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How Foreclosure Laws Impact Rate of Recovery—Revisiting Phoenix and Cleveland

At Home Value Forecast, we like to look back at past updates to gauge how the real estate trends have changed. This month we are looking at Phoenix and Cleveland.

Both communities have been highlighted before, with Phoenix overshooting on the downside of the housing crisis, and Cleveland an example of how knowledge-based populations in affordable housing markets are driving economic growth.

In our May 2014 Update, we highlighted the differences in the recoveries the two cities were experiencing, and how foreclosure laws in Cleveland (judicial foreclosure) versus Phoenix (quicker, non-judicial foreclosure) were impacting the market.

Today, the lag in recovery can still be seen in states with judicial foreclosure laws, where the foreclosure process can take up to two years. While only 22 states use judicial foreclosures, 7 of the top 10 CBSAs with the largest percentage of foreclosures, and 19 of the top 25 are from judicial states. Cleveland is number 21 on the list, Phoenix is number 174.

Let’s take a look at how the communities are doing today.

Cleveland

In May 2014, Cleveland was one of our “Bottom 10” markets, mostly due to there being one foreclosure sales for every three “market” sales. In a healthy market, foreclosure sales as a percentage of market sales would be around 5% (One foreclosure sale for every 20 market sales).

Real Estate Market Trends February 2016 - 8

Today, Cleveland’s foreclosure sales as a percent of market sales is 17.45% — still high, but half of what it was a year and eight months ago. Months of Remaining Inventory (MRI) has also seen a reduction, from 8.39, to a healthier 6.26.

Real Estate Market Trends February 2016 - 7

Foreclosures are still lingering, as can be seen from the below graph:

Real Estate Market Trends February 2016 - 1

One reason for the foreclosures could be homeowners that have home equity second mortgages due. Most home equity loans have to be repaid after ten years, as can be seen, there were still a large number of HELOCs being written in 2006.

Real Estate Market Trends February 2016 - 2

Prices have not rebounded to 2006 levels in Cleveland, so many could find themselves in a difficult situation when their loan is called.

Real Estate Market Trends February 2016 - 3

Phoenix

In 2012, after overshooting on the downside, Phoenix’s housing prices rebounded strongly. During this time, Phoenix quickly worked through its foreclosure inventory, inspiring confidence in the housing market’s trajectory.

In May 2014 we commented on how Phoenix was returning to market fundamentals, with a balanced market and foreclosures trending back towards historic norms:

Real Estate Market Trends February 2016 - 10

Today, Phoenix has recovered completely and has a strong and stable real estate market with 5% foreclose as a percent of sale and 4.51 MRI, both signs of a strong market.

Real Estate Market Trends February 2016 - 9

This strength can be seen in pricing trends, where once the average home had lost more than 50% of its value are now back to 85% of pre-crash highs. We believe that Phoenix will make up the majority of the 15% gap within the next two years.

Real Estate Market Trends February 2016 - 4

CBSA Winners and Losers

Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs and highlight the strongest and weakest metros.

The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe of the top 200 CBSAs, we highlight each month the CBSAs which have the highest and lowest composite scores.

The tables below show the individual market indicators that are being used to rank the CBSAs, along with the most recent values and the percent changes. We have color-coded each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.

Top 10 CBSAs

Real Estate Market Trends February 2016 - 11

The top ten CBSAs have stayed consistent over the past few months, with Grand Rapids-Wyoming, MI being a newcomer and only East coast entrant.  Forbes Magazine recently rated Grand Rapids as one of the top cities to invest in housing in 2016 – we can see why.

Grand Rapids sold price per square foot of living area has rebounded to pre-crash highs, and look poised to continue to rise.

Real Estate Market Trends February 2016 - 5

Employment gains have kept track with price appreciation, something that bodes well for the future.

Real Estate Market Trends February 2016 - 6

Bottom 10 CBSAs

Real Estate Market Trends February 2016 - 12

The ten Texas communities that we wrote about last month remain in our bottom ten this month.  Midland, TX has seen a 30% decrease in sales and a 103% increase in houses on the market, a phenomenon that will put downward pressure on prices.

About Home Value Forecast

Home Value Forecast (HVF) is brought to you by Pro Teck Valuation Services. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.

HVF is built using numerous housing and economic data sources. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service.

Also, Pro Teck Valuation Services offers reporters the following:

  • National, regional or metro level housing data
  • Monthly Updates and HVF Insights articles
  • By-request data for your story — custom data, heat maps and charts are available
  • Expert commentary from Home Value Forecast Editorial Committee:
    • Tom O’Grady, Chief Executive Officer, Pro Teck Valuation Services
    • Michael Sklarz, PH.D., President, Collateral Analytics
    • Jeff Dickstein, Chief Compliance Officer, Pro Teck Valuation Services
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