Most likely the house has gone "underwater," and the owners swam away. A house is considered underwater when the debt owed on the mortgage is greater than the value of the house on the market.
This is not a huge problem for people who can make their mortgage payments and who don’t have to sell a home, but for those who have needed to sell homes since the last quarter of 2005 through today, things have been tough.
In the first quarter of 2008, there were 310 resales of homes in Maricopa at a median price of $170,000, according to a real estate report issued by Arizona State University’s Morrison School of Management and Agribusiness.
In the same quarter of 2007, there were 90 resales with a median value of $246,500 ("median" is the midpoint in a series of prices, meaning that roughly an equal number of homes sold at prices higher and lower than the median).
Paul Jepson, an assistant to Maricopa’s city manager, who has been given the task of determining how widespread the problem is, said that about 31 to 34 percent of resales in the city have been of such underwater, or "distressed" as he called them, homes.
Sales appear to be on the upswing, but as the median numbers indicate, at prices well below what owners originally paid.
One of the market casualties is Daryl Fox, a 40-ish, recently unemployed cosmetics salesman.
After his divorce several years back, Fox and his ex-wife sold their home in Chandler. It took a while to sell the house, and they had to reduce the price to find a buyer in the already-slumping Valley real-estate market, he said.
In April 2006, Fox took his half of the equity from the Chandler home and whatever other savings he had scraped up through the years and used them to pay 15 percent down on a three-bedroom home in Rancho El Dorado. The $212,000 purchase price was down from the home’s highest value.
He thought he was hitting the market at the right time, getting the most bang for his buck.
"I thought the market had bottomed out when I bought it," Fox said. That’s why he was willing to take out a 2/28 adjustablerate mortgage from Chase Bank.
A 2/28 is a 30-year mortgage. For the first two years, Fox would pay 7.5 interest on principal. After that, the interest would go up and increase the monthly payments.
Fox was willing to take a chance because he thought that in two years the market would bounce back, bringing the value of his house up and he’d be able to refinance the note before the interest rate adjusted. He did refinance right after closing, drawing the equity of that 15 percent down out of the house to finance a few renovations, he said. He owed the full $212,000 now.
"My intention was to live in that house as my primary residence, that’s why I remodeled it," Fox said.
In June 2006, Fox met Teri Parks, his future wife, at the Native New Yorker. Parks soon moved from Minnesota to Maricopa, buying a home in Acacia Crossings.
"After we were dating for a while, we got engaged and we moved in together," Fox said.
Parks’ house was the larger of the two, so it made sense for Fox to move in there and sell his place.
But the short market downturn Fox had expected turned into a free fall.
The median housing price in Pinal County "has steadily eroded from $220,000 in fourth quarter 2005 to $193,000 in third quarter 2007 and $156,160 for the current quarter," stated a report released April 29 by Jay Butler, director of Realty Studies in the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus in Mesa.
For Fox and others like him, this meant that a normal real estate sale was out of the question. So he tried renting the house out, hoping to hang on until it recovered value and he could sell. However, while he was paying $1,800 a month on the mortgage, the best rent he could get was $900 a month.
After spending thousands trying to hang on, Fox was staring down the barrel at foreclosure. A lawyer advised him just to walk away from the home, but he decided that he would try to sell the property in a short sale.
Fox has a buyer willing to pay $90,000 as of early May. If the bank accepts that offer, Fox could get out of the house without being foreclosed upon and the remainder of his debt would be forgiven. He’d walk away with no financial return on the biggest investment of his life, the $30,000-plus down payment and the thousands more he’d spent in monthly payments. At least, his credit would not be dinged and he could be satisfied to know that he retired the debt in an ethical fashion.
Fox said the bank told him that the house would be foreclosed upon on May 19. Even if the short-sale offer was on the table? He said he didn’t know and referred me to his real estate agent, Rita Weiss, the broker and owner of Desert Canyon Properties in Maricopa.
"I’ve spoken to Chase but they won’t tell me," Weiss said. "It could very well be that they don’t want it to go to foreclosure." She said that it typically costs a lender about $50,000 to foreclose on a property and all that the lender gets out of it is one more unsold house on its hands.
"If there’s an offer on the table, they’re going to try to make it work," said Weiss, who specializes in the Maricopa and Casa Grande markets. "There’s a flood of homes on the market. They don’t want to take back the houses.
"Forty-two percent of all houses that are actively on the market in Pinal County are either foreclosures or short sales," she said. "There are 56,000 listings in the MLS (Multiple Listing Service) right now. When we were in the big boom in 2005, there were only 8,000 houses on the market."
The law of supply and demand says that nobody will be seeing much return of value until that excess supply is sopped up.
During Maricopa’s wild growth spurt after incorporation, about 13,500 homes were built in the city, Jepson said. He based that number on cross-referencing building permits the city issued, water hookups in the city and housing completion certificates. None of them exactly match, but they seem to end up in the same general ballpark.
When Jepson said that 31 to 34 percent of the homes for sale in the Maricopa "market district" are what he called distressed, he meant they are either foreclosed-upon bank-owned homes or homes being marketed for a short sale, with the split between short sales and foreclosures at roughly 50-50.
"The bank-owned (foreclosures) are on the way down, and the short sales are on their way up," he said. That appears to be good news because it seems to indicate that an increasing number of residents in trouble with their mortgage are trying to avoid just walking away from the property.
People who walk away can’t keep up their homes, which has a ripple effect on neighbors and the city.