Appraisals Don’t ‘Mean Much Now’ In Phoenix
The Arizona Republic has this update from Phoenix. “Home builders had a chance to buy a prime piece of land in northeast Phoenix’s Desert Ridge development Tuesday. But sticker shock kept them on the sidelines. No builder or investor was willing to pay the Arizona State Land Department’s $150 million asking price for the 325-acre parcel of state land near the busy intersection of Loop 101 and Arizona 51.”
“For the past few years, land in Desert Ridge sparked bidding wars as home prices and sales in the area soared. But the market has changed dramatically since then. ‘The real estate market is in transition, and land sales have obviously slowed down,’ said Mark Winkleman, state land commissioner.”
“He said the Desert Ridge land was appraised at nearly $462,000 an acre early this year based on last year’s nearly record sales prices. The state agency is working now to get the 325-acre parcel reappraised based on today’s less-frenzied housing market. The prices on the parcels are bound to go down.”
“‘I am not sure appraisals mean much now because everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it,’ said Michael Lieb, a land broker who worked with Gray Development in January when it paid $33.4 million for 32 acres in Desert Ridge. It was one of several bidders at a competitive standing-room-only auction where the opening bid was upped 43 times.”
“Only a handful of home builders and real estate brokers showed up to watch the auction Tuesday. Even in June, when there were only a few bidders for two large pieces of state land in Peoria, the auction auditorium was packed. More than 50 builders, brokers and investors showed up for that auction, trying to gauge the future of the real estate market based on the bidding.”
“Home builders went on a buying spree last year when a record $7.7 billion was spent on residential land across the metropolitan area. Instead of buying land now, some home builders are trying to sell sites to other builders or are even walking away from deposits on big parcels. Analysts have begun to question the amount of land home builders bought last year and what they are going to do with it now.”
“Builders have been hurt by higher mortgage rates and deals that have fallen through when potential buyers are unable to sell their existing homes. Construction of new homes across metropolitan Phoenix is down 19 percent from last year’s record pace, according RL Brown’s Phoenix Housing Market Letter.”
Also from the Republic:
‘Queen Creek is gaining notoriety in the luxury home market thanks to a local builder that is producing the town’s first million-dollar homes. But unlike the higher priced custom builds scattered through town or the homes that may have appreciated to the million-dollar plateau because of last year’s rambunctious market, these homes are mass-produced.’
You’ve got to be kidding. Good luck. Every time I think this whole saga cannot get any more ridiculous, it manages to shock me.
“‘I am not sure appraisals mean much now because everybody is scratching their heads (ASSES) trying to figure out where the bottom (WTF) of the real estate market is and if we have hit it (STILL A YEAR AWAY when ‘Zero downs & 110% adjust) ,’ said Michael Lieb,
“ …… everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it …..”
No, builders are scratching their heads trying to calculate how many fools there are, still waiting to be told ‘We’re at the bottom’ in hopes that they will jump in and buy one of their homes. This will determine how many they will build in each phase of the planned development.
Home price declines in perfect concert with the next phase of buyers at the “New Bottom”.
Nice try Mr. Lieb, “Next in line please ….”!
Of course they are looking for bottom!
I am sure there will be as many bottoms as there were ends to the latest FED interest rates hikes!
By my count we have had 31 DJI rallies since September 2004, due to this.
And who pray tell are these homes meant for ? Do real millionares have a strong desire to live in a cookie cutter community of identical bland homes and fine dining consisting of Applebees and Chilis ?
In a hot desert, no less. Why?
$33M for 32 acres, $1M/acre?? For desert? Ha, good joke.
A friend bought a house in the Boulder Mtn development in Mesa. Talk about a POS house - all the walls were foam blown into chicken wire, and covered in stucco. You could put your fist through all the walls. Hanging pictures was a real problem because there were virtually no studs. He paid $450K I think, for the worst construction I have ever seen, for the ugliest cookie cutter houses imaginable. Oh, sorry, they call them “homes” there.
Death traps if you ask me - one small fire, and now you have burning foam which I would guess is extremely toxic. Just a guess though.
Million dollar tract homes? Yawn. California had them in the late 90’s.
..Gray Development in January when it paid $33.4 million for 32 acres in Desert Ridge…
Over a million an acre for Arizona land? Must’ve been oceanfront I guess. Any chance these yahoos could have an IPO asap so I can short them.
Jeeeeeez.
lmao!
It’s not ocean front, but it is landlocked.
lol, I’d short them with you, but they, along with many other builders will be bankrupt shortly
I’d short them with you but they will be bankrupt soon
how can you short a company that will be bankrupt
you short the stock, when it goes to zero you don’t have to replace the shares. the best outcome for a short.
So they found their “greater fool”
I guess they’re not buying any more land …
But it’s OK because they’re not making any more land any more either you know!!! They’ll just wait until it turns around is all.
Gee Huck, that plan may take time.
The last Time I checked that same land WAS Desert land for just shy of “12 billion man years” until some landowner unloaded on them!
They might not still be operating long enough with “brilliant” decisions like this one!
they’re not making any more sand either!
I guess Land has reached a permantly high plateau?!?!?
“crispy –you stole that from some where..2 months ago’s NAR report?
LOL!
and the gov workers will all get raises
= sad ,but true
WCI conference call at 11:00 pT
They claim their stock is “SEVERLY UNDERVALUED” and “THE MARKET HAS OVERESTIMATED THE DOWNTURN”
They must be dislexic. I am sure they meant OVERVALUED and UNDERESTIMATED, but somehow mixed up OVER and UNDER…
“the traffic has not changed at all for us, still very low”
“we are going to RIGHT-SIZE this company”
$7.7 billion was spent on residential land across the metropolitan area.
What are the property taxes on raw land? For every 1% these millstones are going to be costing the HBs $77 million per year indefinitely. Then there’s the inevitable writedowns. The HBs don’t look so attractive with half their book value wiped out.
How accurate is http://www.zillow.com for your area?
Not very. Go to the “comparable sales” page and comp the price out yourself. Look for RECENT sales, similar footage, bed-baths, ect. There really isn’t that much to it. Don’t worry that much about condition of the homes, because appraisers don’t. All lenbers care about are similar comps, not whether someone has a granite countertop or not. If it looks the same on paper, its the same in the lenders eyes. This basic truth really tends to piss off a lot of the folks that have poured money into upgrades.
One cannot blame zillow for being a lagging indicator. For years the site has had to err on the “high” side due to appreciation. Soon they’ll correct. I’ve been following one home, Offered at $960k, Zillowed originally at $720k, now at $703k. Personally, I believe at $703k that home would sell. I’m amused at the sellers following the market down… I expect by September the “Y-axis” will have a new scale.
Ahhh… Schadenfreude. 
And the comparables aren’t too bad. Although, what are April sales doing in the comps!?! (At least for the homes I like.) Ok, only one of five comps is stale… I guess I can accept that.
Neil
Neil
Interesting.
Both your example and mind have percentage declines that are almost identical(26-27%). The one I cite two posts down (and posted earlier) would sell also at it’s current zillow valuation.
Neil-
Typically any comp within 6 mo’s is good. A April comp is not stale. Unless you have three or more that are more recent than that
by typically, you mean a normal real estate market, correct? So typically would not apply.
No, typically would apply
Were six month old comps good 2 years ago when markets were increasing 30-40% per year?
Yes they were
Zillow hasn’t been around “years”…or even a year.
if the comp is 90 days old deduct another 5-10-15 %
Incorrect
I’m watching two homes in different states on zillow.com and find their valuations to be accurate. (I do think, however, we are only in the first(!) phase of the decline.)
One of the homes has already been downgraded from $605K to $439K.
In the last few years “comparable sales” has been the justification for prices to rise so I would be somewhat skeptical of looking at theses prices until some “downgraded” prices are represented as well.
Your comment re: granite tops and upgrades is correct.
