Valley Home Prices

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Mike Orr, Director of the Center for Real Estate Theory and Practice at ASU’s W.P. Carey School of Business, comments on a new report that shows some encouraging news for Phoenix area homeowners.

Ted Simons: Good evening and welcome to "Arizona Horizon." I'm Ted Simons. ASU is reporting some positive news for valley homeowners, especially when it comes to price and foreclosures. Here to explain is Mike Orr, director of the center for real estate theory and practice at ASU's W.P. Carey School of Business. Good to see you again. Thanks for being here. Single-family home prices on the increase, huh?

Mike Orr: That's right. Measuring them moving up since last September, and now higher than they were 12 months ago.

Ted Simons: What's going on? Why the increase?

Mike Orr: It's a supply issue. People have been thinking there's a glut of homes and they have been for many years, but over the last 12, 14 months, the oversupply has been so tough, and we're in a position where there's actually fewer homes on the market than we have buyers for.

Ted Simons: 42% drop in number of homes from this time last year. Are investors mainly at play here?

Mike Orr: Investors are a big factor in the reason we got the reduction. When our prices collapsed back in 2008, that brought investors on the scene and they've been here in big numbers. They don't really outnumber the normal buyers, but having them in the market means things get snapped up and right now it's very competitive. Lots of bids for any home priced competitively.

Ted Simons: When you say lots bids, you're looking mostly at what, $350,000 or less?

Mike Orr: That's right. The affordable up to the mid range home, beyond that things are still relatively quiet.

Ted Simons: So there's a glut of the higher end homes?

Mike Orr: I wouldn't say a glut. But there's plenty of choice. It's not as competitive.

Ted Simons: OK. Foreclosure starts, your report has them down 49% from this time last year. If foreclosure starts are down, doesn't that mean good news in the next couple months?

Mike Orr: It means there's more -- fewer people in delinquency, we've got fewer foreclosures likely to happen. Actually a large percentage of foreclosure notices don't end up in a foreclosure, they end up in a short sale or a loan that's modified. The banks are trying hard not to get any homes back and they're succeeding. One of the things that's really gone down a lot are the bank-owned homes. We're only generating 700 of those a month now. We were generating four or 5,000 at one point.

Ted Simons: The idea of the foreclosures though, back to that, we had so many, did that kind of help our system work itself out, maybe better than in other areas?

Mike Orr: Well, it means we suffered greatly from foreclosures, but we got through them faster. In some states like New York, there's a lot of extra process people have to go through. So there's a big backlog of delinquent loans that haven't been handled yet. When you get through a foreclosure, one beneficial is you no longer have a delinquent loan sitting there. So we've got through a bigger percentage of most of our delinquencies than most states.

Ted Simons: With am these investors, are these folks not -- a lot of world folks from around the world are looking at our market and they're playing it.

Mike Orr: It's local people too, but we've got funds from California, from New York, Canadians in particular are very keen on Arizona because their currency is strong so that makes the homes look even more attractive to them.

Ted Simons: Before the real estate bust, there was a lot of investment activity in Arizona. Some folks were warning that's not necessarily the healthiest thing to see that much investor activity. Is this a healthy situation right now?

Mike Orr: It's very different, because then people were investing with somebody else's money. They were basically putting virtually no money down and borrowing the money to buy homes. Which is really just speculation. Most of the investors now, they're either putting in 100% cash, which is their own so there's really no financial risk it will be another foreclosure, or if they are borrowing, it's only 50 or 60% of the value of the home. So it's much less risky situation.

Ted Simons: So bottom line, supply is dwindling, prices are rising.

Mike Orr: Yep.

Ted Simons: For the 350 and less.

Mike Orr: That's right.

Ted Simons: Encouraging news, has it been coming on, is it steady, getting quicker?

Mike Orr: We reached the low point around August-September, and we tentatively started moving up. Now I'm seeing the process accelerate, which is what you might expect we're getting into the prime buying season. So if there's going to be a significant movement in prices, it's probably going to be in the next three months.

Ted Simons: You mentioned the prime buying season, springtime is usually when folks get active in terms of home buying.

Mike Orr: February through June is our peak season.

Ted Simons: We're hitting it in stride.

Mike Orr: Yes.

Ted Simons: Before you go, we keep hearing rumors, reports of banks somehow hiding homes. There's going to be a glut of homes hitting the market when the banks decide they'll do this, that, and the other. What do you make of that?

Mike Orr: It's impossible for a bank to hide a home they own. The only thing they can do is hide the fact someone owes them money. As soon as they decide to foreclose, that's a matter of public record and I get to count it. There's no homes that the banks are hiding, I can count and give you a list of the homes they own, more than half of them are on the MLS being listed for sale or waiting to close escrow, but there's a few thousand that have recently been foreclosed. But in no way hidden or secret.

Ted Simons: There's no threat to when things start getting better, here comes houses aplenty.

Mike Orr: The only thing that could happen is if we get more people getting into default. And the foreclosure rate would rise again, which as you know it's down, but it could start going back and up that would delay the recovery. I don't see that happening right now, but anything can happen.

Ted Simons: Yes indeed. Good to see you. Thanks for joining us.

Mike Orr: Thanks, Ted.

Mike Orr:Director, Center for Real Estate Theory and Practice, ASU W.P. Carey School of Business;

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