The Real Estate Market What’s Expected in 2011?

Unemployment Consumer Spending GDP Growth A Review of the Economy in the New Year

Mortgage Interest Rates A Look Back at the Good, the Bad and the Ugly

M E T R O P H O E N I X

WE’VE BEEN DOUBLE-DIPPED

Metro Phoenix home prices bottomed out in April of 2009 with a median sales price of $115,000 – this after a peak of $265,000 during the boom time of June 2006. After April 2009, home prices began scooting back up and the median hovered at $130,000 until last summer when the federal homebuyer tax credit expired. By December of 2010, the median home price fell to a new low of $110,000, creating a dreaded “double-dip” in a fragile housing market that has been precariously attempting to rebound. (The median figures reported are for all types of housing sold, including condominiums, patio homes and town- homes. The median values for single-family properties are higher when calculated separately.) The Arizona Regional Multiple Listing Service’s data forecasts the Valley’s median home price to climb back up to $115,000 in January. While 2010’s home-sales pattern can be described as “one step forward and two steps back,” the prediction for 2011 is improving to “two steps forward and one step back.”

While price declines are painful, the good news is that demand has remained strong through 2010 (see chart: 2010 Sales Statistics). The cure for low prices is low prices. Indeed, the home affordability index will help to bring in more and more buyers and move out the excess inventory.

What does this mean for the future of our housing market? Pricing is expected to slide a bit further this year. Any further price decline is expected to be mod- est though, as the heart-stopping drops of recent years past are behind us now. Despite the drop in pricing, the strong volume of sales in 2010 shows us what our market should do in the future. Pricing is a lagging indicator, but the supply and demand levels generally indicate what prices will do. So with con-tinued demand in 2011, any mild price decreases we experience should then begin to rise from there.

“We must remember that price declines do not forecast a bad market ahead, they are an indicator of a bad market in the recent past. But these price declines stimulate demand which is a necessary part of the recovery process,” reports The Cromford Report, a local real estate research firm.

DISTRESSED PROPERTIES EASING UP

While still at elevated levels and putting pressure on home values, the amount of foreclosures within our local market is expected to drop, though perhaps not in the first few months of 2011 while banks work through the backlog created last year with their two-month moratorium on foreclosures.

Foreclosure activity peaked in 2010 (see Chart: Monthly Foreclosure Activity in Maricopa County). But the drop in pre-foreclosures from 97,141 in 2009 to 79,637 in 2010 is a positive sign. In fact, the total of 5,475 notices in December 2010 is the lowest level since March of 2008. While we still have several more years of distressed property inventory to eat up (it’s estimated that 22.5%-38.9% of homeowners are underwater on their mortgage), the homes purchased today are subject to much more rigorous lending standards. As Tom Ruff, an analyst with Information Market says, “The new loans coming into the pool have made it through strict underwriting protocol while the bad loans just keep getting sent to the courthouse steps, and once they’re foreclosed, they’re no longer delinquent. Good in, bad out.”

THE INTEREST RATE DANCE

Mortgage interest rates plunged to record lows in 2010 (see table: 30-Year Fixed Rate Mortgages Annual Average), with a 30-year fixed-rate low of 4.16%. But with the economy showing signs of life, rates have begun rising in early 2011 to nearly 5%. By the time the housing market recovery is under way later this year and into 2012, we can expect to see rates continue their upward trend. Lawrence Yun, National Association of Realtors chief economist forecasts rates to average over 5% in 2011 and 5.8% in 2012 – a nearly 2% increase from last year’s low.

For potential homebuyers wrestling with the decision on the best time to buy, it appears to be NOW. For even if home prices experience another 5% to 10% decline, the cost-of-money to borrow at higher rates the longer you wait may just offset any monthly savings you might see. For every point that interest rates go up on an 80% loan, the effective price of the home goes up about 10% due to what the difference in payments would amortize.

For sellers, waiting to put your home on the market until prices rise may also offset any gain you’d have. Your pool of potential buyers will be different. Many won’t qualify at the higher rates when they would have qualified today. Additionally, If you’ll be repurchasing then you’ll too be financing at the higher rates we will have.

ARIZONA ON SALE

Whether it’s a clearance sale on a high-quality pair of shoes, or an investor “buying low to sell high,” savvy shoppers know to capitalize on an opportunity to buy a valued item at a huge discount. And while Arizona real estate is priced very low right now, the most important factor indicative of a good investment is the potential value and worth. If you subscribe to the belief that Arizona is a highly desirable destination and will be in much demand in the decades to come, than buying property in today’s market may be the wisest move you can make for your future wealth portfolio.

Aswe’veturnedthecorneronaNewYear,mostofushaveoursightssetontheeconomy.Justwhatcanweexpectin2011?Continuedrecession?Arobustrecovery?Or,perhapssomethinginthemiddle.Indicationsseemtopointtoabettereconomicenvironmentfor2011.Indeed,theeconomyisimproving;albeitmoreslowlythanmostofusAmericansanxiousforprogresswouldprefer.Overall,2010wasbetterthan2009.2011isexpectedtobebetterthan2010.And2012evenbetteryet,thanthisyear.Thegoodnewsisthatfurthereconomicdeclinesarenotexpectedthisyear.Thebadnewsisthatourrecoveryappearstobeweakandprotracted. Makingheadlinesinthemid-to-latterpartof2010,theannouncementthat“THERECESSIONISOVER”hadbeenmetwithscoffsandsneers.“Ifthat’sthecase,itsurehasn’tbeenfeelinglikeit,”manygroaned.Whileeconomistsdisagreeonwhatexactlydefinesarecession,weallknowit’swhentheeconomyfailstogrow,orcontracts. Whilefinalnumbersforthefourthquarteraren’tinyet,indicationsarethat2010willhavefinishedwitha2%+rateofgrowth.Generallyrecoveriesfromrecessionshavebeenclosertothe4%or5%rangeinGDPgrowth,butthismodest2%growthisgrowthnonetheless.Aclearsignalthattherecessiontrulyisover. Thenation’sGrossDomesticProductwasexpectedtogrowatarateof2.0%to2.5%overthenexttwoyears.Now,withtheextensionofthetaxcutsthatpassedattheendof2010,forecastersarepredictingheightenedgrowth.MarkZandi,awell-knowneconomicforecasterwithMoody’sAnalytics,expectsa3.9%rateofgrowthin2011;asubstantial,much-neededboosttohelppropelusbacktopre-recessiondays.

An Economy On The Mend Astheeconomyacceleratedinto2011,nationalclaimsforjoblessbenefitsdroppedattheendof2010tothelowestlevelintwoyears.TheInstituteforSupplyManagement-ChicagoInc.reporteditsbusinessbarometerended2010at68.6(afiguregreaterthan50onthebarometersignifiesanexpansion),whichisthehighestlevelinovertwodecades. Aftermorethanthreeyearsof“forcedfrugality”amongAmericanconsumers,itseemsthatshoppersarewearyofnon-spending.Holiday2010purchasingroseafantastic5.5%accordingtotheMasterCardAdvisorsSpendingPulsereport.Exceedingeventhemostoptimisticretailspendingforecasts,

therateofspendingduringthe2010holidayseasonwasthehighestsince2005–thatbanneryearfortheeconomy. Withconsumerspendingelevated,manufacturingwillseeanuptickasretailerswillneedtorestockshelves.Businessspendingisexpectedtofurtherincreasein2011andinto2012aswell. Thestockmarketmadesomeencouraginggainsin2010.TheDJIAclosedouttheyearwitharespectable11%growth.Kiplinger.comforecaststheDowtoriseanother1000pointstotop12,500in2011withtherallylikelytocontinueinto2012. Certainlyourhumblerecoveryhasn’tindicatedthatallofourtroublesarebehindus.Thetwomajorsnagstoarobustrecoverycontinuetobethenation’sweakhousingmarketanddisappointingunemployment.Employersaddedover1millionworkerstopayrollsin2010accordingtofiguresfromtheLaborDepartment.Butthegainshaven’tbeenenoughtosignificantlyreduceunemployment.Whileforecastersexpectemployerstoaddanother2.5millionworkersthisyear,it’llbeseveralyearsbeforeallofthe8.4millionjobsthathavebeenlostwillberecaptured.

Arizona Outpacing The Nation? Arizona,andtheMetroPhoenixmarketspecifically,havebeenhitworsethanmostothermarketsintheUS.Ourhousingmarkethasfallenharder,populationgrowthhasspiraledtohistoriclows,andin2009Arizona(generallyalwaysinthetopfivegrowthstates)sankto49thoutof50stateswhenmeasuringemploymentgrowth. Howeverbleakourdecline,Arizonaisregainingground.Bytheendof2010,Arizonahadaddedjobsforfourmonthsinarow,droppingunemploymentfrom9.5%to9.4%,whilethenationasawholerosefrom9.6%to9.8%inthatsametimeperiod.Thestateisexpectedtoadd48,000jobsin2011andrecentdatashowsthatArizonahasbecomethenumber-onefastest-growingmarketforprivatesectorjobs.MetropolitanPhoenixisnowrankedsecondinhighestjobgrowthamonglargecities,onlylaggingbehindWashington,D.C. “2011isgoingtobethebestyearforArizona’seconomicgrowthinthepastthreeyears,”statedASUeconomistLeeMcPhetersatthe47thannualforecastluncheonsponsoredbyASUandJPMorganChaseBank.“Ithinkit’sprettyclearwe’reonthethresholdofrecovery.Arizonaismuchstrongerthanitwasayearago,”hecontinued.

G E N E R A L E CON O M I C S NA P S H OT

I’ve got to admit it’s getting better. A little better all the time.I have to admit it’s getting better. It’s getting better since you’ve been mine.

