Monday, May 28, 2012

Big profits for home-flippers signal Phoenix-area rebound

In another sign that metro Phoenix's housing market is slowly recovering, hundreds of homes across the region sold by banks after foreclosure or through short sales are being flipped by investors for almost double the price they paid just a few months earlier.

With metro Phoenix's median home price steadily climbing this year, speculators have seized on an opportunity to make fast profits and are selling houses across the region at prices not seen since the beginning of the housing boom in 2003-04.

Home prices have climbed as the supply of houses for sale has shrunk. The number of homes for sale in the Phoenix area is half of what it was last May, and the median price is up by an astonishing 30 percent since then.

Lenders clearing inventories of foreclosure and short-sale homes, coupled with a shortage of other homes for sale, have led to a rapid increase in home prices this year. And the bounce in prices has given cash buyers a chance to make hundreds of thousands of dollars flipping homes.

Real-estate experts say that's also good news for homeowners who have been battered by falling prices for six years due to record foreclosure homes flooding the market and selling for bargain prices. Now that foreclosures have dropped and home prices have started to rebound, many more homeowners may be able to sell for a profit again.

Also, investors are fixing up homes before reselling them for higher prices, which improves neighborhoods and nearby home values, said Mike Orr, real- estate analyst with Arizona State University's W.P. Carey School of Business.

"Investors fixing and flipping homes are adding to the supply of homes for sale that the regular buyer wants," he said. "This is good for the market and good for home values."

The trend has unfolded fast. Foreclosures started steadily falling last year, and lenders began moving to sell the homes they had already taken back and close short sales.

Most of the flipped houses are getting at least minor renovations and upgrades and selling to people who intend to live in them, another sign that regular buyers are returning to the market in big enough numbers to push prices higher.

A sample of the jaw-dropping price run-ups:

An east Phoenix home bought through a short sale for $218,000 in September sold in late February for $560,000. The home was completely remodeled, but the price was still an eye-popping 156 percent more than the investor paid.

A home in Chandler, built in 2005, sold through a short sale in November for $255,000 and was then flipped by an investor for $410,000 in March -- a 61 percent profit in five months.

A former foreclosure home in central Glendale was bought for $131,000 in January and flipped in mid-April for $243,000, an 85 percent jump. The investor added stainless-steel appliances and replastered the swimming pool at the ranch-style home.

In Goodyear, a 2,000-square-foot home in the Estrella Vista community was purchased from the lender for $88,000 in January. The investor repainted the home, put in new carpet and resold it for $188,000 in mid-April for a 113 percent gain.

"There are hundreds of recent examples of foreclosure or short-sale homes that have sold to investors who have been able to resell them quickly for much higher prices," said Tom Ruff, managing director of AZ Bidder, a Phoenix-based online foreclosure-auction firm.

He said these deals are giving metro Phoenix's housing market a huge boost and aiding in its recovery.

Ruff, who has been researching the trend and created a database of thousands of sales, said the market has been building toward this trend for the past year.

A slowing of foreclosures means fewer bargain homes on the market, while at the same time demand for homes has jumped as investors and regular buyers try to purchase at the bottom of the market.

It's now clear metro Phoenix's housing market hit bottom last fall, according to the experts.

Foreclosure auctions

Investors looking for bargains on foreclosure homes fight for them at daily auctions in front of Maricopa County's courthouse.

Lenders foreclose on homes in Arizona through trustee-sale auctions, where buyers must pay cash, make the winning bid and take the home "as is." Many of the investors making the most money are buying at the auctions.

In an effort to save money and avoid having to take the house back, fix it up and pay a real-estate agent to market it, banks are making more deals with investors at foreclosure auctions. Bidding wars are common among investors, who know what shape a house is in and what they can spend on it to still make a profit.

Those homes are providing buyers with the biggest profits:

In a central Phoenix historic district, a home built in 1925 was purchased at a foreclosure auction in late February for $281,000. Less than a month later, the home was resold for $361,000.

Last November, a north Phoenix house was grabbed at a foreclosure auction for $150,200. The investor renovated the 3,000-square-foot home, redoing everything from the plumbing and electrical to the kitchen. It resold for $319,000 in March.

A house in the north Scottsdale golf community Troon Village sold at auction in December for $628,000. The buyer was able to flip the property by March for $850,000 without having to put much more money or work into remodeling it. The original owner paid $771,500 for the 4,000-square-foot upscale home with three bedrooms, four bathrooms and a negative-edge pool.

Orr said the strong resale market for investors who buy homes directly from lenders at foreclosure auctions will continue at least for the rest of the year as Valley home values continue to rise.

But Orr, who also publishes the "Cromford Report," an online daily real-estate analysis, said that will make it tougher for buyers to find inexpensive foreclosure homes for sale by lenders because they are selling at the auctions.

"The model for flippers works best when prices are rising, even though they have to work hard to find the right homes to buy," he said.

However, housing analysts say the current big jumps in prices on former foreclosure homes won't last for long because the number of foreclosures is falling. The number of metro Phoenix homes taken back by lenders in April was 1,650, the lowest level since late December 2007.

Can it last?

Although flipping homes for profit is reminiscent of the boom times in metro Phoenix, those golden days are a long way off for regular homeowners.

But real-estate experts say a rising number of people who were underwater on their mortgages last year are seeing they suddenly have equity in their properties.

Metro Phoenix's median resale-home price has climbed 23 percent since August from a 12-year low of $112,000 to $138,400 last month.

Today's metro Phoenix home prices are nowhere near boom levels. The area's resale median reached a record high of $253,000 in May 2006, according to Information Market, a real-estate research firm. But home prices are now rising fast. This year alone, the median has climbed 15 percent.

Experts say what will help the housing market continue to recover is if regular homeowners see they can make a profit and sell. That is beginning to happen now.

Last month, a 1,600-square-foot south Scottsdale condominium bought by an investor in January for $125,000 in a normal transacation -- not a foreclosure or short sale -- sold for $238,500 in cash. The owner who sold the condo in January paid $100,000 for it in 1994.

"When the typical homeowners see they can sell for a profit, supply will increase and the housing market will truly recover," Orr said. "But it will be awhile before all the great deals go away.''

by Catherine Reagor - May. 25, 2012 11:16 PM The Republic |

Big profits for home-flippers signal Phoenix-area rebound

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