Several articles over the weekend touched on the new buying frenzy that is happening at the very low end of the housing market in Phoenix - primarily at trustee sale auctions (foreclosures):
The NYTimes highlights the increasing difficulty of winning bids at trustee sale auctions in Phoenix due to the growing number of investors now trying to turn foreclosed homes into rental properties. The article notes that investor purchases are up 50% in the last year - nearly to the level during the top of the housing boom (4 in 10 homes are sold to investors).
The LA Times has a similar article highlighting the new housing "boom" in Phoenix. The article notes that investors are now outbidding many first-time homebuyers who are looking at the housing bust as an opportunity to finally own an affordable home.
And the Christian Science Monitor writes about what all of these new investors should continue to worry about - the shadow inventory of foreclosed homes in Phoenix owned by banks that are still waiting to be dumped on the market. The article mentions that only approximately 30% of the homes that have been foreclosed upon have been released onto the market by banks and that some wary realtors and investors are worried about a big dump of this inventory later in the year - further depressing prices. Note this exact thing caused a double dip in housing prices in California during their real estate bust in the 90's.
This all adds up to very interesting times in Phoenix real estate for investors yet again. The big issue we had during the boom was outside investors coming into Phoenix and buying residential properties several at a time. They had no intention of hanging onto them for longer than a few months. When prices started to drop, many of these investors walked away, leaving a huge amount of excess inventory on the market.
Now that our prices have fallen 50-60% in many areas, investors are coming back into the market. At least this time, many of them have a longer term business plan - rent for a couple of years and then sell. And they are often forced to buy with cash - making them more likely to hang onto the home. This new buying (and subsequent decrease in inventory) leads many to think that Phoenix will hit a bottom in terms of housing price depreciation sometime before the end of the year.
Counteracting the new investor activity is the shadow inventory that may be dumped on the market by banks mentioned by the CS Monitor. That will further depress prices. And many of the new investors in these low end homes I talk to also want to sell within the next 3 to 5 years. This combination may keep the level of inventory relatively high for the forseeable future and should keep housing prices depressed in Phoenix. So we may hit a bottom in home prices, see a bit of recovery and then go back down again. Either way, most people I talk to think we will see somewhat of an L shape to house pricing in Phoenix - where we bump along the bottom for several years while we wait for broader economic and job recovery.
Further complicating the pricing picture is that foreclosure activity has moved more and more to higher priced housing - as middle and upper income families lose jobs and default on their prime loans. Or as they simply make the economic decision to walk away because they are so far underwater on their loans. This will create more buying activity at auctions in the middle and higher priced range and should change the mix of home sales being used to calculated median sales prices. So while median prices may stabilize and even rise, some of it may be attributable to more higher priced homes being auctioned at trustee sales.
In short, the lower end housing market may be closer to hitting bottom than the rest of the market because investors have figured out they can turn those properties into income producing properties and they are now in higher demand. Higher priced homes may still have further to fall before investors (or regular homebuyers) decide that it is time to purchase these properties - whether it be from the bank or regular market purchase. The data over the next year for housing prices in Phoenix will be messy because of this.
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