Getting so much better all the time.— John Lennon & Paul McCartney, Sgt. Pepper’s Lonely Hearts Club Band

We’ve Been Double-Dipped MetroPhoenixhomepricesbottomed outinAprilof2009withamediansalespriceof$115,000–thisafterapeakof$265,000duringtheboomtimeofJune2006.AfterApril2009,homepricesbeganscootingbackupandthemedianhoveredat$130,000untillastsummerwhenthefederalhomebuyertaxcreditexpired.ByDecemberof2010,themedianhomepricefelltoanewlowof$110,000,creatingadreaded“double-dip”inafragilehousingmarketthathasbeenprecariouslyattemptingtorebound.(Themedianfiguresreportedareforalltypesofhousingsold,includingcondominiums,patiohomesandtownhomes.Themedianvaluesforsingle-familypropertiesarehigherwhencalculatedseparately.)TheArizonaRegionalMultipleListingService’sdataforecaststheValley’smedianhomepricetoclimbbackupto$115,000inJanuary.While2010’shome-salespatterncanbedescribedas“onestepforwardandtwostepsback,”thepredictionfor2011isimprovingto“twostepsforwardandonestepback.” Whilepricedeclinesarepainful,thegoodnewsisthatdemandhasremainedstrongthrough2010(seechart:2010 Sales Statistics).Thecureforlowpricesislowprices.Indeed,thehomeaffordabilityindexwillhelptobringinmoreandmorebuyersandmoveouttheexcessinventory. Whatdoesthismeanforthefutureofourhousingmarket?Pricingisexpectedtoslideabitfurtherthisyear.Anyfurtherpricedeclineisexpectedtobemodestthough,astheheart-stoppingdropsofrecentyearspastarebehindusnow.Despitethedropinpricing,thestrongvolumeofsalesin2010showsuswhatourmarketshoulddointhefuture.Pricingisalaggingindicator,butthesupplyanddemandlevelsgenerallyindicatewhatpriceswilldo.Sowithcontinueddemandin2011,anymildpricedecreasesweexperienceshouldthenbegintorisefromthere. “Wemustrememberthatpricedeclinesdonotforecastabadmarketahead,theyareanindicatorofabadmarketintherecentpast.Butthesepricedeclinesstimulatedemandwhichisanecessarypartoftherecoveryprocess,”reportsTheCromfordReport,alocalrealestateresearchfirm.

Distressed Properties Easing Up Whilestillatelevatedlevelsandputtingpressureonhomevalues,theamountofforeclosureswithinourlocalmarketisexpectedtodrop,thoughperhapsnotinthefirstfewmonthsof2011whilebanksworkthroughthebacklogcreatedlastyearwiththeirtwo-monthmoratoriumonforeclosures. Foreclosureactivitypeakedin2010(seechart:Monthly Foreclosure Activity in Maricopa County).Butthedropinpre-foreclosuresfrom97,141in2009to79,637in2010isapositivesign.Infact,thetotalof5,475noticesinDecember2010isthelowestlevelsinceMarchof2008.Whilewestillhaveseveralmoreyearsofdistressedpropertyinventorytoeatup(it’sestimatedthat22.5%-38.9%ofhomeownersareunderwaterontheirmortgage),thehomespurchasedtodayaresubjecttomuchmorerigorouslendingstandards.AsTomRuff,ananalystwith

InformationMarketsays,“Thenewloanscomingintothepoolhavemadeitthroughstrictunderwritingprotocolwhilethebadloansjustkeepgettingsenttothecourthousesteps,andoncethey’reforeclosed,they’renolongerdelinquent.Goodin,badout.”

The Interest Rate Dance Mortgageinterestratesplungedtorecordlowsin2010(seetable:30-Year Fixed- Rate Mortgages Annual Average),witha30-yearfixed-ratelowof4.16%.Butwiththeeconomyshowingsignsoflife,rateshavebegunrisinginearly2011tonearly5%.Bythetimethehousingmarketrecoveryisunderwaylaterthisyearandinto2012,wecanexpecttoseeratescontinuetheirupwardtrend.LawrenceYun,NationalAssociationofRealtorschiefeconomistforecastsratestoaverageover5%in2011and5.8%in2012–anearly2%increasefromlastyear’slow. Forpotentialhomebuyerswrestlingwiththedecisiononthebesttimetobuy,itappearstobeNOW.Forevenifhomepricesexperienceanother5%to10%decline,thecost-of-moneytoborrowathigherratesthelongeryouwaitmayjustoffsetanymonthlysavingsyoumightsee.Foreverypointthatinterestratesgouponan80%loan,theeffectivepriceofthehomegoesupabout10%duetowhatthedifferenceinpaymentswouldamortize. Forsellers,waitingtoputyourhomeonthemarketuntilpricesrisemayalsooffsetanygainyou’dhave.Yourpoolofpotentialbuyerswillbedifferent.Manywon’tqualifyatthehigherrateswhentheywouldhavequalifiedtoday.Additionally,Ifyou’llberepurchasingthenyou’lltoobefinancingatthehigherrateswewillhave.