You are right. Most of the people running around with appraisers licenses (notice I do not call them appraisers), dont care about condition or anything else. Their goal is to bring in the value, thats it, and collect the $350.00. In the “real” world of professional appraisers, there is much analysis and data gathering. There is historical paired sales analysis for upgrades, updates and other condition factors. Of course, the number of actual professional appraisers out there is very small. That is part of this whole problem we are seeing with the market. The market does not lie, appraisers do. Just because some shady appraiser “brought” your house in at $700k for a refi, doesnt mean its worth that on the open market. Just because one buyer signs a contract to purchase a house for $700k, and the shady appraiser “brings” it in at that number, doesnt mean the house is worth that on the open market. And what we are seeing now is the market reacting to the over-valuations. Appraising is a real profession, part science, mostly art. If you are ever in the Dana Point area of Southern California, I’d love to sit down and chat about the appraisal profession and process. The “real” process. But I hear you, there are sooo many “skippies” out there, its easy to lump all appraisers into the same pot, I dont blame you. It is very frustrating being one of the few remaining professionals in Orange County, CA, the hub and epicenter of mortgage fraud.
Zillow is not very accurate in the “zestimate” here either. They do have amazingly fast updating comps though. I can’t find comps online posted as timely as zillow. They tend to lack a lot of details though. A home in my neighborhood closed July 17th and was already posted when I looked a few days ago.
Zillow has my house 25K overvalued now . A couple of months ago Zillow had it 50K overvalued based on the sales between Jan-April 2006 .Mine you in my area however the prices are still 10% over peak prices 2005 at the current sale prices .
I don’t know if its because the tract is a over 55 tract ,therefore it didn’t go as high overall because not as many speculators ,or what .I noticed that almost all the houses that sell ,the buyers actually move in .
I am sure that there are some 55 and over tracts that were speculator driven however in different parts of the country .
From what I understand ,you do not have to be 55 to buy into a 55 and older tract ,but you just can’t live there .
….in my (small) market, the many of the addresses don’t match the information…. as in, it’s the wrong house!
“‘I am not sure appraisals mean much now because everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it,’”
Phoenix hit bottom last Tuesday at 10:14 and prices have gone up 5% already! It’s time to buy!!
It’s amazing that market value can go up 150% over a few years, and after a 5% drop people openly wonder if we’ve hit bottom yet.
Yikes!
Good thing the Arizona paper has warned all the Phoenix residents! Well this after many have re-financed the house and got cash back to buy new cars, jewelry, around the world trips ect.
The latest trend in Phoenix is asking permission from neighbors to lower the price of a house for sale!! Yes - this is happening Ben! Someone dropped the price of a house for sale big time just to sell it below comp neighborhood listings……..and someone in the neighborhood ripped that For Sale Sign out of the ground and threw it in the street!!!!
“Builders have been hurt by higher mortgage rates and deals that have fallen through when potential buyers are unable to sell their existing homes. ”
Oh, those poor builders. I feel so sorry for them. Maybe I should call my county commissioners and see what sort of taxpayer bailout we can arrange for them. But I’m sure there’s no need, because the builders are way ahead of me.
“Builders have been hurt by higher mortgage rates…
Chart a few rates at: http://mortgages.interest.com/index.asp?
Adjustable rate loans have been rising. But, the 30 yr fixed rate has been dropping steadily.
It’s not the interest rate, it’s affordability…
Scarily enough, the taxpayers ARE bailing out the builders down here in FL. We’re already subsidizing homeowners with Citizen’s Property Insurance. Now business owners want a piece of the gravy train, and the state legislature is now busy creating an equivalent state-owned insurance company for private business. Capitalism Works!*
* Except when it doesn’t. Then you get free money to “help the economy” along.
Fl Paradise, you are SOOOO right. But I guess I am a fellow Tampa Bay area inhabitant who feels the same way you do. The Citizens Insurance mess is truly a wonder to behold! It was also extended to cover builders!
Right now a frenzy is going on in the Phoenix area.
I understand a Phoenix home owner dropped his listing price of his house that was for sale big time the other week.
The neighbors were all pissed off for dropping their home values instantly with this big drop in price.
The neighbors took out their anger by ripping this guys for sale sign out of the ground and tossing it in the street!
I guess threats of angry responses from the neighbors are yet another reason why many sellers keep their homes listed at prices above current market value…
Yet another great scene for Ben’s movie!!
Too many good scenes for one movie - probably are going to need a Trilogy here.
Nice. Real classy folks wouldn’t you say?
