesson to be learned here? 1) Buyers are not stupid. They watch and are very quick to react to market changes. 2) Buyers using financing have an advantage- the appraisal value (which has also been an issue of late for some sellers...). It's pretty hard to overpay for a home.  Keep in mind, buyers (of anything) want a deal. I have NEVER had a buyer say "I want it and will pay what ever I have to to get it...".

So, sellers be patient AND watch the data, including your pricing. Keep in mind, if my prediction about an increase in demand from newly eligible borrowers comes to light, we could be seeing a very favorable scenario for sellers in 2015... So stay tuned!

In the meantime, you should know what's happening in the market before and during the time your home is on the market. If you don't know what's going on or where trends are headed, it's to your disadvantage.  I watch this info closely for all of my clients and can help you determine where you should be strategically priced versus where you actually are.

I'm only a call or email away and am happy to help!

Happy Holidays!!

Related articles:

Just Sell Your Home or Fix First and Then Sell?

A Few Reasons 2015 Will Be a Good Year for Phoenix Real Estate

Use Your Secret Weapon to Sell Your Home

At the beginning of the year, I wrote a blog about how investing a little money into your home prior to listing would go a long way with attracting buyers and selling it more quickly. Today, I thought I would drive that point home again with some examples of how some of my other clients have benefited from doing the same thing. These are a bit more extreme than the last one, but it should be pretty apparent why the benefit outweighed the cost.

#1

This first example is probably the most extreme case of all. In May 2011, I listed a little 5BR/3BA 2300SF starter home in Laveen on an oversized pie-shaped lot. It had been neglected, but was a good little house in a decent neighborhood:

Yes... it was definitely rough around the edges, but after a good cleaning, some maintenance and some repairs, here's what it became:

My client invested $5,750 in repainting the entire interior, replacing or fixing broken doors, repairing drywall & replacing missing light fixtures and the broken doorbell they spent another $4,611 on replacing all of the flooring for a total investment of $10,361.

The result? I sold it in 7 days for 2% over asking price. What a transformation!

#2

Another home I sold was a little 3BR/2BA starter home in N. Phoenix in the Deer Valley area. It too suffered from neglect and was definitely run down:

My client spent $3,043 on paint, fixing rotting fascia trim boards, patching drywall and fixing broken drawer fronts. They also spent $1,100 on new carpet for a total of $4,143.

Here's the finished result:

How did they do? After about 3 weeks, the seller received multiple offers (3 to be exact!) and settled with a buyer just 3.5% under asking price.

#3

This next home is one of my favorite transformations. It was a cute 3BR/2BA single-level home in the ever-popular McDowell Mountain Ranch in Scottsdale. This home wasn't in terrible shape when I got it, but it was a little "loud":

My seller spent $3,644 on painting cabinets and neutralizing really bright wall colors, repairing a roof leak and fixing broken/missing cabinet doors. Another $965 went into fresh new stainless steel appliances. They then spent $1,395 on replacing worn & dirty carpets and finally they spent $858, preemptively to treat for termites for a total of: $6,862. Here's what it looked like:

The result? The seller was also very excited about the transformation of the property and ultimately priced the home higher than I recommended. Right before the 60 day mark and after 2 price reductions an offer came in. It took another 3 weeks and 1 more major price reduction to get the home under contract.

It's important to note that sales volume dropped off heavily between mid-2010 and Q1 2011, the median sale price dipped to the bottom of the trough for the housing bust and days on market shot up right around the time that we got our offer. The coincidence of timing was very unfortunate for the seller, which is yet one more reason pricing a home correctly the first time can be the difference between a quick sale close to asking and chasing down the market to take more time and net the same or less money.

Hopefully you can see the benefit of investing money into some homes can ultimately benefit the seller. A careful analysis to determine 1) the likely buyer for the home, 2) what features would make the home more desirable to buyers and 3) how much it would cost to make the improvements should always happen first if your goal is to make improvements that would directly benefit selling the home. Some improvements that are specific only to the homeowners' needs do not always benefit a seller.

I've spent a lot of time doing this type of analysis with institutional clients, investors and homeowners and with great results. Please call or email me to find out whether this is the right move for you! For me, this is the fun part of what I do and I would love the opportunity to help you too!

1/18/15 update: I sold a Chandler property in October in which my client made a $4K investment toward new paint, granite counters, carpeting, hardware, staging and a new HVAC component (necessity, choice on this one). These improvements yielded about a $12K bump in value from the pre-renovation value and a solid contract after 23 days, even in a slow market. I'm currently helping another client plan a modest kitchen update of roughly $14K in her mostly remodeled home that if the comps keep improving as they have been, should yield an increased value of about $20-30K from the pre-renovation value. I'll post these other properties before/after pics and results one day soon! Pre-listing renovations work!!

Related Links:

Small Improvements= Big Impact on Your Bottom Line

A Few Reasons 2015 Will Be a Good Year for Phoenix Real Estate

Use Your Secret Weapon to Sell Your Home

We're officially in the 4th quarter! Where did the year go?? Despite low demand, low sales volume and a relatively high, but now retreating supply of homes for sale in Phoenix & Scottsdale, 2014 has been a rather unremarkable year. There are still tons of buyers out there kicking tires and pondering their options, but there's not much actual movement happening. Despite all of these "fence-sitting" buyers, 2015 looks like it's going to be a good year. Why, you ask? Let me show you.

If you'll recall, I posted this chart about a month ago from Fannie Mae showing the revised waiting periods for borrowers with "derogatory credit events" (i.e. foreclosures & short sales called "Preforeclosure Sales" here) to get a new home loan:

Note the waiting periods defined for borrowers who had either a foreclosure (7 years) or a short sale (4 years), assuming there were no "extenuating circumstances" to consider.

Now, look at the next chart showing actual foreclosures for Maricopa County (as measured by recorded trustees deeds) as they occurred from the boom market till today:

  The period between 2008 to 2011 shows the bulk of these foreclosures, in the 4-year period. The first 3 months of 2008 show about 2,000 completed trustees deeds each month before spiking in Q2-2008 and peaking in 2010 at over 5,000 per month!

Next, here's a chart of completed short sales in Maricopa County:

Again, the bulk of them occurred between 2009-2013, but they peak between 2011 & 2012 where ~1,800 (probably because it took the banks that long to figure out they actually cost less than foreclosures, which were really expensive to maintain and sell!

If you look back on our waiting period after a foreclosure to qualify for a new mortgage and add 7 (years) to 2008, you get 2015. Do the same and recall the 4 years required for borrowers who completed short sales to qualify for a new mortgage and add 4 (years) to 2011, you get... 2015. Add that to the typical spring demand (if the market does the "usual" thing) and you get the potential for quite a lot of borrowers who can purchase homes. Mind you, as of August 2014, only 22.1% of purchases are made with cash in Maricopa County from a peak of 41.9% in February 2011.

Noting the basic laws of supply & demand (Economics 101), if supply stays in balance and we get a surge in demand, values (and eventually prices) will go up!

How does this affect YOU, you ask?

If you're a BUYER, a few recommendations:

• Buy before the end of 2014
• If you plan to buy after that, get your finances in order & educate yourself on the market & areas you want to buy now
• Be prepared for lots of competition
• Potentially plan on coming up with more cash and or setting your sights a little lower if prices do increase

If you're a SELLER, your recommendations are:

• If you were thinking about listing your home soon, you might consider waiting until spring, if you can
• Get your home show ready by ~February 2015
• Get a professional to start watching the market for trends that would impact the sale of your home

Regardless of which side of the coin you sit, call me (Camille 602-810-1750) for sound guidance to navigate through this market. I'm glad to help and look forward to the opportunity!

Happy Fall!

Related Articles:

Use Your Secret Weapon to Sell Your Home

Bankruptcy, Short Sale or Foreclosure? Buy again. Sooner than you think.

2003-2014: Is the Average Phoenix Mortgage Payment Up Or Down?

There is a secret weapon every seller has which they can utilize when they sell their home. Watch this video to see what it is and how it can help you maximize your proceeds!

If you’re seeking turn-key, entry-level home in Chandler with easy accessibility to the area's best amenities, you’ll want to know all about my listing at:  1681 W Gail Dr, Chandler, AZ 85224

Check out these details and call me with any questions or to schedule a private showing!

See the MLS listing details here.

On August 16, 2014 Fannie Mae revised their guidelines to reflect the waiting periods defined for people with a "prior derogatory credit event", i.e. a Bankruptcy, Foreclosure, Short Sale or Deed in Lieu of Foreclosure. The reason they did this you ask? Banks don't make money if they don't lend it...

If you're looking for a new home in the Arcadia area, you'll want to know all about my listing at:  5725 E Calle Del Paisano, Phoenix, AZ 85018

Check out these details and call me with any questions or to schedule a private showing!

Here are some of the home's details you'll find outside of the MLS listing.

Follow Camille's board The Perfect Marriage of Modern & Traditional in Arcadia (Phoenix) on Pinterest.

See the MLS listing details here

That's a good question... How well do you think you know our real estate market? It boomed and went bust... There has been lots of talk about inflation over the last several years... But did the mortgage payment for the average home go up or down?

I'm trying something new. Instead of a written blog, here's a video instead: