The latest census data show a staggering number of vacant homes in the Valley. East Valley real estate broker Cindy Sessions and Fletcher Wilcox, a vice president and real estate analyst for Grand Canyon Title Agency, discuss what the numbers say about the area’s real estate market.
Ted Simons: Good evening, and welcome to "Horizon," I'm Ted Simons. The latest census shows that more than 460,000 Arizona housing units were vacant last year. That's a vacancy rate that's 61% higher than it was 10 years ago when the last census was taken. More on those numbers and what they mean in a moment, but first, David Majure takes a look at housing in the Valley and how the current real estate market is affecting the American dream.
David Majure: Moving in, moving up, moving out. The great American dream of owning a home has taken some hits in 3 recent years.
Elliott Pollack: The American dream has taken some lefts to the jaw, okay? It's taken lefts to the jaw that has left the American consumer dazed but not out of the game.
David Majure: But the game has changed: in 2005, at the height of the hypermarket, just about anyone could get a loan.
Elliott Pollack: The classic example is there was some guy in California who picked cantaloupes for a living and made $14,000 a year, and he qualified for a $700,000 house. Insanity. That is what got us here; that type of insanity got us here.
David Majure: With so many buyers, the supply of houses plunged, and prices skyrocketed.
Elliott Pollack: We are on the other side of that now where qualification requirements are so difficult that you really have to be qualified.
David Majure: But if you are qualified, have a stable income and good credit, now is a great time to buy. Interest rates are low and so are prices.
Jay Butler: Definitely they are. You can buy nice family homes that a couple years ago were $400,000 to $500,000; now they're in the $200,000 range.
Kiersten Meyers: I'm going to be showing you a four bedroom three bath in the main house with a one bedroom, one bath casita. At the peak of the market this would go between $450,000 and $500,000. We had it listed for $235,000 before we got a contract on the short sale. Okay, upstairs we're got four bedrooms--
David Majure: Kiersten Meyers, a realtor in the north Phoenix community of Anthem, is seeing multiple offers on homes in the area.
Kiersten: Yeah, I've had them recently with four, five and six offers. And it can be a challenge because most of these offers are coming in above list price. The bulk of the inventory seems to be short sales and bank-owned property. Back when the market first started to go down, inventory went up over 800 homes. We are now down under 140 homes active on the market right now, and that's in Anthem Country Club and Parkside combined; that's all price ranges.
David Majure: Kiersten is helping Lori Blaine buy this house in Anthem.
Lori Blaine. We're trying to upgrade a little. We filled up our house really quickly.
David Majure: Her family's current home is underwater, so instead of selling and losing money, she hopes to rent it and move into a bigger place.
Lori Blaine: It makes me really nervous to do this, but I really--I really want to make sure I'm getting what I'm paying for and that the market's not going to drop any lower because it's kind of a scary time financially as far as the real estate.
David Majure: The metro Phoenix real estate market is scary for a lot of people. Economic uncertainties make even highly qualified buyers a little leery.
Elliott Pollack: The reason they are leery is there's uncertainty in the job market, they probably saw their 401(k) hit, they saw--they see either the house they had or the one their parents had decimated in terms of value, and they're nervous.
Jay Butler: There's a group who believes that the bottom has not been reached yet and that they don't want to make that commitment. I'm convinced we're close to bottom if not at the bottom.
Elliott Pollack: If you take a look at this green line which, once again, is where housing prices were, way up and then came way down. Housing prices have been flat for the past four to six months which to me says we're probably at the bottom.
David Majure: Investors must think we're pretty close.
Elliott Pollack: About 40% of homes are purchased by investors. They're really providing a need.
David Majure: In some cases, they rent them out to victims of foreclosure or people who had to short sell their homes.
Elliott Pollack: --allowing people to stay in the same neighborhood, same school district, kids keep the same friends. You know, they are very stable people who were caught in a bad situation.
David Majure: A bad situation that will get better. While the American dream has been bloodied and bruised, it's far from being down for the count.
Ted Simons: Joining me to talk about the Valley's real estate market is east valley broker Cindy Sessions, the owner of Sessions Real Estate, and Fletcher Wilcox, the vice president and real estate analyst for Grand Canyon Title Agency. Good to have you both here; thanks for joining us. Cindy, what you just saw, ring true?
Cindy Sessions: No, not actually. I'm with the group that I don't think it's hit bottom yet. I disagree with him.
Ted Simons: Really?
Cindy Sessions: I disagree with him, yes.
Ted Simons: Why do you say that?
Cindy Sessions: Because of banks have been holding back on foreclosure homes, they haven't yet dumped their foreclosures, we still have least--I don't even know the percentage rate--we have a lot of homes that are still in the foreclosure process. Basically they've been living in their homes for a year and a half, two years without making payments, and the banks haven't taken those back 6 yet.
Ted Simons: We keep hearing about the fact that there could be another flood of homes hitting the market whether foreclosure, varia-banks holding back a variety of things. Do you agree with that?
Fletcher Wilcox: You know, I agree somewhat with Cindy: there's a lot of people that the bank has not filed a notice of trustee sale yet, but it will happen. But I don't think we'll hit the numbers we hit last year. The number of homes going into foreclosure are down to 25 to 30% compared to last year at this time. I think we're going to have a flow, but I'm not sure we're going to be back to where we were last year.
Ted Simons: Let's talk about the census numbers: a 61% increase in vacant homes, surprised?
Fletcher Wilcox: Well, you have to look at this number because I looked at it, and it said a 61% increase if there were 460,000, but that means ten years ago. That means that there were 285,000 vacant ten years ago, and that would have been a pretty big 10 years ago. and we've quadrupled the amount of residences. So, I would have to see those numbers more specifically to see if they have a lot of Class C apartment buildings because, Ted, the hottest--the second hottest real estate market right now is the rental of a single-family home.
Ted Simons: Okay
Fletcher Wilcox: So that's why it surprises me.
Ted Simons: What about you as far as the numbers? A little squirrely on the numbers too?
Cindy Sessions: Exactly. Yes. And I agree with him on the single-family homes are definitely--
Ted Simons: Vacant homes. Again the census numbers are saying 16% of all housing in the state. Surprised?
Cindy Sessions: No.
Ted Simons: Because?
Cindy Sessions: Because we have a horrible job market right now; people are losing their homes. Their jobs, so then consequently they lose their homes. And housing prices, of course, have gone way down. I think we have an inflated housing market only because the price of homes is down so low, and we have a lot of investors coming in. It's not an actual market for me. That's how I see it.
Ted Simons: Do you see this, as well? Just this unusual times, unusual markets?
Fletcher Wilcox: What I see are a lot of different market segments. It depends geographically where the homes are located, it depends on price range. As we saw on the--beginning of the show there were multiple offers. There are multiple offers, and the median home price went up in fifteen cities in Greater Phoenix from May to June. That is because prices are rising at the bottom because they dropped so low that investors, and first time homebuyers and move-up buyers are saying, "Hey, I'm ready to buy." So it's actually driven price up at the bottom.
Ted Simons: The impact of excess inventory on the market. We've heard for a while now that this just is--the number is staggering out there, and it's going to take a long time to get those things sold or moved. Do you agree with that?
Fletcher Wilcox: Well right now-and I'm going to go off the ARM list-the MLS for Greater Phoenix-Maricopa, Pinal County which I consider Greater Phoenix- the actual inventory is down about 20% last--compared to last year at this time. So it will be back to what Cindy's saying: is there a whole bunch of shadow inventory sitting out there? There's some sitting out there, but actually the inventory has--the supplies went down, Ted.
Ted Simons: If they went down, but are they still pretty high?
Cindy Sessions: They are, yes. The banks so far have not gotten rid of all of their foreclosures. I see people hanging on as long as they can hang on, and you're going to see another group that are saying, "You know what, I just can't hang on any longer; I'm just going let this house go." And that's what's coming in the next couple of months: we'll see a whole other influx of foreclosures.
Ted Simons: Right now it still--it looks like, juding from what you said as well, rent demand is high; home prices are low. A lot of activity out there in certain sectors, correct?
Cindy Sessions: That's correct.
Ted Simons: Encouraging?
Cindy Sessions: Somewhat. I think it's a little inflated because your average home buyer--the new market that's coming up--your 15 to what 36 -- 35-year-olds are "like the new baby boomers": their--the ratio is the same as far as the amount of people, and they're a little more educated: they have seen their parents lose their homes; they're a little more cautious. I don't think we will have the home-buying like we had in the past.
Ted Simons: What do you think? Do you think the new home buyer is a little more skeptical, a little more cautious?
Fletcher Wilcox: I think so; more cautious there's no doubt about it. But I think there are some have been cautious for a number of--last two or three years, and they are saying, "Wow, this home was $300,000, and I can buy it for $120,000, and I can afford it and make the payment. I'm going to go for it. Again, I see some buying going on.
Ted Simons: Taking a large view here and the fact that so many people seemed to think that we had a one dimensional economy here in Arizona for a long time: home building, real estate, that sector. Is that is a valid argument?
Fletcher: Somewhat. I mean, somewhat. We have other things going for us in the economy, but yeah, a little bit.
Ted Simons: Yeah, what do you think about that argument?
Cindy Sessions: I definitely think that's the case because we had an influx of people that moved into Arizona over the last 10 years has been enormous. And that has slowed a little bit, but it still hasn't slowed that much. You look at the individual building departments and the permits there aren't any. In Phoenix, in Maricopa-all other Maricopa, so you're talking about all the individual towns and the outlying towns up in the White Mountains-there just isn't any permits going on, so there's no building. And our housing market cannot come totally back without those permits coming in.
Fletcher Wilcox: But I think if some company's looking to locate here, affordability is there now for a lot of their employees, I think they will look at the Greater Phoenix area.
Ted Simons: What about lenders? Because, again, we see stories where you've really got to be qualified now; you once didn't have to be qualified hardly at all; now, it's almost on the other end of the spectrum. Do you agree?
Fletcher Wilcox: Things have toughened up. About two or three years ago is when lending got really tight; lenders contracted, but it's loosened up, and it's loosened up a little bit more lately. Yes, they're cautious, but if somebody, you know, is saving up their money, checking their credit--you don't need much of a down payment now if you can get certain loans. I think there's a lot of potential out there right now with lenders but you have to get the right lender too.
Ted Simons: Yeah is that the secret there: I mean, some lenders are not doing anything, and others might be a little more amenable?
Cindy Sessions: That's exactly right.
Fletcher Wilcox: There's banks, there's mortgage lenders--
Cindy Sessions: I say if you go with a mortgage broker, you're going to have a better chance of finding a loan than you will through a bank.
Ted Simons: Okay, I want to talk about short sales. You say you don't do short sales?
Cindy Sessions: I do not sell short sales, no.
Ted Simons: Why not?
Cindy Sessions: Because there's a huge liability there. And it hasn't been proven yet that the banks cannot come back after you. If you sell a $200,000 home that has -- you sell it for $100,000-it has a $200,000 mortgage-there's nothing to say that the banks cannot come after you on that $100,000. And we have been cautioned-I've taken some classes-we've been cautioned by big, huge real-- lawyers in the real estate market, and they said it's going to be hitting the brokers for the next 10 years they said.
Ted Simons: What do you make of that?
Fletcher Wilcox : In in-- I agree with Cindy, and there are a lot of stories out there, and it could be what it is is a lot of your sellers are going to be-- the bank's are going go after them for a deficiency judgment, and then the seller's going to sue the real estate agency, and I didn't know I could--
Cindy Sessions: That's true.
Fletcher Wilcox: --I was going to get a deficiency judgment. The reality is is that short sales make up about 1 out of 4 sales; they're a big part of our market. If you're going to do short sales, just follow--be cautious; follow the rules, and it should be okay.
Cindy Sessions: It is better for the homebuyer though not to do the short sale because then they don't have to worry about the banks coming back. They just do-- If they let the house go, it's going to be the same. They're going to able to refi-not refinance-- buy another home in three years whether it's a foreclosure or whether it's a short sale; there's not a difference on your credit.
Ted Simons: I wanted to get to investors because, again, there's a line of reasoning that a lot of what caused some of our problems, especially here in Arizona, was an overabundance of investor activity. First of all, is that a valid argument? And secondly, what are you seeing now? I would-- from all that I can hear, there is a lot of investor activity right now.
Fletcher Wilcox: The answer is yes. We have a ton of investors that could buy with 100% financing back in â€˜05; they've created a lot of issues we're at. Investors, in my opinion now, are going a good thing for the marketplace: About 40% of all purchases are by investors, so they're eating--they're taking off that foreclosure inventory. But what's really interesting about the investors is they're are doing two things: some are fixing and flipping, but some are buying and holding because of the tremendous demand for single family rental.
Ted Simons: What are you seeing more of?
Fletcher Wilcox: Oh, I've seen about 50-50.
Ted Simons: 50-50? What do you think, Cindy?
Cindy Sessions: That's what I would say: about the same thing: 50-50
Ted Simons: Are we seeing a lot of investor activity? Have we hit those 2005 levels?
Cindy Sessions: You know, I don't know; that I'm not sure.
Fletcher Wilcox: Number-wise I would say yes. Actually in June we had more home sales --and this is interesting--more home sales for Greater Phoenix than any other previous month, and we also had the same month more single family leases. Usually those are opposites, but they both hit records in June.
Ted Simons: So what does that tell us? Obviously a lot of activity out there, and obviously for some folks it's a boffo market, isn't it?
Cindy: Well you have a lot of home buyers that have lost their homes that would not normally be in the rental market, so that brings the rental market up higher. You have investors that have lost their homes, so you have a shortage of homes. It's good that the investors are coming in and purchasing and getting that rental market leveled out a little bit. But they are--most investors are purchasing with cash.
Ted Simons: Interesting. Last question: How long before--again we go back to the census numbers--and regardless--there's a lot of vacant homes out there regardless of the actual numbers. How long before we cut into that? You said 20% down now the last figures from what, last year you're saying?
Fletcher Wilcox: If we're comparing the census data back to 2000--
Ted Simons: Ten years.
Fletcher Wilcox: --10 years ago, we would have had 285,000 which would have been tremendous numbers. This number to me is not that surprising, and I'm not sure how accurate it really is.
Ted Simons: Okay, but we can agree there's a lot of vacant homes. Maricopa County had like 49% of the vacancies in the state. There--we've got a lot of stuff going on where no one's home. When does that change?
Fletcher Wilcox: It's--it's changing right now.
Ted Simons: Do you agree with that?
Cindy Sessions: Somewhat, but, you know, who can tell? It's a crystal ball;
Ted Simons: So--
Cindy Sessions: it can change tomorrow.
Ted Simons: So we're basically in flux, aren't we?
Cindy Sessions: We are.
Ted Simons: Is it that volatile where it could literally change tomorrow?
Fletcher Wilcox: Investors are buying, but it gets back to what Cindy said: how many foreclosures are still going to come into the market? I think the overall level's going to be done, but I think there will be a continued flow of them.
Ted Simons: All right, great conversation. Thank you so much for joining us.
Cindy Sessions: Thank you.
Ted Simons: We appreciate it.
Fletcher Wilcox: Thank you, Ted.
In this segment:
Cindy Sessions: Broker, Sessions Real Estate; Fletcher Wilcox: Grand Canyon Title Agency;
STAY in touch
Subscribe to Arizona PBS Newsletters: