Study Shows Record Number of Homes For Sale in Phoenix Area

The Phoenix housing market continues to show weakness, according to a new survey that shows dips in construction starts and prices, and a record number of homes for sale.

Metrostudy -- a Houston-based real estate research firm -- said Phoenix regional housing starts for the 12 months ended Sept. 30 totaled 34,300 units, down 36 percent compared with the 12 months ended Sept. 30, 2006.

Metrostudy said West Valley housing construction starts are down 45 percent from last year. Most of the major new housing developments in metro Phoenix are in the West Valley or in distant suburbs to the city's southeast.

The research group said Arizona Multiple Listing Service figures show 54,200 housing units for sale in the Phoenix market -- a record high.

The study showed 9,500 single-family home sales in the Valley during the third quarter, off 23 percent from the 12,400 units sold during the third quarter of 2006.

Metrostudy, which tracks real estate markets across the U.S., said the average home resale price was $315,289 in September, down 10 percent from the previous month.

The numbers mirror other recent figures showing foreclosures rising in Arizona as housing market conditions remain sluggish.


The Business Journal of Phoenix - by Mike Sunnucks Phoenix Business Journal

BofA exiting wholesale mortgage lending

Another indicator of big lenders restructuring to focus on core services. B of A continues to offer some GREAT, AFFORDABLE loan programs for Phoenix real estate and Scottsdale real estate. -JL

Bank boosts loan production through retail channel
Friday, October 26, 2007
Inman News

Bank of America Corp. will lay off 700 workers as part of a plan to exit consumer wholesale mortgage lending by the end of the year and make more loans through the retail channel.

The layoffs are part of 3,000 job cuts announced earlier this week, mostly in the global corporate and investment banking division. The division was blamed for a 32 percent decline in net income, to $3.7 billion, when Bank of America released its third-quarter results.

The separate decision to exit the wholesale mortgage lending business will affect 700 employees in locations including Brea and Rancho Cordova, Calif., Dallas, and Richmond, Va. Affected employees will have the chance to apply for open positions at the company.

Bank of America said it is expanding its retail lending, including the banking center, mortgage loan officer, Loanline and e-commerce channels. Employment in the bank's consumer real estate division totals about 13,000.

The Charlotte, N.C.-based bank said first mortgage production was up 27 percent in the third quarter compared to a year ago, driven by a 60 percent increase in originations through banking centers and a 26 percent increase in originations by mortgage loan officers.

Bank of America's new "No Fee Mortgage PLUS" loan has produced more than $50 billion in application volume in the six months it's been available on a nationwide basis, the company said in a statement.

According to the outplacement consulting firm Challenger, Gray & Christmas Inc., mortgage and subprime lenders announced nearly 70,000 layoffs in the first three quarters of 2007 (see Inman News story).

Urban Land Institute ranks Phoenix No. 9 in U.S. for real estate opportunities

From American City Business Journals, 10/25/07

The Urban Land Institute released its annual trends forecast this week, with Phoenix rated No. 9 among major U.S. metropolitan areas for real estate investment and development opportunities.

The report, "Emerging Trends in Real Estate 2008," is a mixed bag.

On one hand, the report states: "People and businesses gravitate from lofty California cost structures to the more affordable desert oasis. The area captures back-office operations from L.A. and Orange County businesses and overflow from bursting-out Inland Empire distribution centers."

But then it suggests problems may be brewing: "The city is still one stop away from global pathways, and poorly planned sprawl development spells future trouble. The area needs revamped infrastructure to keep pace with all the growth, including more roads and improved sewage treatment and water systems."

It also questions whether the completion of light rail lines next year will be a boon to the urban environment as it has been in Denver, given that Phoenix "has no defined commercial core."

Phoenix is experiencing a "softening" of the office and apartment markets as a result of the housing glut and a slackening in migration.

The report gives its top ratings to Seattle, New York and Washington. Those metro areas are followed by Los Angeles, San Francisco, Boston, San Diego and Denver. Rounding out the list after Phoenix are Houston, Miami, Chicago, Atlanta, Dallas/Fort Worth and Philadelphia.

The report was released in advance of this week's ULI fall meeting, to be held this year in Las Vegas. The three-day program is expected to draw about 7,000 attendees from around the world.

Arizona, in particular, will be trying to elevate its position in the eyes of national and international investors and developers. The Arizona chapter of ULI has reserved one of the largest spaces in the exhibition area, naming it the Arizona Pavilion. About 25 public and private organizations have ponied up an average of $6,000 each for a presence in the 3,000-square-foot display area, which will tout Arizona as a sound choice for real estate investment.

SunCor Development is one of the participants in the pavilion. President and CEO Steve Betts, also a member of ULI Arizona's board, said his company hopes to benefit from the added exposure.

"We're optimistic that we'll be interacting with leaders and decisionmakers who will be interested in ... relocating their businesses in SunCor office, commercial or retail space," he said.

Wellington "Duke" Reiter, dean of Arizona State University's College of Design, another pavilion participant, hopes for even bigger returns.

"This is a great opportunity for the state to present itself on a national stage. We'll be putting on a really fantastic show," Reiter said.

The ULI meeting is expected to present an impressive show. Queen Noor of Jordan officially will begin the program with a speech Wednesday evening. Kofi Annan, former secretary-general of the United Nations, will wrap things up with a lunch speech Friday afternoon.

In between, participants can take advantage of dozens of presentations, which run the gamut from "Sustainable Development in the Desert" to "Retooling Our Aging Active Adult Communities."

The Correction Continues

The Arizona Regional Multiple Listing Service (ARMLS) released the official stats for September 2007:

Home sales (units)
September 2007: 3,435
September 2001: 4,801

Average sales price
September 2007: $305,800
September 2001: $170,700

Median home sales price
September 2007: $234,900
September 2001: $128,000

The Phoenix real estate market continues to correct. Good for buyers and 'move-up' sellers. Expect the market to soften more as the traditionally-slow holiday season nears.

First Magnus Files Bankruptcy Plan

I find it interesting that the failed lender actually tried to borrow $15M to fund it's wind-down plan! Fortunately, the court denied the request.

Associated Press, 10/16/07

Tucson's First Magnus files bankruptcy plan

Failed mortgage lender First Magnus Financial Corp. expects to repay unsecured creditors, owed a total of $93 million, between $16 million and $32 million under a newly filed Chapter 11 liquidation plan.

First Magnus, which submitted its plan to the U.S. Bankruptcy Court in Tucson, Ariz., on Monday, said it could have up to $32 million left after repaying secured creditors to provide unsecured creditors with a recovery of about 17 percent to 34 percent.

The mortgage lender said its pool of unsecured claims includes about $13.5 million in accrued payroll and related costs, $24.4 million of accounts and notes payable, $35 million owed to First Magnus Capital and $20 million of subordinated unsecured debt owed to insiders.

First Magnus, which sought Chapter 11 protection in August amid a meltdown in the subprime-mortgage industry, said it plans to continue selling off its remaining assets. The company recently won bankruptcy court approval to sell a pool of construction loans to Summit Investment Management LLC for $5.7 million and said it has reached a deal to sell another pool of loans to Steel Mountain Capital Management LLC for $61 million. The company has also found a buyer - Rynoke LLC - willing to pay $1.6 million for a commercial lot in Tucson.

First Magnus shut down operations and laid off nearly 6,000 workers before filing for bankruptcy protection on Aug. 21. The privately held Tucson-based company, which listed liabilities of $812.5 million and assets of $942.1 million in its bankruptcy petition, was forced to quickly sell off its assets after the bankruptcy court denied its request to borrow $15 million to fund its bankruptcy wind-down.

The slump in the U.S. housing market and a growing credit crunch have forced a rising number of mortgage lenders into bankruptcy proceedings this year. First Magnus has blamed "the collapse of the secondary mortgage market" for its decision to shut down and said it "simply could not withstand the liquidity crisis."

"Green" Renovations on the Rise

Older buildings renovating to 'green' initiative
Andrew Johnson, The Arizona Republic

Going "green" isn't easy. That's especially true if you're a property owner or manager trying to retrofit an existing building. Not only can the process take lots of time and money, but it can also be difficult to convince tenants to buy into the idea.

Just ask Diana Rivers, a real estate manager with commercial brokerage firm CB Richard Ellis. She oversees Phoenix Plaza, a Midtown office complex at 2929 N. Central Ave.

Rivers and her team have been making internal and external changes to the property - which includes two 20-story towers, a four-story retail center and an 11-story parking garage - since 2004.

Among other things, the company has upgraded light fixtures and bulbs, installed lighting sensors to remodeled space and added "smart" sensors to the irrigation system on the property.

During the first half of the year, the building's energy usage dropped by about 1.1 million kilowatt hours, or by about $84,000, as a result of the changes. Rivers said the company expects to double that amount by the end of the year.

And while most tenants have responded positively to the initiatives, Rivers said, a few office dwellers have opposed some of them because they say they create a nuisance to their businesses.The situation highlights one of the main obstacles that Rivers and other managers and owners encounter when making properties more eco-friendly.

They say "going green" makes sense because of the energy savings and the long-term economic benefits. And with environmental issues gracing news reports, being eco-friendly also helps from a business marketing perspective. But despite the benefits, getting everyone on board can be a tough sell.

LEED certification

In recent years, there has been much attention given to the steps developers can take to lessen a new building's impact on the environment. But the movement also has inspired owners and manager of existing properties to update older buildings and make them more efficient.

Property owners who want to retrofit older complexes, often use standards set by the U.S. Green Building Council, which oversees the Leadership in Energy and Environmental Design, or LEED, program.

To get LEED certification, buildings must meet standards for on-site chemical use, air quality, energy and water efficiency, recycling and others.

Rivers said she wants the Phoenix Plaza to obtain LEED certification. The property is already one of only 49 in Arizona to have obtained an Energy Star, a distinction given by the U.S. Environmental Protection Agency and U.S. Department of Energy to buildings that take meets criteria for reducing energy consumption.

But getting the property LEED certified isn't necessarily easy. It's both expensive and time consuming.

In fact, an online database maintained by the U.S. Green Building Council shows there are just 24 buildings in Arizona that are LEED-certified.

Still, Rivers and others like the idea of making the properties more efficient, as well as doing something good for the environment.

Development firm Lincoln Property Co. also plans to go through the process to obtain LEED certification for Paradise Village Office Park.

The firm bought the 268,000-square-foot building through a joint venture with Sterling American Property Inc. in May, and has since taken steps to make it more energy efficient.

"It hasn't quite (caught) up with the way that buildings get built today," said Dennis Boles, development manager in Lincoln Property Co.'s Phoenix office. "Things are getting near the end of their life, so we're coming in and taking a look at how do we improve the building and make it a better place . . . aesthetically and environmentally and efficiency-wise."

That includes replacing toilet fixtures, which Boles estimates will reduce the building's annual water consumption from about 3.8 million gallons to 1.5 million gallons, "which is enough to cover an entire football field," he said.

Most of the building's approximately 80 tenants have been open to the changes, and that's primarily because it requires not out-of-pocket expense.

"It's not an additional cost to them," Boles said, noting that the changes are part of a $1 million renovation project underway at the 20-year-old building.

Tenant impact

While the work associated with making a building more energy efficient may cause consternation for some tenants, others say working in an eco-friendly environment fits with their business mission.

That's true for Phoenix-based Sprouts Farmers Market, which houses its corporate headquarters at Paradise Village Office Park.

"Being a natural foods retailer, we're always striving for ways that we can complement a lifestyle that goes along with healthy living," said Patti Milligan, director of nutrition and public relations for the company.

In addition, customers "kind of expect it, to be honest," she said.

Joel Nomkin, managing partner of Perkins Coie Brown & Bain P.A. law firm, agrees.

"In this day and age, it is more than a responsible decision to make every effort to protect the environment. It is a necessity," said Nomkin, whose firm is one of the largest tenants in Phoenix Plaza.

