Arizona Home Prices Drop, Tucson Sees Smallest Decrease

It's no longer surprising to see updates on the local real estate market as headlines in the daily paper. In fact, it's seems unusual if we don't see at least one real estate headline each morning with our cup of java. The front page of today's Arizona Daily Star reads "Arizona home prices drop for the first time in 16 years". The large black print used in the headline makes a definite impact on readers; in fact in can downright intimidate some. A drop in home prices sounds scary and can instill fear into consumers at first glance, but once you investigate and understand the nature of the real estate market you'll find it's not so bad.

First, as everyone knows, the real estate market is like everything else in life; it's cyclical. Real Estate has it's ups and downs and that's what makes the world go round. Sure prices are down right now, but that's why we call it a Buyers Market. It's the perfect time for serious buyers to jump in and get a piece of the action. According the Tucson Association of Realtors sales statistics for 2007, the average home price in Tucson for July was $268,953, down 1.73% from the 2006 sale's price of $273,717. If buyers have money for a down payment and have strong credit, they can jump in and take advantage of some great prices and available inventory. Unlike in previous years, now most Sellers do realize that they must be open to negotiation if they want to sell their home.

Not too long ago the real estate market in Tucson was quite different. We must remember that we saw huge increases in 2004 - 2005. The average sales price in August 2004 was $205,014; the average sales price in August 2005 was $265,947. Quite the sellers market! During this time period everyone was buying, including investors. New construction developments and home sellers alike saw an influx of investors snatching up properties, which in turn lowered inventory and raised prices. Now many of these investors are trying to sell, and the demand is just no longer there.

Luckily Tucson housing prices fare better then several other Arizona cities.

As this report by the Office of Federal Housing Enterprise Oversight shows, Tucson saw a smaller decrease in housing prices then the entire state of Arizona, and only Flagstaff saw an increase in home prices in the last quarter. Phoenix saw the biggest change in price, with -.46% decrease in the average home price. On a positive note, Tucson, with a -.07% price decrease in the last quarter, wasn't far behind the nation's .08% increase in price. In addition Arizona did see a 2.2% increase in the home sales prices over the same period a year earlier. Both Nevada and California, who rode the "real estate wave" with Arizona in 2004 and 2005, saw larger drops in home prices. California homes are down almost 1.4% from last year, and Nevada prices are down almost 1.5%.

It's expected that home prices will increase in upcoming months, but one can never be sure what the consumers response will be to the crash of numerous mortgage lenders. Tucson's Fall and Winter climate entices many consumers to buy in the cooler season when our city is at its best. The next few months will be very telling of what the consumer's thought process is. We'll anxiously await the release of November's third quarter real estate figures a get better idea of where the real estate market is headed.

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I Wasn't MIA, But My Computer Was!

Sorry for the shortage of new entries on my blog this week. Oro Valley had a power outage on Tuesday and somehow it zapped my computer into oblivion. Luckily the techs as Comp USA were able to retrieve all my info so I could load it onto my laptop. Unfortunately it looks like my desktop computer is no more. A big thank you to the guys at Comp USA though; they were backed up but still recovered all my info and had it back to me within 48 hours!

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A Meltdown for the "McMansion"?

I noticed an interesting article in Saturday's edition of the Arizona Daily Star and I felt the need to investigate. A committee leader in the House of Representatives has proposed that mortgage interest deductions be taken away for homes larger then 3000 square feet. Republican John D. Dingell, in charge of the House Energy and Commerce Committee, is drafting a "carbon tax" legislation that would deny homeowners these write offs. The reasoning behind this is that large homes, or "McMansions" consume larger amounts of energy (electricity, heating, air conditioning, construction materials etc) then smaller homes and by eliminating the deduction there will be less demand for these McMansions, in turn reducing carbon emissions.

Needless to say that this proposed legislation is causing quite a stir in the real estate world. This possible legislation is being announced at a time when some consumers are already leery of buying a home due to instability of the mortgage industry and the economy in general. The mortgage interest rate tax deduction has always been a great incentive for consumers to invest in a home, whether it be their first home or upgrading to a larger one. Eliminating the deduction will cause chaos for buyers and sellers alike. The National Association of Realtors estimates that terminating this tax deduction will result in a 4% decline in the national median house price of all homes and potentially increase the rate of foreclosures in a market that is already saturated. But this legislation will also have a strong impact on the rental market. Since market forces drive the prices of rental homes as well and owned homes, ending the tax deduction will change the prices of all housing.

