August 2017 - Phoenix Real Estate Update


1)  Greater Phoenix Real Estate Market

2)  STAT Newsletter

3)  What is a CFD and Why Should Buyers Care? 

4)  When Will the Next US Recession Hit? 

5)  Tales From the Trenches - What happens when you don’t pay property taxes?


Property Taxes are due!  Second Half Property Taxes are due on October 1 and are delinquent after November 1.


1)  Greater Phoenix Real Estate Market 

Pat Hune, Broker, July 2017

The Phoenix real estate market continues “Tame and healthy.” per Tom Ruff's, Founder of the Information Market, STAT Commentary.  The overall economy make take a hit from Hurricane Harvey due to increased fuel prices.  Phoenix is not typically impacted as much as other parts of the country because most of their fuel comes from California and New Mexico refineries in addition to ones in West Texas.  

Phoenix continues to be a strong seller’s market.  Clear Title Agency of Arizona reported the Market Action Index is at 45. The MAI says anything above 30 favors the buyer while anything below 30 favors the seller.   The MAI has been moving higher for several weeks even though the peak of the selling season is (supposedly) behind us.  New inventory dropped 13.1% from June to July 2017.  The STAT report says the peak selling season is March through June and peaks again in December. December is typically a slow time due to the holidays and winter weather in other parts of the county.  The mild Phoenix winters attract people who want a home where they can escape the snow.  These buyers start looking in October and November resulting in a strong home sales in December.   

Prices continue to rise.  The median list price is $318,000 and the price per square foot is at $161. Clear Title reports the rolling 90 day average between $300,000 and $335,000.  Clear Title thinks prices will continue to hover around this plateau unless inventory rises significantly.

Clear Title Agency Report 

The Multi Family Market continues to be very strong.  Price are significantly higher especially duplexes, triplexes and fourplexes. These are great for smaller investors who want to buy using conventional financing versus commercial financing.  Loopnet reports prices have gone up nearly 15% year over year.  Multifamily in South Scottsdale, Tempe and Chandler are selling for incredible prices.  For example per unit prices in one area of Chandler have gone from a low of $30,000 per unit to $85,000.  With rents continuing to rise and a shortage of economically priced rentals the market for older two bedroom one or two bath apartments in the Southeast valley will continue strong.  This in turn will drive the prices higher as the small investors are finding very little inventory.


2) STAT Newsletter Link - Commentary by Tom Ruff, Founder of the Information Market 

(Note the numbers are reported one month behind.)  STAT is produced monthly by the Arizona Regional Multiple Listing Service.  This is the database realtors use to list homes for sale and the source for historical sales. ©ARMLS 2017

Phoenix Housing Market Tame

We like to use STAT as a way to share and promote the observations of other local housing analysts, particularly when they do a fantastic job of expressing what we’re seeing. There is no better example than the comments from RL Brown in a recent issue of the Phoenix Housing Market Letter.

“Over the course of the last several weeks the national real estate press has reported that millennials are buying homes once again, staying away from the new home side of the market, that sales of homes are up, sales are down, that prices are stabilizing for new homes and climbing for resale homes or visa-versa, that resale inventories are down, that “small” is big, that the real estate market is bubbling again, that mortgages rates are going to stifle the market, that rising rates are adding to the demand for housing, that jobs are fleeing the east and west coasts because of real estate prices, that land prices have topped out, that construction jobs are returning, and just about any take on the markets that you would want to hear, from the good to the not-so-good.”

It is my opinion that far too often national reports are agenda driven and written to support a personal or political opinion. Sensational agenda reporting can create turmoil and uncertainty. There always seems to be some big bad wolf just waiting to steal our porridge. At the Information Market, it’s our goal to provide timely, accurate and meaningful data without bias. If we do our jobs correctly, our data will have practical value and our subscribers will be able to act on this data.  When I read the national news reports, I see instability and fear, but when I view our local numbers I see a completely tame and healthy market highlighted by steady consistent growth. What makes our local housing numbers so remarkable the past year is just how consistent they have been.

