By Mike Bodeen · 13 December 2021
A Crash of Values May Not be the Worst Thing That Could Happen
As property values continue to rise to historic levels never before seen in Metro Phoenix, we have seen a number of articles arise from local and national pundits weighing in on the “inevitable” price crash due to such acceleration.
Our first response: All things are possible. Our considered response however is that would be a huge stretch.
Some history: Check out this great Cromford Chart below which shows the annual number of Phoenix Metro foreclosures (Trustee Deeds) since 2002.
There was a run-up in values starting in 2004 that peaked in June of 2006 when the median sales price hit $260,000. For almost two years, prices leveled out between $250K and $260K. But then, prices began dropping steeply in 2007 and homeowners and investors began realizing that they had negative value — substantially under-water as we called it.
2007 began 7 years of historic foreclosure amounts, from 2007 through 2013. Pricewise the local market bottomed out in 2011. It would take three more years to normalize the annual foreclosure average.
In a foreclosure sale, someone buys the defaulted property, either a 3rd party or if no one bids enough for the property, then it reverts to the beneficiary (lender). In 2011, 70-80% of all foreclosures reverted to the lender. In Arizona, there has not been a single foreclosure that has reverted to a lender since May of 2020 – a year and a half. Basically, there is no current foreclosure market.
We have shared a number of times before why “this” market is not “that” market. Fundamentally, demand is strong and increasing. Supply is weak and not growing as much as we need to accomplish market balance.
So the current problem is not the possibility of a foreclosure. No, in our opinion, we are now experiencing the worst-case scenario from a community standpoint, which is not a possible foreclosure market, but an unaffordable market.
Market data referenced in this article comes from The Cromford Report.