Still, some tenants balk at the eco-friendly improvements because they are either time consuming or because they don't reap direct cost savings from them in their lease rates.

For example, electricity and water expenses are often built into a tenant's lease contract, so they do not necessarily save money even if building management is able to do so by making the property more energy efficient.

That can make it difficult, Rivers said, to get some tenants to participate in the recycling initiatives her team has introduced.

She did point out, however, that the changes do have an impact, because if energy costs increase, tenants have to pay overage charges to accommodate the difference between the current rate and what the rate was at the time they signed their lease.

A reduction in energy consumption can help minimize those charges, which is something Rivers tries to point out to tenants.

Rivers also tries to appeal to tenants' social awareness - as she did when she provided everyone with recycling bins.

"It is an effort to recycle on this property for our tenants," Rivers said. "When I wanted to roll this out we had to position it in such a way that we wanted folks to participate because it was their social responsibility."

Buy a Home, Get a Lexus!

Today the Business Journal of Phoenix reported:

In July it was a Hyundai Elantra, now it's a Lexus - a little something extra to woo homebuyers in a slow market.

Luxury builder Cachet Homes is partnering with Lexus for "Live and Drive in Luxury." From Oct. 12 to 21, Cachet Homes will offer anyone who purchases an inventory home in one of its 12 Phoenix-area communities a two-year lease on a Lexus. Cachet also is reducing prices on the homes by up to 20 percent, officials said.

Local Cachet communities include Carrara Estates in Gilbert, Cachet Homes at Verrado in Buckeye, Cachet Homes at Vistancia and Blackstone in Peoria and the exclusive Villas at Whisper Rock Estates in Scottsdale.

Earlier this year, Mountain Ridge Condominiums in Phoenix's Arcadia neighborhood offered Hyundai sedans to buyers.

For more information or to visit a Cachet Homes community, contact your local Realtor!

House Passes Foreclosure Tax-Break Bill

A few days ago the House quietly passed a bill called the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) that does away with the tax penalties that a homeowner faces when selling a home for less than what it's worth. Currently, the loss is taxed as a gift, because the lender forgives the amount of the loss.

The tax loss will be offset by modifications to the existing home sale exclusion policy, which grants a tax break on the profits of the sale of a home that's served as a primary residence for at least 2 of the past 5 years. The break is currently on the first $250,000 of profit for single filers and $500,000 for married couples.

To make up for the tax loss from HR 3648, the current exemption will be tied to length of use as a primary residence. The details aren't clear yet, but I expect we'll see the exclusionary limits remain unchanged at $250k/$500k with a tiered approach to the length of ownership, beyond 2 years for the full exclusion.

Read the highlights of the new Bill here.

View the text of the Bill here.

Home Builders Hurt Phoenix Housing Market (again)

I read an interesting article in Business Week entitled, "Housing: That Sinking Feeling," which discusses the aggressive tactics that homebuilders are taking to clear out their unsold inventories. The article got me thinking about the homebuilders' role in the current market state.

Ironically, the Phoenix real estate market is being hurt (again) by homebuilders in a sort of pendulum back swing effect.

The run up in the Valley's housing market in 2004-2005 was exacerbated by over-building coupled with irresponsible lending practices by the builders themselves. Many builders sold double-digit units to investors who were clearly poised to either re-sell or rent their units out upon completion of construction. Neither high resale inventories nor high percentages of tenanted homes helps local property values.

As with many lending institutions, some builders' financing arms were overly lax with application approvals, putting some homeowners in risky programs that we're seeing play out in today's market.

For an interesting article on how homebuilders contributed to today's crisis by jumping into the mortgage business, click here.

Now we see builders, in a desperate play to generate cash flow and "hit their numbers," slashing prices so steeply that they're hurting their own customers, many of whom are experiencing such huge losses in equity that it will be a decade or more of historical appreciation rates before they can even hope to break even.

