2011 Market Review – Striking Distressed Stats and Other Highlights

After reviewing the year-end statistics for the Flagstaff real estate market in 2011, the most striking statistic is that foreclosures were just under 30% of all sales and short sales were nearly 12% of all sales. Combined, distressed sales (short sales and foreclosures) were over 41% of all sales!

What’s the significance of foreclosures outnumbering short sales 3-to-1? That means three out of four homeowners in distress didn’t do a short sale or their short sale wasn’t successful. This goes to show that many people don’t know they have better options than foreclosure or they need to be working with an agent who is trained in short sales. Short sales are usually better for the homeowner’s credit and it saves the surrounding community from having another foreclosure nearby, which further depresses prices.

Of course, 59% of all sales were not distressed. This includes new construction, which was 3.5% of homes sold.

There were 953 total residential sales in Flagstaff. This includes single-family, townhomes, condos, and manufactured homes. This is 97 more sales than in 2010, which amounts to an 11% increase and is the highest number of sales since 2007.

The trailing median price ended 8% lower than the beginning of the year. It dropped a total of 12% in the first part of the year before climbing back up in the last few months.

The supply of homes (the balance between the inventory and the current pace of sales) has continued to drop to a normal level. It started at 8 months of inventory and dropped to 5.3 months at the end of the year. Six months of inventory is considered a balanced market, so the current level is helpful for price stabilization because it indicates that the major oversupply of homes is diminishing.

Buying Power Incredibly High

You probably know that interest rates are historically and unbelievably low. What you may not know is how much the change in interest rates affects your buying power –  the amount of house you can purchase without increasing your payment.

Let’s assume you want your mortgage payment to be $1,500 per month for principal and interest. Rates fluctuate daily, but at the current 4.125% for a 30-year fixed mortgage, you could purchase a home for roughly $386,000 with a 20% down payment. If the interest rates rise to 5%, you’re only able to purchase a $349,000 home for the same payment. Now, if the interest rates rise to a modest 6%, which is still considered historically low, your $1,500 per month payment will only get you a $312,000 house! That’s a big difference in purchasing power and keep in mind that, historically, rates above 6% were the norm.

The above example assumes a 20% down payment, but it’s important to know that there are options for only a 10% down payment on conventional loans and there are programs that allow for even less.

Being this low, the rates will inevitably go up at some point. Don’t look back on this time period as the time you wish you would’ve purchased your next home!

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Purchase Power By Monthly Payment and Interest Rate
$1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500
4.125% $257,918 $322,398 $386,877 $451,357 $515,836 $580,316 $644,796
4.50% $246,701 $308,377 $370,052 $431,728 $493,403 $555,078 $616,754
5% $232,852 $291,065 $349,278 $407,491 $465,704 $523,917 $582,130
5.50% $220,152 $275,190 $330,228 $385,266 $440,304 $495,342 $550,381
6% $208,490 $260,612 $312,734 $364,857 $416,979 $469,101 $521,224
6.50% $197,764 $247,204 $296,645 $346,086 $395,527 $444,968 $494,409
7% $187,884 $234,856 $281,827 $328,798 $375,769 $422,740 $469,711
Amounts are based off of and include a 20% down payment

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Not as Dead of Winter this Year

Yes, this is the dead of winter and the slowest time for real estate sales. However, the interesting news is that the number of residential sales in Flagstaff weren’t as low as they have been the past few years. In fact, with 59 sales, this was the busiest January since 2008. In Jan ’09, we had only 34 sales! Maybe the lack of unusually large snowstorms this winter has helped keep people looking.

Other than that, inventory is still low, which is good news if you’re thinking of selling. Compared to the previous month, pending sales are up quite a bit, the number of distressed sales (short sales and foreclosures) notched up, and pending new construction inched up as we get closer to the building season.

The trailing median prices also inched up again, rebounding from December’s slight drop. This makes it 5 out of 6 months that this figure has increased.