Arizona On Sale Whetherit’saclearancesaleonahigh-qualitypairofshoes,oraninvestor“buyinglowtosellhigh,”savvyshoppersknowtocapitalizeonanopportunitytobuyavalueditematahugediscount.AndwhileArizonarealestateispricedverylowrightnow,themostimportantfactorindicativeofagoodinvestmentisthepotentialvalueandworth.IfyousubscribetothebeliefthatArizonaisahighlydesirabledestinationandwillbeinmuchdemandinthedecadestocome,thanbuyingpropertyintoday’smarketmaybethewisestmoveyoucanmakeforyourfuturewealthportfolio.

R E S I D E N T I A L R E A L E S TAT E

Source: Freddie Mac

Source: Information Market

Monthly Foreclosure Activity In Maricopa CountyMONTH RESIDENTIAL NOTICE RESIDENTIAL OF TRUSTEES SALE FORECLOSEDDecember 5,475 3,283November 5,607 2,509 October 6,728 4,034 September 7,116 4,877 August 7,186 4,831July 7,804 4,651 June 5,833 4,584 May 6,106 3,841 April 6,634 4,115 March 7,625 5,127February 7,179 3,891January 6,344 4,065 Total: 79,637 49,808

2010

MONTH RESIDENTIAL NOTICE RESIDENTIAL OF TRUSTEES SALE FORECLOSEDDecember 7,405 4,792November 6,679 3,485 October 7,303 4,444 September 7,408 3,432 August 8,624 3,546 July 8,671 4,711 June 8,138 4,688 May 8,126 3,472April 8,552 3,787 March 10,077 3,023 February 8,000 4,780 January 8,158 3,832Total: 97,141 47,992

2009

2010 Sales Statistics NUMBER OF MEDIAN SOLD LISTINGS SALES PRICEJanuary 5,667 $123,000February 6,422 $125,000March 8,805 $128,700April 9,136 $128,275May 8,924 $130,000June 9,158 $127,630July 6,913 $125,000August 7,000 $119,287September 6,715 $119,900October 6,556 $120,000November 6,740 $115,000December 8,405 $110,000 Total:90,441 Average:$123,900

30-Year Fixed-Rate Mortgages Annual Average

YEAR RATE YEAR RATE 1972 7.38 % 1992 8.39 %1973 8.04 % 1993 7.31 %1974 9.19 % 1994 8.38 %1975 9.05 % 1995 7.93 %1976 8.87 % 1996 7.81 %1977 8.85 % 1997 7.60 %1978 9.64 % 1998 6.94 %1979 11.20 % 1999 7.44 %1980 13.74 % 2000 8.05 %1981 16.63 % 2001 6.97 %1982 16.04 % 2002 6.54 %1983 13.24 % 2003 5.83 %1984 13.88 % 2004 5.84 %1985 12.43 % 2005 5.87 %1986 10.19 % 2006 6.41 %1987 10.21 % 2007 6.34 %1988 10.34 % 2008 6.03 %1989 10.32 % 2009 5.04 %1990 10.13 % 2010 4.69 %1991 9.25 % Source: Freddie Mac

Source: Information Market

Source: ARMLS

WE’VE BEEN DOUBLE-DIPPED

Metro Phoenix home prices bottomed out in April of 2009 with a median sales price of $115,000 – this after a peak of $265,000 during the boom time of June 2006. After April 2009, home prices began scooting back up and the median hovered at $130,000 until last summer when the federal homebuyer tax credit expired. By December of 2010, the median home price fell to a new low of $110,000, creating a dreaded “double-dip” in a fragile housing market that has been precariously attempting to rebound. (The median figures reported are for all types of housing sold, including condominiums, patio homes and town- homes. The median values for single-family properties are higher when calculated separately.) The Arizona Regional Multiple Listing Service’s data forecasts the Valley’s median home price to climb back up to $115,000 in January. While 2010’s home-sales pattern can be described as “one step forward and two steps back,” the prediction for 2011 is improving to “two steps forward and one step back.”

While price declines are painful, the good news is that demand has remained strong through 2010 (see chart: 2010 Sales Statistics). The cure for low prices is low prices. Indeed, the home affordability index will help to bring in more and more buyers and move out the excess inventory.

What does this mean for the future of our housing market? Pricing is expected to slide a bit further this year. Any further price decline is expected to be mod- est though, as the heart-stopping drops of recent years past are behind us now. Despite the drop in pricing, the strong volume of sales in 2010 shows us what our market should do in the future. Pricing is a lagging indicator, but the supply and demand levels generally indicate what prices will do. So with con-tinued demand in 2011, any mild price decreases we experience should then begin to rise from there.

