Even most Arizona Realtors believe the urban myth that banks have held back tons of Phoenix homes from the market and eventually when the banks release those homes, home prices will fall again.

It is true that some markets (for example, NY, NJ, CT, MD, IL and FL) have a huge “shadow inventory” of homes most of which will eventually end up as bank-owned MLS listings (also known as foreclosures or REOs).

Does metro Phoenix have a huge shadow inventory?

The answer is, “No.”

How to Forecast Bank-Owned MLS Listings

To predict the number of future bank-owned listings in Phoenix we can look at the number of homes in the earlier stages in the process.

Four Stages of a Bank-owned MLS Listings

  1. Behind on Mortgage Payments — House is delinquent
  2. In Foreclosure — House is officially in the foreclosure process
  3. Bank-Owned but Not Listed — The house was repossessed by the bank at the foreclosure auction, the bank owns it now, but it’s not listed yet
  4. Bank-Owned MLS Listing — Bank puts house up for sale in MLS, this is the stage that puts downward pressure on home prices

Let’s look at recent trends in each of these four stages.

Phoenix Bank-Owned MLS Listings

Phoenix bank-owned listings have fallen dramatically, down TWO-THIRDS from 12 months ago.

 

Phoenix Bank-Owned Homes Not Listed (yet)

Myth: “Yes, REO listings have fallen but that’s because the banks have been holding back from the market a huge number of homes they own and I hear the banks will soon put those homes up for sale in the MLS.”

 

Fact: There is no increase at all in the last 12 months in the number of Phoenix homes the banks own but haven’t yet listed.

Phoenix Homes In Foreclosure

Myth: “The banks aren’t completing foreclosures because they don’t want to own more Arizona homes so there’s this huge backlog of Arizona homes in the foreclosure process.”

Fact: The number of Phoenix area homes in the foreclosure process has fallen dramatically, down almost HALF in the last 12 months.

Phoenix Homes Behind on Mortgage Payments

Myth: “The banks are avoiding starting the foreclosure process even on homes that haven’t made a payment in many months so there’s this huge backlog of Arizona homes that are delinquent but which eventually will have to be foreclosed on.”

Fact: The number of people who are behind on their mortgage payments in Arizona has fallen dramatically, down more than ONE-THIRD which is actually two-thirds of the way back to “normal.”

Summary — Metro Phoenix REO Listings Pipeline

  1. Behind on payments — Down more than one-third (since early 2010)
  2. In foreclosure process — Down almost half (last 12 months)
  3. Bank-owned but not listed yet — No increase (last 12 months)
  4. Bank-owned listings — Down two-thirds (last 12 months)

Conclusions

Phoenix bank-owned listings will continue to fall because the number of homes in the earlier stages is falling.

I think, therefore, that as the supply of bank-owned/REO/foreclosures continues to fall that we’ll reach a tipping point early next year and the median home price in most zip codes in metro Phoenix will start rising and be significantly higher by this time next year.

P.S.

I posted one of these charts on my Google+ account before I posted it here and got a comment from a reader who thought we could see a “flood of new foreclosures” because Arizona has a very high rate of foreclosure starts. My response was that the rate of foreclosure starts in Arizona is indeed high but the rate is down ONE-THIRD from August 2010 to September 2011. So it’s hard for me to imagine that we could see a “flood of new foreclosures” when foreclosure starts have fallen by one-third in such a short time. You can see the post and comments here.

Source: The top 3 graphs are from The Cromford Report. I created the “Phoenix Homes Behind on Mortgage Payments” graph from data gleaned from this website.

See also Dru Bloomfield’s post.

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