Arizona Horizon updates the Valley’s real estate market with Mike Orr, founder of The Cromford Report and director of the Center for Real Estate Theory and Practice at ASU’s W.P. Carey School of Business.
Ted Simons: Is the Valley's real estate market headed for a recovery? Here to share some of the latest data is Mike Orr, creator of the Cromford Report, which offers daily up sight into the Phoenix market. Mike was recently hired by ASU's W.P. Carey School of Business to direct its center for real estate theory and practice. Good to see you. Thanks for joining us.
Mike Orr: Thank you, Ted.
Ted Simons: Congratulations on the appointment. And what -- real quickly, what is the Cromford Report?
Mike Orr: It's a website where people interested in the Phoenix real estate market can get daily updates on how it's going. I've been tracking the market for about six years, and I post updates every day to make people up to date on what is happening.
Ted Simons: How does it differ from other analysis?
Mike Orr: Well, it's different in that it's up to date. Most other reports wait for the end of the month, and another month, whereas I'm trying to track it every day and spot trends before anybody else.
Ted Simons: The Cromford Report will continue despite you moving to ASU?
Mike Orr: I'm going to keep it going, focused on the needs of the real estate industry, the realtors and the brokers are probably the major users. But we're going to expand the sort of thing I do within the real estate center at the W.P. Carey School of Business to really provide information for everybody else too.
Ted Simons: Let's get some information right now. Prerecession market levels, when will we see that return?
Mike Orr: I don't think I can answer that question. Prices got up to ridiculous heights, and it's a long time before we'll see those again. There are some parts of Phoenix that lost as much as 75% of the value. So they have to quadruple to get back to that height. But a sensible recovery is looking much closer now than it has been for a while.
Ted Simons: You and I were part of a real estate and home builders symposium not too long ago in which an academic from back east and an expert really in real estate from back east said in Arizona, this would go against conventional wisdom, it's not so much a demand problem, it's a supply problem. Did that make sense to you, and what's going on here?
Mike Orr: Well, there's been a dramatic change in Phoenix. And I'm talking specifically the greater Phoenix area rather than the whole of Arizona in that a year ago we had quite a significant supply, and that is really dropped to today. Particularly the distressed homes, foreclosed homes or homes that are being short sold are way down. By as much as 75%. So we're used to being told there's a glut of homes for sale, depressing the market. Most people still think that's true, but it's not true. And if people are out there trying to buy homes, they find there's not much choice and a lot of competition.
Ted Simons: So when we hear half the market in the valley is distressed, 50% of the valley homes are under water, you're saying yes, but?
Mike Orr: Yes, I am saying yes but. Actually the number of homes that are distressed keeps going down, the number of normal listings keep going up. So we're in a swift process of getting back to normal. We're not there yet. We're nowhere near normal yet, but we're far beyond the worst, which was probably 2009, was really the most difficult year in terms of distressed homes.
Ted Simons: What is the credit situation right now? And is it still -- some people are saying it's very difficult to get money, some are saying it's suitably difficult to get money. What's happening out there?
Mike Orr: It's more difficult than it should be probably. And the normal person who wants to buy a home to live in has a relatively modest down payment, is going to have to jump through a lot of hoops to get approved for a loan. On top of that you've got a lot of people who have had a foreclosure or short sale in their history and they've got to come out of the penalty box basically. Wait until they can buy a home. But there's a tremendous amount of buying going on for cash. One of the key things that Phoenix has is relatively high rates versus the perfect price. That's attracting investors not only from Arizona, but across the country, Canada, Asia, Australia. A lot of homes that were distressed are being turned in addition rentals.
Ted Simons: For the overall health of the market, all that investor activity, good?
Mike Orr: Well, I think it's a lot better than the alternative, which is no buying. Because an investor will tend to take a home probably not that great a condition. When you see these foreclosures, there's appliances missing, they've been neglected for a while. And an investor can't rent it or sell it until he's cleaned it up, painted it, in some cases they're going as far as dramatically improving the property. And so they're doing good things in terms of improving the housing stock within the market.
Ted Simons: Are we close to having too much after good thing?
Mike Orr: I think there is a possibility that we end up with too many rentals. Because as the people who used to own homes come out of the penalty box, find they can get a loan, we may want to swing back again and have a little more homeownership and less rentals. At that point we may have too many landlord owned properties.
Ted Simons: In terms of home prices, just general overview here, are we seeing the graphs moving up, and how steeply if so?
Mike Orr: We have the worst housing price measurements during last summer. Between August and early September. And they've moved up probably 5-6% since then. Most of that movement is at the bottom end of the market and in the bank owned homes. They're the most attractive to an investor. At the higher end what we've got is stability. No longer going down, but it's not going up either.
Ted Simons: Last question, real quickly, for when the Cromford Report comes out and when we all get access and more folks get access to your information, what shut we look for most to know things are getting better?
Mike Orr: The supply and demand balance is what I focus on. It doesn't tell you what's going to happen immediately because the housing market is slow to respond. But if you keep track of supply and demand and the balance "Two and a Half Men" them it makes a good forecaster. And that way you can make your buying and selling decisions more promptly.
Ted Simons: Keep an eye on those numbers.
Mike Orr: That's right.
Ted Simons: Thanks for joining us.
Mike Orr: Thank you very much.
Mike Orr:Founder, Cromford Report, and Director, Real Estate Theory and Practice, W.P. Carey School of Business;