“We must remember that price declines do not forecast a bad market ahead, they are an indicator of a bad market in the recent past. But these price declines stimulate demand which is a necessary part of the recovery process,” reports The Cromford Report, a local real estate research firm.

DISTRESSED PROPERTIES EASING UP

While still at elevated levels and putting pressure on home values, the amount of foreclosures within our local market is expected to drop, though perhaps not in the first few months of 2011 while banks work through the backlog created last year with their two-month moratorium on foreclosures.

Foreclosure activity peaked in 2010 (see Chart: Monthly Foreclosure Activity in Maricopa County). But the drop in pre-foreclosures from 97,141 in 2009 to 79,637 in 2010 is a positive sign. In fact, the total of 5,475 notices in December 2010 is the lowest level since March of 2008. While we still have several more years of distressed property inventory to eat up (it’s estimated that 22.5%-38.9% of homeowners are underwater on their mortgage), the homes purchased today are subject to much more rigorous lending standards. As Tom Ruff, an analyst with Information Market says, “The new loans coming into the pool have made it through strict underwriting protocol while the bad loans just keep getting sent to the courthouse steps, and once they’re foreclosed, they’re no longer delinquent. Good in, bad out.”

THE INTEREST RATE DANCE

Mortgage interest rates plunged to record lows in 2010 (see table: 30-Year Fixed Rate Mortgages Annual Average), with a 30-year fixed-rate low of 4.16%. But with the economy showing signs of life, rates have begun rising in early 2011 to nearly 5%. By the time the housing market recovery is under way later this year and into 2012, we can expect to see rates continue their upward trend. Lawrence Yun, National Association of Realtors chief economist forecasts rates to average over 5% in 2011 and 5.8% in 2012 – a nearly 2% increase from last year’s low.

For potential homebuyers wrestling with the decision on the best time to buy, it appears to be NOW. For even if home prices experience another 5% to 10% decline, the cost-of-money to borrow at higher rates the longer you wait may just offset any monthly savings you might see. For every point that interest rates go up on an 80% loan, the effective price of the home goes up about 10% due to what the difference in payments would amortize.

For sellers, waiting to put your home on the market until prices rise may also offset any gain you’d have. Your pool of potential buyers will be different. Many won’t qualify at the higher rates when they would have qualified today. Additionally, If you’ll be repurchasing then you’ll too be financing at the higher rates we will have.

ARIZONA ON SALE

Whether it’s a clearance sale on a high-quality pair of shoes, or an investor “buying low to sell high,” savvy shoppers know to capitalize on an opportunity to buy a valued item at a huge discount. And while Arizona real estate is priced very low right now, the most important factor indicative of a good investment is the potential value and worth. If you subscribe to the belief that Arizona is a highly desirable destination and will be in much demand in the decades to come, than buying property in today’s market may be the wisest move you can make for your future wealth portfolio.

Aswe’veturnedthecorneronaNewYear,mostofushaveoursightssetontheeconomy.Justwhatcanweexpectin2011?Continuedrecession?Arobustrecovery?Or,perhapssomethinginthemiddle.Indicationsseemtopointtoabettereconomicenvironmentfor2011.Indeed,theeconomyisimproving;albeitmoreslowlythanmostofusAmericansanxiousforprogresswouldprefer.Overall,2010wasbetterthan2009.2011isexpectedtobebetterthan2010.And2012evenbetteryet,thanthisyear.Thegoodnewsisthatfurthereconomicdeclinesarenotexpectedthisyear.Thebadnewsisthatourrecoveryappearstobeweakandprotracted. Makingheadlinesinthemid-to-latterpartof2010,theannouncementthat“THERECESSIONISOVER”hadbeenmetwithscoffsandsneers.“Ifthat’sthecase,itsurehasn’tbeenfeelinglikeit,”manygroaned.Whileeconomistsdisagreeonwhatexactlydefinesarecession,weallknowit’swhentheeconomyfailstogrow,orcontracts. Whilefinalnumbersforthefourthquarteraren’tinyet,indicationsarethat2010willhavefinishedwitha2%+rateofgrowth.Generallyrecoveriesfromrecessionshavebeenclosertothe4%or5%rangeinGDPgrowth,butthismodest2%growthisgrowthnonetheless.Aclearsignalthattherecessiontrulyisover. Thenation’sGrossDomesticProductwasexpectedtogrowatarateof2.0%to2.5%overthenexttwoyears.Now,withtheextensionofthetaxcutsthatpassedattheendof2010,forecastersarepredictingheightenedgrowth.MarkZandi,awell-knowneconomicforecasterwithMoody’sAnalytics,expectsa3.9%rateofgrowthin2011;asubstantial,much-neededboosttohelppropelusbacktopre-recessiondays.