When builders slash prices, they do accomplish their goals, but they hurt surrounding homeowners in other ways, too. By lowering sales prices, they affect 'comps' values. Comps are used in most appraisals to determine fair market value for a given property. So properties that sell at fair market value in the eyes of the buyer and seller, but not in the eyes of the bank, won't close escrow unless the buyer and/or seller 'take their lumps' and compromise. Either the seller lowers the price or the buyer comes up with cash, if they want the deal to happen.

Furthermore, homeowners who have responsibly accrued some equity in their homes and want to pull some out through a refi may not be able to do so.

And all surrounding communities that have already been built out, suddenly find themselves competing with the builders if they decide to sell.

To the builders, this is business. To homeowners, it's intimately personal. Unfortunately, the builders have the advantage of deep pockets and being able to control the game, at least within their communities. The homeowners are the ones who suffer in the long run.

Guidance for Homeowners Facing Foreclosure

The following post draws heavily on points from a recent article written by Michelle Lind, General Counsel for the Arizona Association of Realtors, and merits the attention, in light of its relevance in today's mortgage market:

Here are some options and resources for a homeowner in default.

Contact the Lender or a HUD-Approved Housing Counseling Agency
The natural reaction by many homeowners is to hide their heads in the sand in denial, until it's too late. To the contrary, the sooner you approach your lender about your situation, the more likely you are to work out a favorable resolution to your difficult situation.

When you call your lender, ask for the "Loss Mitigation Department" or the "Department responsible for negotiating loans in default." Explain the situation to them and find out if there are any loan workout options.

If you don't want to talk to the lender directly, contact a HUD-approved housing counseling agency, who can contact the lender on the homeowner's behalf.

Local Phoenix agencies include:

• AZ LawHelp
• Neighborhood Housting Services of Phoenix
• NID-Housing Counseling Agency

When you call your lender or counselor to discuss your options, have the following information on hand: loan information, monthly income documentation (pay stubs, tax returns), monthly expense documentation (utilities, child care, car payments, etc.). The lender may also require the homeowner to complete and return a loan workout package.

Possible Loan Workout Options

Possible workout options include:

• Reinstatement: Paying the total amount owed in a lump sum by a specific date in exchange for forbearance.
• Forbearance: An agreement to reduce or suspend payments for a short period of time.
• Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up.
• Loan Modification: An agreement to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified, or the loan term extended.
• Claim Advance/Partial Claim: If the loan is insured, the homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current. If so, the homeowner will be required to sign a promissory note and a lien will be recorded against the home until the loan is paid in full.

The Option to Refinance with Another Lender

If the lender will not agree to a workout, you can look into refinancing the loan with another lender. Resources include:

• NAR Home Financing Information
• Arizona Mortgage Advisory Council

Sale Options to Avoid Foreclosure

If neither loan workout nor refinance is an option, you may consider selling the property. The lender may elect to work with the homeowner to sell the home and avoid foreclosure. The options include:

• Work Out Sale: An agreement not to foreclose for a specific amount of time to allow the home to be sold and the loan to be paid off.
• Short Sale: In a situation where there is more debt owing against a property than the property's value, the lender may agree to allow the property to be sold for less than the loan amount and/or accept less than the amount owed as payment in full.
• Assumption: The lender may allow a buyer to assume the loan and purchase the property even if the loan is non-assumable.

Deed in Lieu of Foreclosure

The lender may allow a homeowner to give back the property, an option that may not be possible if there are other liens against the property. Other resources include:

• HUD FAQs
• HUD Requirements

Be Aware of Predatory "Rescue" Scams

While there are many reputable and ethical groups that can help homeowners out of their desperate situation, there are also many predatory scam artists who troll the foreclosure lists for susceptible homeowners. Common scams include:

• Loans with high interest rates and unaffordable repayment terms
• Loan assumptions where the homeowner is not released from liability on the loan
• Offers to repay the loan or sell the property if the homeowner signs over the deed
• Counseling agencies that offer counseling for a fee when it is available at no cost

Remember, if it sounds too good to be true, it probably is. Be sure to report suspected scams to the Department of Financial Institutions.

Naturally, one of your best allies and advocates is an experienced and reputable Realtor.