Appraisers don’t go on one comp . You would need 3 or 4 homes selling at the lower value . There is always lower and higher sales . If you buy into a area where alot of foreclosures take place that will bring down the value of that tract .
Suppose the average of three recent comp sales is $1m, and my desperate neighbor sells his home for p % below $1m. Then the average price of the four homes together drops by p/4 % (so, for example, if the desperate neighbor sold for 20% less, the revised average would drop by 5%, to $950K in my example).
Conclusions:
1) If the n^th (most recently sold) home included in the comp group sold by p percent below the previous average, the new average is p/n percent below the previous one.
2) If there are few comps, then a large drop in sale price for one home can make a significant difference to the comp price.
Alot of times the appraiser won’t use one low sale . But if there are 2 low sales and 2 higher sales ,you check the date of the sales and you check to sell if the higher sales had higher upgrades ,lot size etc . pool. You also would have to check and see what the current listings are at to see if the lower sales are the trend .Good appraisers even check out what the reason for the low sale was .
I just got what I said from my spouse ,who at one time was a appraiser .
Also , appraisers dont take a average square footage or price value of 4 comps . Appraisers use market vlaue approach on residential ,which is taking the most similar comps and than making adjustments of plus or minus . The square footage appraoch is used mostly on commercial appraisals .
Do you find this method more (or less) accurate than the time tested method of wetting one’s finger and sticking it in the wind during times of rapid valuation shifts?
I just had an appraisal come in this week that had comparable sales that supported the sales price. However, there are two new listings that are lower than the previous levels of sales, and because of this, the appraised price was 15,000 lower than the sales price. The appraiser used the listings to show that they should be the high end of the new range. A less thorough appraiser would have just used the comparable sales from april to June and not analyzed the current market situation. (I am talking coastal Los Angeles county townhomes in the mid $500,000 range.)
This illustrates the principle of substitution. Which basically says, that a buyer would not pay more for a property that he/she could get for less money. Assuming all things are equal. In this declining market, active listings and pending sales tell the story. But you have to dig deep, as agents pull listings and then re-list them. Not all appraisers are shady incompotent hacks, just most of them, at least here in Southern California.
“‘I am not sure appraisals mean much now because everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it,’
I’ll give you a hint: You have not hit the bottom.
I think they’re scratching the wrong ends.
That would depend on whether or not they have their heads up their butts.
That would explain why they have such a hard time seeing where this is going.
The housing submarine has a way to dive before it hits bottom. However, this submarine will run out of air when it hits bottom and will not be able to surface for a long time.
“‘I am not sure appraisals mean much now because everybody is scratching their heads trying to figure out where the bottom of the real estate market is and if we have hit it,’ said Michael Lieb, a land broker who worked with Gray Development in January when it paid $33.4 million for 32 acres in Desert Ridge. It was one of several bidders at a competitive standing-room-only auction where the opening bid was upped 43 times.”
Lots of folks get to learn firsthand what economists mean by the “winner’s curse” now…
“…trying to figure out where the bottom of the real estate market is and if we have hit it,”
The free-fall has only begun, it will be amazing to see how often we will hear “we are at bottom” only to see prices fall further. The bottom cannot be dictated by any economist, realtor, investor, fed, etc. The bottom will be determined by future buyers who exist in a galaxy far far away.
The bottom will be determined by a price where the number of buyers actually purchasing at current price levels matches the number of homes for sale coming on to the market. As long as inventories keep building and the number of buyers is declining on a YOY basis, the bottom has not been reached.
GS,
I really wish I could make a graph of this. It would work a lot better. Anyway..
At some time in the future, # of buyers will finally equal # of new inventory. Prices would be lower than now. However, we would still have sky-high inventory. That would not be the bottom, yet. Eventually, prices would continue to fall, and the # of buyers would be greater than new inventory coming in. Then inventory finally goes down towards normal as true bargains are snapped up and prices eventually bottom out. Then once again the # of buyers and # of new inventory equalizes. That would be the bottom.
Sorry for all the tense/voice changes.
Your point is taken. When inventory has reached record high levels, the flow of future demand will be met by a combination of new listings and inventory reductions, until inventory has dropped back to normal levels…
Agreed Get Stucco . But, lets say sellers took their houses off the market for 1 year/2 years ,which would create a artificial shortage ,by renting the properties instead . Than what will happen ?