As we all know, the impact of this legislation if passed, will vary among families. We assume that most homeowners already know about the Mortgage Interest Deduction (MID), and that they itemize their tax returns in order to get it. But how many homeowners actually take advantage of this benefit? I found some interesting information regarding this from the Joint Tax Committee. Below is a chart that provides data on exactly who takes advantage of the MID.

Benefits of the Mortgage Interest Deduction

The first column shows the fraction of itemized tax returns arranged by income group. Those in the lower bracket itemize very little while those in the higher itemize almost 94% of the time. The second column shows the fraction that use the Mortgage Interest Deduction benefit. Makes sense; if you don't itemize then you can't use the MID. The third column shows taxpayers' savings by group, as a result of the mortgage tax deduction, and the last column shows what percent of the taxpayers' total savings can be attributed to each group. Easy to see that those in the higher income bracket (and most likely the owners of bigger homes) will be effected the most by a termination of the Mortgage Interest Rate Deduction. Or will they? When you look at the following chart, you'll see that those homeowners in the higher bracket attribute less of their wealth to their primary residence.

Home Ownership and Wealth

When reviewing both charts it's interesting to see that though most of the of wealth for the lower bracket is in the form of housing, the Mortgage Interest Deduction is rarely used. It seems that those in the higher brackets attribute their wealth to areas other then their homes, which can leave them less effected by this potential tax change.

It will be interesting to see if the carbon tax legislation ever makes it passed the proposal stage. Similar proposals has been made in the past but never brought about because the deduction is so popular with taxpayers and it has strong support from the real estate, banking and construction industries. In the meantime I myself won't get too upset. We will most likely see nothing come out of this; the story will disappear (hopefully) into the recycle bin with the rest of last weeks news headlines. Just one more temporary stressor in the real estate world!

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Mortgage Industry Job Fair

It seems like each morning I look at the newspaper the business headlines are discussing more turmoil in the Mortgage industry. Last week First Magnus Financial closed its doors and laid off most of it's 5,500 employees nationwide. Of those, 700 were employed in the Tucson location, and all of these employees are currently looking for jobs. Each day it seems that another mortgage company has either closed its doors or it's wholesale mortgage unit. Even the heavy hitters are struggling. Just today the Arizona Daily Star reported that the nation's largest mortgage lender, Countrywide Financial, began laying off employees this week. We know that Countrywide has been struggling recently but it seems to be going from bad to worse. As Countrywide tries to survive the rocky credit crunch before the nation, Bank of America Corp made a $2 billion investment in the company to keep them afloat.

Luckily there could be some good news for those employees of First Magnus and other local mortgage companies that lost their jobs. A job fair aimed at unemployed mortgage workers is scheduled for Friday, August 24th at the Sheraton Hotel and Suites. The event is sponsored by Stewart Tile and Trust, the National Association of Professional Mortgage Women and the Southern Arizona Mortgage Lender Association. More then 50 companies will be involved in this job fair, and employees can interview for loan officers, processors, coordinators and underwriters. First Magnus will hold it's own job fair for former employees on Monday, August 27 at the La Paloma Resort and Spa.

It's evident that there is a lot of community support for those employees that have lost their jobs due to the mortgage debacle. Hopefully the majority of those attending the job fair will walk away newly employed!

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Tucson Wildlife; Always Exciting!

It's amazing the different wildlife you'll see on a typical day in Tucson. Just going out for a walk in the early morning gives you the opportunity to see so many different types of native animals. The local wildlife really seem to like our backyard in particular. Every year we have at least one family of quail living in a planter, and we currently have a rabbit making its home in another. Our yard also attracts lots of butterflies and hummingbirds. We have a LOT of landscape plants and a couple of waterfalls so the environment seems to attract all the desert critters, good and bad. This past Fourth of July we were walking home from viewing fireworks and spotted something running out of our courtyard. As we got closer we counted 14, YES 14 javalinas racing away after quenching their thirst in our front pond. Javelinas can be very aggressive, especially when they are with their young. Needless to say I now keep our courtyard gate closed!

This year was also exciting as we had a bobcat family make their home in our back side yard. Our planter was dense with Rosemary plants and other assorted vegetation so it made the perfect cover for their little den. Considering we had some extremely heavy rains, and they stayed under cover through the storms, I'm assuming that Rosemary plant is some strong stuff! Anyway, it was really difficult to get close to them; mommy was very protective and would growl fiercely when we came into view. I did get this picture out my back window as mommy was nursing in the early morning. The picture isn't very clear but there are 3 babies, and they were ADORABLE! Our morning entertainment consisted of peaking out the windows and watching the kittens as they explored the world. At one point they wanted to try out their climbing skills so they would claw their way up our stucco chimney. It was a very sad day when they learned to climb up and over the wall and disappear into the desert forever.

