Real Estate Future

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As the Phoenix Area recovers from one of the worst real estate markets it has ever seen, will the same mistakes that resulted in the real estate bust be repeated? Mark Stapp, the Fred E. Taylor Professor in Real Estate and director of the Master of Real Estate Development (MRED) program at Arizona State University’s W. P. Carey School of Business, will discuss the possibilities of that happening again.

Ted Simons: Arizona's real estate market is showing signs of recovery, but do those signs point to a more durable market? Or are we at risk for another free fall? Here with some answers is Mark Stapp, the Fred e. Taylor professor in real estate and director of the master of real estate development program at ASU's W.P. Carey School of Business. Thanks for joining us tonight on "Arizona Horizon."

Mark Stapp: Thanks for having me.

Ted Simons: Is the real estate market recovering?

Mark Stapp: I think it is. I think that we see signs in both residential and the commercial market, most segments of the commercial market, firming up. So we see those good signs where we are moving in the right direction.

Ted Simons: Median home price seems to be up. New home sales seem to be up as well.

Mark Stapp: New home sales are up quite a bit. As the existing home market has firmed up and we have got a very small existing home supply, it's making room for the new home builders to start building again.

Ted Simons: I want to get to what they are building here in a second or what they should be building, the kinds of homes but before we do that, ok, we are on the rebound. Are we on the rebound toward some sort of big skyrocketing situation? Or is it just a gentle climb?

Mark Stapp: I hope it's just a gentle climb. I think there's some factors in the marketplace that are going to keep a damper on this for a while. So you still have a very difficult lending environment so it's not that easy, even really well located, well conceived project, still have difficulty attracting capital. And that's good. That's instilling some discipline in the marketplace and not allowing it, especially in the commercial side to overheat. And I think the other part of this is that the development community is being much more careful about the kind of products they are going to develop.

Ted Simons: That's what I did want to talk about. The idea of looking at customer demand or the users now as opposed to we are going to build it, you are going to live in it. Talk to us about what they are doing when customers look for a certain type of home.

Mark Stapp: I think in the home building environment, home builders are having because it's so competitive, having to be very aware of what buyers want and need. We have got an evolving demographic. The demographic that was the primary driver of new home sales back in the early 2000s and the '90s has shifted. We are seeing a shifting demographic and they have a variety of needs. Builders to be competitive for looking at niching products. In order to deal with lifestyle changes.

Ted Simons: Give us an example.

Mark Stapp: Well, you know, so you are looking at homes that may have more accommodations built into the home for extended families, for nuclear families. So you will have the ability to adapt a floor space more easily to accommodate maybe older adults living in the home with you or children. Older children that are staying longer in a home. And so it's a much more adaptable kind of house. Then at the same time, you have got an aging population that doesn't have the same desire to retire the way that our parents retired. So you are looking at homes that are maybe a little smaller. You don't need the same kind of space as you get older and you have got shifting lifestyle demands.

Ted Simons: Fewer staircase, I would imagine?

Mark Stapp: Fewer staircases. Much more flexibility in the homes to deal with your changing lifestyle may be in place.

Ted Simons: So, it sounds as though developers are taking risks by focusing on this market a little bit and it sounds like cooker cutter mentality that so many critics see may be on the way out or not a part of this particular resurgence.

Mark Stapp: I would say they are not taking a risk. I think in fact, they are mitigating their risk by being much more particular in understanding what the buyer profile is. So they are able to niche their product, looking for white space in the market as they say in the marketing business. And by doing that, they can be mulch more precise in identifying who their buyers is, targeting advertising to them and attracting them. So i think that's a much more intelligent way to approach some of this.

Ted Simons: What about infill?

Mark Stapp: Infill is, I think, part of our rebound. We have got a lot of infrastructure that's been built over the last 10 years. And we are seeing these, some of these changing lifestyles that are now taking advantage of that structure. The light rail, the university downtown, some of the things that are happening as a result of both of those are making it much more desirable to live in town.

Ted Simons: Is it, though, desirable yet for homeowners who may have been battered by the down turn to get that foot back in the market, to go ahead and put their home on the market? A lot of folks are a little gun shy still about this. Is that a major factor right now?

Mark Stapp: Right the single family home market is still not fluid. I think a lot of the recovery that has occurred is the result of a lot of investors that have looked at this community. A friend of mine used this phrase, and I am allowed to use it with her permission and that is Phoenix had been seen as a commodity and not as a community. So you saw a lot of dollars from out of the region pouring in because you could buy cheap real estate recognizing this was a growth community. It's going to be a continual growth community. So seen as a good investment place. That doesn't necessarily build sustainable communities. You have a large segment of your existing home inventory in renter-occupied homes. And those rental dollars, those revenue stream is going out of the marketplace to out of region areas.

Ted Simons: But I have heard that investor activity is very strong. This surge in the new-home market also suggests there might be something happening. Are we headed toward a possibility of something similar to what happened before in 2008?

Mark Stapp: I don't think so. I mean, I think we have seen home appreciation very substantial home value appreciation which is good that helps with this under water problem. And then that helps people who don't have credit problems that want to sell and move to be able to do that. If you can't sell your house, you can't move. And that then locks up the whole market. It's not fluid. We need that fluidity in the market. With the investors so active in the marketplace, homeowners looking to buy are having a tough time outbidding them. That's really making I think some room for the new home builders who are going, you know, we are now able to pick up some of that demand.

Ted Simons: Interesting.

Mark Stapp: Because the cost of producing that house is now coming close to that home appreciation price.

Ted Simons: So bottom line, are we seeing a little more in the way of discipline? A little more in not so much irrational exuberance here as far as this turn around is concerned?

Mark Stapp: I think we are seeing a tempered recovery and i think that's a very good thing.

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

Mark Stapp: Thanks for having me.

Mark Stapp:Fred E. Taylor Professor in Real Estate, Director of the Master of Real Estate Development (MRED) program at Arizona State University's W. P. Carey School of Business;

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