Price Trends - Overall Numbers Are Good

If our housing numbers were viewed in terms of a personal medical report, most of our reporting numbers would be in the ideal range. Appreciation is outpacing inflation and, while it would be nice to see more new home construction in the entry buyer ranges, our overall numbers are very good. We have seen 68 straight months of year-over-year gains in the median sales price.

With regards to appreciation, I would like to add one last observation. If we take a little closer look at the median sales price, we see that prices tend to move up quickly during our selling season which begins the first of February and runs until our high temperatures arrive. Historically, the median sales price rises through June and then wobbles between July and the start of our next selling season.

July STAT Report


3)  What is a CFD and Why Should Buyers Care? 

Arizona Association of Realtors, August 2017

In September 1988, the Arizona Community Facilities District Act was passed into law. Generally speaking, the Act allows for the formation of a community facilities district (CFD) by a municipality or county for the purpose of constructing or acquiring a public infrastructure like streets, street lights, schools, water, water treatment facilities and fire departments. And while the Act is now almost 16 years old, it has not been until recently that Arizona has experienced a proliferation of CFDs.

To make it easier for buyers to determine if the property they are buying is in a CFD the Arizona Regional Multiple Listing Service, Inc. (ARMLS), in September 2013, added a yes/no tab to the MLS indicating if a property falls within the boundaries of a CFD. The realtors who list the property for sale should check with the seller and select either yes if the property is in a CFD.  

Regardless of the information contained on the MLS, a prospective buyer should always independently research the presence of a CFD during their inspection period.  This is of vital importance because the presence of a CFD may result in a sometimes large additional tax burden imposed upon the buyer. In some cases it could be several thousand dollars.

While there are a number of methods a buyer can use to research the presence of a CFD, perhaps the most reliable is by contacting the county treasurer or assessor.  For example, prospective buyers in Maricopa County can visit the website for the Maricopa County Treasurer’s Office. By way of this site, the buyer can enter a property’s Parcel Number in the appropriately marked box on the left hand side of the home page. 

After searching by Parcel Number, the buyer will be taken to a Tax Summary page for the subject property.  By clicking on the link titled View Tax Details, then scrolling down to a box titled Special Tax Districts, the buyer will be able to ascertain whether a property falls within the boundaries of a CFD. Having obtained this information, the buyer will now be in position to make a more informed decision regarding their contemplated purchase.


4)  When Will the Next US Recession Hit? 

Orion Investment Real Estate, August 2017

Is the Phoenix Real Estate Market headed for another crash? Experts say no.

There is a 73% chance the next recession in the United States will begin by the end of 2020, according to a panel of economic and housing experts but the property market is unlikely to be hammered.  Those taking part in the third quarter Zillow home price expectations survey don’t expect the housing market to play as big a role as in past recessions. Instead, they anticipate a geopolitical crisis could trigger the next recession.

The quarterly survey sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 real estate experts and economists about the next national recession, its causes, and the potential effects on the housing market.  The panelists expect a future recession to have a moderate impact on the US housing market overall, but some markets are more at risk than others. More than 60% of experts say the next recession will have a major impact on the San Francisco and Miami housing markets, and at least half predict a major impact in Los Angeles and New York as well.

‘That experts believe geopolitical crisis is the most likely next trigger for the next recession is a sign of the times we’re living in. Historically, geopolitical events rarely cause a sustained recession, and other contributing factors, such as oil price shocks, play a more predominant role,’ said Zillow chief economist Svenja Gudell.  ‘We’ve enjoyed eight years of sustained growth following the last recession, but the housing market is still recovering in many ways. The housing market is not expected to cause the next recession, but some major markets could see some collateral damage,’ she added.

The report points out that it was unsustainable home price increases and lax lending standards that led to a significant decline in the housing market 10 years ago, kicking off the last recession. Nationally, homes lost 23% of their value and more than 50% in the hardest hit metros. This crash led to a widespread economic recession, with high unemployment rates and slow wage growth.