As I said before we always have quail in the yard. Usually they lay their eggs somewhere elevated off the ground so that predators can't reach them. This Spring a family of eggs were located in a potted plant on our patio. We watched daily as mommy quail sat on her nest, guarding her young from pack rats, snakes and other birds. When they finally did hatch, they weren't around very long. We saw them trotting down the street, single file as they looked for another home.

The "bad" critters I mentioned include a few pests that I could not get pictures of because they seem to only lurk at night. Packs rats can be a problem, as they leave little holes all over in a nicely landscaped front yard, spitting dirt onto clean sidewalks as the dig furiously. Still I'm an animal lover and they are cute, so I generally let them slide. Black Widows on the other hand, I dispose of as soon as I spot them. Black Widows love our yard for the same reason as the "nice" critters do, the waterfalls have lots of stone crevices for hiding. It's always a good reason to have a trusting relationship with a local exterminating company!

As you can see the desert is an exciting place full of interesting animals if you know where to look!

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Tucson Real Estate Then and Now

As Tucson celebrated it's 232nd birthday on Monday I began to think about how much growth the city has experienced in past years. In 1997 the population of Tucson was about 600,000; now it's over 1 million. The city has spread itself out in every direction, looking for new places to build and develop. The Tucson real estate market has followed that growth, and prices have changed drastically in the last several years. This is why I thought it might be interesting to research the real estate numbers from years past and see how they stack up against today's market. I decided that a ten year span of time might offer some interesting results, so I'm comparing data from the Tucson Real Estate market of 1997 to the first quarter of 2007. Many of the 1997 statistics are an average for the entire year, so the comparison won't be totally accurate as I only have 2007 stats up to July, but it's still exciting to see the progress and growth that the Tucson real estate market has seen in the last ten years.

Below is a comparison of the 1997 and 2007 Average Sale Price for a Single Family Residence, divided by area, in Tucson -

It's amazing to see how prices have changed in the last 10 years. When I think of 1997 I feel like it was just a few years ago. That must be my middle age mind failing me! In 1997 the Tucson average sales price of a single family home was $185,335. The 2007 first quarter average sales price for a Tucson home was $270,460. That's a 46% increase over the last ten years. As you can see in the chart above, several areas in Tucson saw a price increase of over 100%, with only two outlying areas showing lower prices gains. Darn them for bringing down the average! The areas with significant price increases have seen major growth in the last ten years, and new construction has played a big role in these areas. However, Central Tucson always sees a steady price increase as it consists a lot of housing that's close to the University of Arizona. These neighborhoods are a favorite for students who will pay a pretty penny to be close to campus.

Now to look at the national average of home sale prices for the same time period. The 1997 national average sales price for a single family home was $156,000, compared to the first quarter 2007 national average sales price of $260,300. That's a 67% increase in the national average sales price over 10 years. Though the average sales price for a Tucson home is currently higher then the national average, we haven't seen an increase over the last ten years that matches the national average.

Average Days On Market

Although right now it feels like homes are "sitting" forever, the average Days On Market is currently about 65 in Tucson, but homes are still selling quicker then in 1997! The average market time of a single family residence in 1997 was 77 days. Maybe those crazy interest rates of 1997 were scaring consumers away; as the rate for a 30 year fixed conventional loan was a little over 7% (Ouch!). Yet today some are frustrated over the current 6.23% average interest rate for the same loan.

If you are familiar with my blog you'll see that I include a comparison for 2005,2006 and 2007 in my monthly Tucson real estate sales statistics. In the future I'll occasionally include a comparison of past Tucson real estate sales from the prior decade just to see where we are headed. I'm keeping it light hearted and fun as there are already too many "no so fun" real estate statistics out there right now.

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More Mortgage Woes

Yet another mortgage lender has announced that they are pulling out of the lending industry. Capital One Financial Corporation announced today that they are halting residential mortgage operations at it's wholesale mortgage banking unit, GreenPoint Mortgage, immediately. The reasoning is recent and continuing developments in in the mortgage industry have reduced profitability for the company. Although GreenPoint will immediately stop making loan commitments, they will honor all current loan commitments.

Also cutting costs is Countrywide Financial, announcing today that they are laying off employees involved in loan originations. They layoffs are of employees in the Full Spectrum Lending Unit, which deals with Alt-A loans, or mortgages that are between prime and sub prime loans in which borrowers aren't required to documents income. Ironically less then two weeks Countrywide was hiring more loan officers from rival mortgage companies that were forced to close down.

It's going to be interesting to see how the mortgage industry's woes will affect the consumer and their decision to purchase or sell real estate. Let's keep our fingers crossed for those that are in home loan limbo right now!

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