Michael OrrDirector

Center for Real Estate Theory and PracticeJune 20, 2013

Greater Phoenix Housing Market

Euphoria

Denial

Despair

HopeSkepticism

Optimism

EnthusiasmExhilaration

Unease

Pessimism

Panic

Capitulation

Relief

Optimism

Enthusiasm

The Market Cycle

© 2013 www.cromfordreport.com

Some Goofy Theories Out There

• The housing recovery is a sham• The banks own a large percentage of homes

and are keeping them off the market• Institutional investors and hedge funds are

dominating the market• Ordinary people are not buying homes, it’s

mostly investors with cash • First time home buyers are not participating• Home builders are deliberately slowing sales

Some Goofy Theories Out There

• The housing recovery is a sham• The banks own a large percentage of homes

and are keeping them off the market• Institutional investors and hedge funds are

dominating the market• Ordinary people are not buying homes, it’s

mostly investors with cash • First time home buyers are not participating• Home builders are deliberately slowing sales

Complete bollocks

The Real Situation – June 2013

• Chronic shortage of homes for sale• Sales prices have risen fast but likely to rest Jul-Sep• Loan delinquency back to normal in AZ• Foreclosures almost back to normal in Phoenix• Normal buyers gaining market share 61% -> 73%• Institutional investor impact exaggerated by media• New home demand up – but supply constrained• Shortages of labor and land impacting builders• Luxury market recovering from the bottom up

Loan Delinquency RatesBack to normal levels

AZ ranked 5th worst

AZ ranked 43rd

5.9%

9.4%

13.5%

16.3%

Normal level is 5%

ForeclosuresAlmost back to normal levels

long term trend line

Shadow Inventory – Maricopa County

• 1,220,778 housing units – (excluding multi-family)– 1,027,959 single family homes– 192,819 condo / townhomes

• How many are owned by banks?

Shadow Inventory – Maricopa County

• 1,220,778 housing units – (excluding multi-family)– 1,027,959 single family homes– 192,819 condo / townhomes

• How many are owned by banks?Answer = 3,668 (0.3%) = 3,024 SFR + 644 condos

893 are already sold and in escrow701 are available on MLSSo 2,074 are presently in “shadow inventory”

For-sale Housing SupplyVery low at low end of market

Tight in the middleAdequate at the high end

long term trend line

PricingRising almost everywhere

– especially at low end

long term trend line

outlook

A Few Places More Expensive Than Paradise Valley

• Ljubljana, Slovenia• Shanghai, China• Auckland, New Zealand• Istanbul, Turkey• Kiev, Ukraine• Sao Paolo, Brazil• Warsaw, Poland• Cape Town, South Africa• Dubai, UAE• Dublin, Ireland• Brussels, Belgium• Berlin, Germany• Montreal, Canada• Riga, Latvia• Krakow, Poland• Athens, Greece• Prague, Czech Republic• Copenhagen, Denmark• Miami, FL• Frankfurt, Germany• Barcelona, Spain• New Delhi, India• Rio de Janeiro, Brazil• Vienna, Austria• Amsterdam, Netherlands• Madrid, Spain

• Munich, Germany• Taipei, Taiwan• St. Petersburg, Russia• Luxembourg• Beijing, China• Milan, Italy• Helsinki, Finland• Tel Aviv, Israel• Rome, Italy• Toronto, Canada• Sydney, Australia• Vancouver, Canada• Stockholm, Sweden

• Moscow, Russia• New York, NY• Zurich, Switzerland• Mumbai, India• Tokyo, Japan• Singapore• Geneva, Switzerland• Paris, France• Hong Kong, China• London, England• Monte Carlo, Monaco

x2 to x4 x4 to x16x1 to x2

Miller Manor, Buckeye

Sold by Richmond American for $12,500 each

in Dec 2009

What Happened to the Completed Homes?

Current Status

1 Active Listing (+2 UCB)- Equity sale (just)

New HomesGrowing but still a very small part (11%)

of the market

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Outlook

• Chronic low inventory will continue• Prices will continue to rise but expect a summer lull• Investor buying will slow down as prices rise• Foreclosures will drop below normal levels• Short sales will continue but at much lower volumes• Confidence in the market will grow fast• Improving credit -> boomerang buyers• Builders cannot meet demand – expect sales metering• Luxury market stronger - improving from the bottom up

Michael OrrDirector

Center for Real Estate Theory and PracticeJune 20, 2013