Buyers Are Flexing While Foreclosures Quietly Rise in Phoenix

As the Phoenix housing market shifts, foreclosures are slowly beginning to return to the radar. While mortgage delinquencies remain relatively low compared to rising defaults on credit cards and auto loans, May saw 389 new Notices of Trustee Sale issued in Maricopa County, up from 315 in May 2023. Additionally, 73 Trustee Deeds were recorded, nearly double the number from May last year and the highest since before the COVID-19 pandemic. Though still modest compared to the 4,000 or more monthly auctions seen during the 2008 to 2011 crisis, this uptick is worth monitoring as supply builds and more distressed properties move through the pipeline.

One key reason for this trend is that many homeowners in default can no longer rely on quickly selling their homes to avoid foreclosure. With inventory levels higher and demand softening, properties are not selling as easily, and more are ending up at auction. Even so, the current volume of foreclosures is minor in a historical context. That said, if supply continues to increase without a demand rebound, we may see a gradual rise in distressed sales over the next year.

In parallel with these shifts, buyers are becoming more assertive in negotiations. Rather than settling for repairs, some are now asking for full remodels. These requests include repainting interiors, replacing or tinting all windows, re-roofing even without leaks, upgrading A/C systems, remodeling bathrooms, and reframing closets. In many cases, the cost of these improvements is baked into the final sale price, allowing buyers to finance their upgrades without out-of-pocket costs at closing, while sellers agree to terms to get the deal done.

This trend has interesting implications. By including these costs in the sales price, the market reflects higher values on paper, even if the underlying asset has not appreciated. As a result, recorded sale prices remain elevated or even rise, despite broader market weakness. However, this strategy has a ceiling. Appraisers have begun to take notice, increasingly flagging the market’s declining price trend in their reports, which may cap how far this tactic can push prices. Still, in a competitive environment with only one buyer at the table, these remodel requests are becoming harder for motivated sellers to ignore.

"Keep your face always toward the sunshine, and shadows will fall behind you."
— Walt Whitman

Have a great week, everyone!