Housing Prices

Sept. 21, 2010

Transcript:

Ted Simons:
Good evening, and well come to "Horizon." I'm Ted Simons. A new report from ASU's W.P. Carey School of Business shows that foreclosures are still a large part of the valley's housing activity, and that's not a good sign for home prices. Here with the latest numbers and friends is the author of the report, ASU real estate professor Jay Butler. Thank for joining us. Median price in the valley, three straight months now?

Jay Butler:
Continues to drop. Again, what it is, it's the price of what is being sold. And what people are looking for are the deal, the inexpensive home that they can flip or rent out is the dominant force. So -- and the move-up market, people would buy the more expensive markets is basically nonexistent. So what is happening, the price is reflective of what people are willing to pay for right at the moment.

Ted Simons:
So three straight months of decline, do you foresee more of this here in the next few months?

Jay Butler:
Historically the end of the year we see declines because the market shuts down because of the holidays. The new home market picks up somewhat, so, yeah, we'll probably see some decline in this situation. And hopefully what we thought would happen this year would happen in 2011, the economy really becomes solid jobs begin to improve, and the housing market begins to take off.

Ted Simons:
I was going to ask, people don't seem to be interested in buying homes. Are they waiting out the recession, are they staying put in their own home for the long haul? What's happening?

Jay Butler:
Yes. To everything. Some people in order to buy new have to set one they're in, which is difficult to do. Others are happy in the home they're in because it's -- because of the mortgages and availability, they weren't able to -- they were able to buy a home in a better location than they thought they ever would. Others are scared of buying a home. They are convinced things are going to get worse or maybe their jobs aren't as secure as they would like to be, so they don't want to make the commitment to these sorts of things. So there's really a lack of motivation on the part of the owner occupant to buy a home at the current time.

Ted Simons:
Is the concept of a house being a home to live in as opposed to an ATM machine or some sort of far flung investment, is that concept of, hey, this is what we're supposed to be living in as opposed to worrying about the numbers, is that back in fashion a little bit?

Jay Butler:
Well, it is, and except for the two years we were in the hyper market, it's always been in fashion. That's why we see some recovery. People are look at the school districts, the neighborhoods, freeways, job access, and everything else. So that has become extremely important and really was except for the two years of the hyper market.

Ted Simons:
Stricter underwriting guidelines. We hear this is going on. Is it going on, and how much a factor?

Jay Butler:
It is. FICA Scores for many of the low interest rates are 720 or higher. If you're 670 or lower you're probably going to have difficulty getting financing. You need greater down payment, more points, more fees. There's simply looking at a tighter schedule right now. If you have a foreclosure bankruptcy, it's not going to happen right now. Maybe in the future it probably will, but not right now. So, yeah, we're in a tighter underwriting guideline situation. Refinancing homes and renovation loans seem to be OK. They're more willing to do these if you are improving your home and increasing its value.

Ted Simons:
And that's provided of course that you have a job. I guess underlying all of this is the jobless picture and the jobless rate.

Jay Butler:
It's really the income. A lot of the jobs created were part-time jobs. Or like an education, which was a big gross secretary -- growth secretary nor August, those are bus drivers, aides, so it's the income that is the key issue.

Ted Simons:
I know you mentioned foreclosure, 45% of the existing market. It sounds as if most of the real estate activity in one way, shape, or form, deals with foreclosure.

Jay Butler:
It is, because that's where the deals are. Low-priced homes, you can buy them for $50,000. Turnaround, we see about half of the traditional market is really homes being sold that were foreclosed being either rented out or sold. But that's where the action is right at the moment. The investor who's looking for the deal, that's what they're looking for.

Ted Simons:
So investor as opposed to first-time buyer, that's who is buying right now?

Jay Butler:
There are some first-time home buyer, but we sort of used up that market with the first him time home credit. A lot of these are the people with the low FICA scores and income issues and job issues.

Ted Simons:
So what happens to the future market if right now everything is being snatched up by investors?

Jay Butler:
Well, there's a lot of growing concern they're going to have issues, because a lot of times renting them, one of the big things that's going to come up later this year, early next year is what is the population of the Phoenix metro area? Is it growing, it is losing people, because a lot of strategies are based on, we're growing. And if we're not, you're going to have a heavy vacancy rate. 10% of all single family homes in the valley are vacant. Over 12% of the apartment units are vacant. We have areas that are over 20% vacant in the apartment areas. We have a lot of vacancies sitting out there. But you have a lot of investors and others looking at rental or flipping these particular homes.

Ted Simons:
I was going to ask, the rental market, what's happening with that?

Jay Butler:
Well, in a sense it's having its serious issues. The apartment market, rents -- they simply dropped rents. There's a lot of sale activity in apartments right now. A lot of the converted projects which didn't convert are being sold at very low unit prices, which can be rented out very nicely. There's a belief that if Phoenix grows, they may not want to live in a home. They may not want to own a home for a while, so they're going to rent. And a high-end apartment may be the sound alternative. So there's a lot of investor interest in some of the apartment complexes.

Ted Simons:
I'm sure the investor interest is there as well for condos and town homes, although is there much interest at all there from anyone?

Jay Butler:
To live in? No.

Ted Simons:
Yeah.

Jay Butler:
To rent out, yeah, because again, they're bigger, so if you have three bedrooms you can rent out each bedroom to an individual, so you can cut the cost, they have a lot of nice amenity features, they're well located.

Ted Simons:
Any signs that things in general will get appreciably better any time soon?

Jay Butler:
Well, yes. You got a lot of communities where values are beginning to stabilize and edge up, especially in the East Valley. Because they have the freeways, the jobs, the schools and everything else. In the areas that were under heavy development in the hyper market, no. They don't have those. If you were looking to buy a home, you know where you're going to move into. The census data came up today looking at some construction schedule, there's issue that shows a little activity going on. So there are vestiges of an early Spring.

Ted Simons:
Last question, if you bought in the year 2000, or 2001, or something along those lines, and you bought for X, are you above or below that X line right now?

Jay Butler:
You're below it. That was beginning to peak up. You're probably not heavy under water unless you refinanced. But you're sort of marginal in this sort of situation. There have been a bunch of studies come out recently as to the underwater condition of Phoenix and depending on which one you look at, that run from 50% of all owner occupied homes to 70% are under water. It's really a question of what you paid for the home, where it is and if you're in the east valley you may not be under water. In other areas you may well be.

Ted Simons:
Wow. All right. Good to have you here. Thanks for joining us.