What I see happening now is realtors are advising flippers and even regular sellers to rent/hold out until the market improves . This will create less supply and might bolster up a market that should be crashing and burning .
During the late 1970’s early 80’s it was a dead market and people just didn’t sell unless they really really had to , (of course you didn’t have the ARM’s resets and massive amounts of flippers in those days that needed to sell.)
Anyway , what happens if the supply side is controlled by the cheerleaders and and NAR ?
“Anyway , what happens if the supply side is controlled by the cheerleaders and and NAR ?”
If they are trying to control it, they are not doing a very good job, given record inventory levels we keep reading about…
I believe there are too many people who can’t hold out. Housing in my area, bought in the past year or 2 are going to bleed at $500-$1000 bucks a month, and that is just rent Vs mortgage, add in other operating costs and…
That seem to be the key in the difference with this correction and that is the sellers can’t hold out with this one becuase the objective was short term ownership . This will keep the supply side up as well as increase the foreclosures ,( not to mention that the housing mania priced many people out of the market ).
People won’t be able to hold property for years like they have been doing in Japan after the big real estate crash .
Exactly Wiz `Exactly
GS,
tlm is right - you’d have to integrate the inventory over the duration of the process, because when the the number of homes coming for sale becomes equal to the number of homes sold, that simply means that the derivative of the inventory is zero - a maximum point of inventory. That maximum may be quite large, so that the prices will continue falling even after the inventory goes down.
What tlm is really explaining to all of us is that a technical momentum indicator can be applied to housing - just like any other financial instrument that trades. Brilliant perspective - now, who is less lazy than I and can derive the housing momentum indicator - from here on out affectionately called “The TLM Housing Indicator”?
dd
OK, you asked for it. Look for the TLM housing indicator in tomorrow’s bit bucket..
“The bottom will be determined by future buyers…”
Sometime around 2012, give or take a few years.
Sorry - I don’t agree with you. We are ‘different’ here in Southern Ca….and it will be a soft landing.
“No builder or investor was willing to pay the Arizona State Land Department’s $150 million asking price for the 325-acre parcel of state land near the busy intersection of Loop 101 and Arizona 51.”
It sounds like it is time for the Arizona State Land Department to familiarize themselves with the Dutch auction concept…
OT
This just on CNBC:
“Bernanke paused, mortgage rates will stay stable or decline a bit, this will help the ARM resets, the housing market won’t go down hard, it’ll be just fine.”
If this is true it would appear C.A.R. has found a replacement for LAY and Lereah in Bernake.
OT
Congratulations Ben on the Newsweek article!!! Looks like people are really starting to take notice.
Well done, Ben.
I feel Phoenix housing will boom. We have a couple of great things going for us:
1. Lots and lots of cheap land
2. Temperatures that regularly exceed 110 degrees
3. A steadily declining supply of water
4. An extremely shallow economy based almost exclusively on real estate and tourism
I think point #3 is by far the most important, short & long term. I moved to Phx within the last year, I cannot comprehend why there’s so little emphasis on water conservation. And total apathy in regard to that topic as well.
Ben’s new trilogy
Lord of the Bling Bling
Seek for the realtor that is broken
In Imladris she dwells
And there real estate always goes up
To break Ben Bernanke’s spells
pretty hard to come up with a value on raw land when there is no market…no market =no value.as far as comps lenders will still take 6 month old comps,out of habit,but they do not reflect the current value in my part of the country,sonoma county,ca.so i expect that to change.i expect that as the market continues to slow it will become increasingly difficult to find good comps.no sales-no comps.should be fun.
Those appraisals work a little different than residential appraisals depending on the size. I have had appraisers go back as far as 3 yrs and add in appreciation rates to get values. No sales comps in 6 mo’s won’t kill a deal.
Wrong again guys. I just got back from AZ. I have a home that I am going to sell. I ran the comps and the price is the same as it was when I ran the comps last October. No price decrease.
I looked at sales data for the zip code, and again no price decrease. Prices are still increasing.
Have sales decline, why yes, but PRICES HAVE NOT based on the sample I have reviewed. Will I lower my price to get it sold, you bet.