An Economy On The Mend Astheeconomyacceleratedinto2011,nationalclaimsforjoblessbenefitsdroppedattheendof2010tothelowestlevelintwoyears.TheInstituteforSupplyManagement-ChicagoInc.reporteditsbusinessbarometerended2010at68.6(afiguregreaterthan50onthebarometersignifiesanexpansion),whichisthehighestlevelinovertwodecades. Aftermorethanthreeyearsof“forcedfrugality”amongAmericanconsumers,itseemsthatshoppersarewearyofnon-spending.Holiday2010purchasingroseafantastic5.5%accordingtotheMasterCardAdvisorsSpendingPulsereport.Exceedingeventhemostoptimisticretailspendingforecasts,

therateofspendingduringthe2010holidayseasonwasthehighestsince2005–thatbanneryearfortheeconomy. Withconsumerspendingelevated,manufacturingwillseeanuptickasretailerswillneedtorestockshelves.Businessspendingisexpectedtofurtherincreasein2011andinto2012aswell. Thestockmarketmadesomeencouraginggainsin2010.TheDJIAclosedouttheyearwitharespectable11%growth.Kiplinger.comforecaststheDowtoriseanother1000pointstotop12,500in2011withtherallylikelytocontinueinto2012. Certainlyourhumblerecoveryhasn’tindicatedthatallofourtroublesarebehindus.Thetwomajorsnagstoarobustrecoverycontinuetobethenation’sweakhousingmarketanddisappointingunemployment.Employersaddedover1millionworkerstopayrollsin2010accordingtofiguresfromtheLaborDepartment.Butthegainshaven’tbeenenoughtosignificantlyreduceunemployment.Whileforecastersexpectemployerstoaddanother2.5millionworkersthisyear,it’llbeseveralyearsbeforeallofthe8.4millionjobsthathavebeenlostwillberecaptured.

Arizona Outpacing The Nation? Arizona,andtheMetroPhoenixmarketspecifically,havebeenhitworsethanmostothermarketsintheUS.Ourhousingmarkethasfallenharder,populationgrowthhasspiraledtohistoriclows,andin2009Arizona(generallyalwaysinthetopfivegrowthstates)sankto49thoutof50stateswhenmeasuringemploymentgrowth. Howeverbleakourdecline,Arizonaisregainingground.Bytheendof2010,Arizonahadaddedjobsforfourmonthsinarow,droppingunemploymentfrom9.5%to9.4%,whilethenationasawholerosefrom9.6%to9.8%inthatsametimeperiod.Thestateisexpectedtoadd48,000jobsin2011andrecentdatashowsthatArizonahasbecomethenumber-onefastest-growingmarketforprivatesectorjobs.MetropolitanPhoenixisnowrankedsecondinhighestjobgrowthamonglargecities,onlylaggingbehindWashington,D.C. “2011isgoingtobethebestyearforArizona’seconomicgrowthinthepastthreeyears,”statedASUeconomistLeeMcPhetersatthe47thannualforecastluncheonsponsoredbyASUandJPMorganChaseBank.“Ithinkit’sprettyclearwe’reonthethresholdofrecovery.Arizonaismuchstrongerthanitwasayearago,”hecontinued.

G E N E R A L E CON O M I C S NA P S H OT

I’ve got to admit it’s getting better. A little better all the time.I have to admit it’s getting better. It’s getting better since you’ve been mine.

Getting so much better all the time.— John Lennon & Paul McCartney, Sgt. Pepper’s Lonely Hearts Club Band

We’ve Been Double-Dipped MetroPhoenixhomepricesbottomed outinAprilof2009withamediansalespriceof$115,000–thisafterapeakof$265,000duringtheboomtimeofJune2006.AfterApril2009,homepricesbeganscootingbackupandthemedianhoveredat$130,000untillastsummerwhenthefederalhomebuyertaxcreditexpired.ByDecemberof2010,themedianhomepricefelltoanewlowof$110,000,creatingadreaded“double-dip”inafragilehousingmarketthathasbeenprecariouslyattemptingtorebound.(Themedianfiguresreportedareforalltypesofhousingsold,includingcondominiums,patiohomesandtownhomes.Themedianvaluesforsingle-familypropertiesarehigherwhencalculatedseparately.)TheArizonaRegionalMultipleListingService’sdataforecaststheValley’smedianhomepricetoclimbbackupto$115,000inJanuary.While2010’shome-salespatterncanbedescribedas“onestepforwardandtwostepsback,”thepredictionfor2011isimprovingto“twostepsforwardandonestepback.” Whilepricedeclinesarepainful,thegoodnewsisthatdemandhasremainedstrongthrough2010(seechart:2010 Sales Statistics).Thecureforlowpricesislowprices.Indeed,thehomeaffordabilityindexwillhelptobringinmoreandmorebuyersandmoveouttheexcessinventory. Whatdoesthismeanforthefutureofourhousingmarket?Pricingisexpectedtoslideabitfurtherthisyear.Anyfurtherpricedeclineisexpectedtobemodestthough,astheheart-stoppingdropsofrecentyearspastarebehindusnow.Despitethedropinpricing,thestrongvolumeofsalesin2010showsuswhatourmarketshoulddointhefuture.Pricingisalaggingindicator,butthesupplyanddemandlevelsgenerallyindicatewhatpriceswilldo.Sowithcontinueddemandin2011,anymildpricedecreasesweexperienceshouldthenbegintorisefromthere. “Wemustrememberthatpricedeclinesdonotforecastabadmarketahead,theyareanindicatorofabadmarketintherecentpast.Butthesepricedeclinesstimulatedemandwhichisanecessarypartoftherecoveryprocess,”reportsTheCromfordReport,alocalrealestateresearchfirm.