This recession is still being felt after several years of recovery. Even as some housing markets set record highs, home values in 55% US markets are below the peak values set during the bubble years, and five million home owners are still underwater on their mortgages. Wage increases have only recently picked up after several years of relatively stagnant growth.  Despite the expected impact on the housing market, the survey respondents expect home values to continue to appreciate at a healthy pace. The current expectation is for home values to rise 5.1% in 2017, up from 4.4% earlier this year.

‘Stronger short term expectations for US home prices are a sign of the persistent inventory challenges facing first time and move-up home buyers, but experts’ long term predictions suggest that buyers will have more bargaining power in the years ahead,’ said Pulsenomics founder Terry Loebs.  ‘Incomes growing faster than home values is a promising sign for renters hoping to become homeowners, but they should still tread carefully in markets that have seen sharp price increases in recent years,’ he concluded.


5)  Tales From the Trenches - What happens when you don’t pay property taxes?

Pat Hune, Broker, 1st Southwest Realty

When an owner does not pay their property taxes the County creates something called a Tax Lien. The tax lien is then sold to investors. Tax liens are a way for the county to collect money to keep running the county.  If the property taxes are not paid the county still needs the money. The county has to maintain streets, sewers, schools, hospitals, fire departments etc.  If people don’t pay their taxes then the county cannot do the needed maintenance, roads would fall into disrepair, hospitals, schools and fire departments would close. Most counties have a process  where tax liens are sold so the county has money.  The Tax Lien Sale provides for the payment of delinquent property taxes by an investor. The tax on the property is auctioned in open competitive bidding based on the least percent of interest to be received by the investor. Property taxes that are delinquent at the end of December are added to any previously uncollected taxes on a parcel for the Tax Lien Sale. The sale takes place in February of each year.  Delinquent property taxes accrue interest at an annual rate of 16% simple interest prorated monthly. In addition, when a property tax lien is listed for sale there are advertising fees ($5.00 or 5% whichever is greater) plus sale fees. Fees include a non-refundable/non-interest earning Tax Payer Information Fee of $5.00/10.00 as per ARS 42-18122B.  The owners have 3 years to pay off the tax liens before someone can foreclose.  Typically the investor who owns the tax liens does not start the foreclosure process for several years because of the attorney fees involved.  Often owners discover the outstanding taxes and pay them before the investor starts the foreclosure process.  But what happens if the investor starts the foreclosure process?

Unfortunately Sherlock, the owner of one of the properties we manage, had not paid the property taxes since 2012.  The problem is the Maricopa County Assessors office does not send tax bills to international addresses. The address listed on the tax bill was an international address.  The owner of the tax liens started the foreclosure process.  In order to foreclose the owner has to be given proper notice.  There are very specific instructions in the Arizona Revised Statute 42-18202 on how the notice is to be served.  

The only way to stop the foreclosure process is to pay the taxes in full.  When we found out about the tax lien foreclosure we checked the Treasurer’s Office records and printed the redemption statement to determine the total amount owned. Then we contacted the owner and let him know it would cost about $6,000 to bring the taxes current.  Sherlock had no idea the taxes were delinquent. He immediately wired money to us and we paid the taxes in full.  Luckily Sherlock did not lose a property worth about $200,000 for a $6,000 tax lien.  Note the Treasurer’s Office requires a third party paying the taxes has to be authorized to act on the owner’s behalf.  In this case they asked for a copy of the signature page of the property management agreement.   

The Tax Lien statute says if the foreclosure process had already been started the owner would be liable for attorney’s fees.  But the owner has to be served notice properly per the statute listed above.  After the taxes were paid the attorney for the investor contacted me. He was trying to collect the $3,000 in attorney’s fees.  I stated the owner had not received any notice per the ARS 42-18202.  The attorney said all he had to do to accomplish notice was to simply mail the notice. It did not have to be received by the owner. Really. In addition the attorney said because my brokerage had paid the taxes I was responsible for paying the attorney fees.  This is crazy.  My brokerage does not own the property.  A brokerage is not responsible for legal fees for a property they do not own.  I suggested the attorney hire counsel in the country where the owner lives in order to collect the fees.  I am not sure how this will end but I bet I will hear from this attorney again.

More information on tax liens is available from the Maricopa Treasurer’s Office