Distressed Properties Easing Up Whilestillatelevatedlevelsandputtingpressureonhomevalues,theamountofforeclosureswithinourlocalmarketisexpectedtodrop,thoughperhapsnotinthefirstfewmonthsof2011whilebanksworkthroughthebacklogcreatedlastyearwiththeirtwo-monthmoratoriumonforeclosures. Foreclosureactivitypeakedin2010(seechart:Monthly Foreclosure Activity in Maricopa County).Butthedropinpre-foreclosuresfrom97,141in2009to79,637in2010isapositivesign.Infact,thetotalof5,475noticesinDecember2010isthelowestlevelsinceMarchof2008.Whilewestillhaveseveralmoreyearsofdistressedpropertyinventorytoeatup(it’sestimatedthat22.5%-38.9%ofhomeownersareunderwaterontheirmortgage),thehomespurchasedtodayaresubjecttomuchmorerigorouslendingstandards.AsTomRuff,ananalystwith

InformationMarketsays,“Thenewloanscomingintothepoolhavemadeitthroughstrictunderwritingprotocolwhilethebadloansjustkeepgettingsenttothecourthousesteps,andoncethey’reforeclosed,they’renolongerdelinquent.Goodin,badout.”

The Interest Rate Dance Mortgageinterestratesplungedtorecordlowsin2010(seetable:30-Year Fixed- Rate Mortgages Annual Average),witha30-yearfixed-ratelowof4.16%.Butwiththeeconomyshowingsignsoflife,rateshavebegunrisinginearly2011tonearly5%.Bythetimethehousingmarketrecoveryisunderwaylaterthisyearandinto2012,wecanexpecttoseeratescontinuetheirupwardtrend.LawrenceYun,NationalAssociationofRealtorschiefeconomistforecastsratestoaverageover5%in2011and5.8%in2012–anearly2%increasefromlastyear’slow. Forpotentialhomebuyerswrestlingwiththedecisiononthebesttimetobuy,itappearstobeNOW.Forevenifhomepricesexperienceanother5%to10%decline,thecost-of-moneytoborrowathigherratesthelongeryouwaitmayjustoffsetanymonthlysavingsyoumightsee.Foreverypointthatinterestratesgouponan80%loan,theeffectivepriceofthehomegoesupabout10%duetowhatthedifferenceinpaymentswouldamortize. Forsellers,waitingtoputyourhomeonthemarketuntilpricesrisemayalsooffsetanygainyou’dhave.Yourpoolofpotentialbuyerswillbedifferent.Manywon’tqualifyatthehigherrateswhentheywouldhavequalifiedtoday.Additionally,Ifyou’llberepurchasingthenyou’lltoobefinancingatthehigherrateswewillhave.

Arizona On Sale Whetherit’saclearancesaleonahigh-qualitypairofshoes,oraninvestor“buyinglowtosellhigh,”savvyshoppersknowtocapitalizeonanopportunitytobuyavalueditematahugediscount.AndwhileArizonarealestateispricedverylowrightnow,themostimportantfactorindicativeofagoodinvestmentisthepotentialvalueandworth.IfyousubscribetothebeliefthatArizonaisahighlydesirabledestinationandwillbeinmuchdemandinthedecadestocome,thanbuyingpropertyintoday’smarketmaybethewisestmoveyoucanmakeforyourfuturewealthportfolio.

R E S I D E N T I A L R E A L E S TAT E

Source: Freddie Mac

Source: Information Market

Monthly Foreclosure Activity In Maricopa CountyMONTH RESIDENTIAL NOTICE RESIDENTIAL OF TRUSTEES SALE FORECLOSEDDecember 5,475 3,283November 5,607 2,509 October 6,728 4,034 September 7,116 4,877 August 7,186 4,831July 7,804 4,651 June 5,833 4,584 May 6,106 3,841 April 6,634 4,115 March 7,625 5,127February 7,179 3,891January 6,344 4,065 Total: 79,637 49,808

2010

MONTH RESIDENTIAL NOTICE RESIDENTIAL OF TRUSTEES SALE FORECLOSEDDecember 7,405 4,792November 6,679 3,485 October 7,303 4,444 September 7,408 3,432 August 8,624 3,546 July 8,671 4,711 June 8,138 4,688 May 8,126 3,472April 8,552 3,787 March 10,077 3,023 February 8,000 4,780 January 8,158 3,832Total: 97,141 47,992

2009

2010 Sales Statistics NUMBER OF MEDIAN SOLD LISTINGS SALES PRICEJanuary 5,667 $123,000February 6,422 $125,000March 8,805 $128,700April 9,136 $128,275May 8,924 $130,000June 9,158 $127,630July 6,913 $125,000August 7,000 $119,287September 6,715 $119,900October 6,556 $120,000November 6,740 $115,000December 8,405 $110,000 Total:90,441 Average:$123,900

30-Year Fixed-Rate Mortgages Annual Average

YEAR RATE YEAR RATE 1972 7.38 % 1992 8.39 %1973 8.04 % 1993 7.31 %1974 9.19 % 1994 8.38 %1975 9.05 % 1995 7.93 %1976 8.87 % 1996 7.81 %1977 8.85 % 1997 7.60 %1978 9.64 % 1998 6.94 %1979 11.20 % 1999 7.44 %1980 13.74 % 2000 8.05 %1981 16.63 % 2001 6.97 %1982 16.04 % 2002 6.54 %1983 13.24 % 2003 5.83 %1984 13.88 % 2004 5.84 %1985 12.43 % 2005 5.87 %1986 10.19 % 2006 6.41 %1987 10.21 % 2007 6.34 %1988 10.34 % 2008 6.03 %1989 10.32 % 2009 5.04 %1990 10.13 % 2010 4.69 %1991 9.25 % Source: Freddie Mac

Source: Information Market

Source: ARMLS

Ahomeisnotahomebecauseofitsroomdimensionsorthecolorofthewalls.Itisabouthowyoufeelwhenyouwalkthroughthefrontdoorandthewayyoucaninstantlyenvisionyourlifeunfoldingthere. Thisisaboutmorethanrealestate.Itisaboutyourlifeandyourdreams. Iofferadifferentapproachtorealestate.Onethatisbuiltonpersonaltouches,win-windealsandpositiveresults;complementedbythelatesttechnologies,marketresearchandbusinessstrategiestoexceedyourexpectations.Moreimportantly,Ilistenandfindsolutionsthataretailoredtoyou. Iappreciatetheopportunitytoearnyourbusiness.

SHERRY OLNHAUSENCDPE, CRS, GRI, CLHMS & AHWD

Associate Broker | REALTOR

480.228.3617yourphoenixhomefinder@gmail.com

www.FindMyPhoenixHome.com

If your home is currently listed, this is not a solicitation for that listing. Produced by Desert Lifestyle Publishing • 480.460.0996 • www.DesertLifestyle.net

2010 Average Sales Price By City

Statistics gathered from ARMLS. All information deemed reliable but not guaranteed. (Single-Family Residences)

The Real Estate Market What’s Expected in 2011?

Unemployment Consumer Spending GDP Growth A Review of the Economy in the New Year

Mortgage Interest Rates A Look Back at the Good, the Bad and the Ugly

M E T R O P H O E N I X

Glendale

Phoenix

Mesa

Peoria

Litchfield Park

Tempe

Gilbert

Chandler

Cave Creek

Fountain Hills

Scottsdale

Carefree

Paradise Valley

$133,134

$143,221

$160,274

$362,177

$448,931

$525,840

$711,486

$1,458,299

$207,814

$203,726

$202,689

$177,868

$217,303

2010 Sales Statistics By CityCity Number Average List/Sell Numberof of Dayson Price NewListings Sales Market Ratio in2010

Surprise ............................... 3,843 .................. 108 ..............98% ............... 5,677

Glendale ............................ 4,231 .................... 80 ..............98% ............... 6,977

Phoenix ............................. 18,002 .................... 88 ..............96% .............. 30,846

Mesa ................................... 6,405 .................... 95 ..............97% .............. 10,514

Peoria ................................. 3,232 .................... 98 ..............97% ............... 5,313

Litchfield Park ........................ 667 .................. 100 ..............97% .................977

Gilbert ................................. 4,629 .................... 99 ..............98% ............... 7,439

Tempe ................................. 1,079 .................. 101 ..............96% ............... 1,914

Chandler ............................ 3,912 .................... 99 ..............97% ............... 6,528

Cave Creek .......................... 587 .................. 131 ..............95% ............... 1,080

Fountain Hills ......................... 454 .................. 175 ..............92% .................839

Scottsdale .......................... 4,319 .................. 148 ..............93% ............... 8,168

Carefree .................................. 83 .................. 264 ..............91% .................181

Paradise Valley ..................... 327 .................. 283 ..............89% .................726

Anthem.................................. 634 .................... 95 ..............98% .................905

Statistics gathered from ARMLS. All information deemed reliable but not guaranteed. (Single-Family Residences)