Surviving the Phoenix Area Real Estate Market

March 28, 2013

Transcript:

Ted Simons: Home prices are up, inventory is low and foreclosures are down. Everywhere you look there are signs the valley's real estate market is returning to health. ASU's W.P. Carey School of Business and "The Arizona Republic" are hosting a free event next week to help explain the housing market. The event is sold out but we have two of the panelists with us tonight. Joining me are Catherine Reagor and real estate reporter for "The Arizona Republic," and Mike Orr, director of the center for real estate theory and practice at ASU's W.P. Carey School of Business. Good to have you both here. Thanks for joining us. Catherine, let's start with the event. What is this designed to do?

Catherine Reagor: It is to help homeowners, buyers, the whole market navigate the market with all the changes. We've had these community conversations, they've been on different not a lot of on the business side, but more on the social networking and features, and when we started talking about this we thought wouldn't it be great to team with ASU and get mike ORR, and it's just taken off. And built up much quicker than we thought. But looking forward to it, and really just want to answer questions and hear from the audience.

Ted Simons: Not just how to survive, but maybe how to thrive, a little bit much both?

Mike Orr: A little bit, I hope. We really wanted to try and appeal to the people who were just trying to buy homes for the first time, and help them navigate the confusing information that's out there.

Ted Simons: Has that information changed in the past few years?

Mike Orr: Well, yes, because Phoenix is a very dynamic market. We go from boom to bust to boom and back again over and over again. So it's important to know where you are, it's easy to make mistakes. As many people did in the middle of the last decade.

Ted Simons: Has the thinking though, real estate, some would say real estate is real estate is real estate, and the boom is a boom and a bust -- But has the process of thinking about this changed since the recession?

Mike Orr: I guess we've experienced things we haven't experienced. Having gone through what was really almost complete freedom of access to money, which caused us to go through a fast depreciation and then a collapse, we're now trying to get back to normal again. But one of the side effects of that bust is development stopped. Almost stopped for many, many years. So we had a glut of homes for a while, while all the foreclosures were going, and now we're -- Foreclosures are drying up, but the home builders are not really geared up to build at the rate they did a decade or even 15 years ago. So it's a problem trying to get home these days when there's so other people getting into the market.

Catherine Reagor: They're buying just multimillion dollars of land. I think million dollars was spent last year by last month. But they're being very cautious. Not with the speculative building and getting that contract, and the length -- I guess we'll see how well they can keep up with construction labor force this year, and if it takes a year or more to build a house, we'll know. But really cautious not -- It's interesting, and maybe -- Wall Street is very bullish on the builders.

Ted Simons: Is that an example of that caution of conventional wisdom maybe turn order its head a little bit.

Catherine Reagor: I think so, from what they tell me. Very much that they're --

Mike Orr: we don't have really good up to the minute population numbers, but I get the feeling people are -- The population is growing faster than the new homes are being built. So we've got more and more people with pressure on housing. There's a lot of people who got used to hearing the words "glut" for so years, they find it hard to believe until they actually try to buy a house, and they know every time they offer, there's already six or seven offers already on the table. And the builders are cautious because they went through such a terrible time. Some of them went bankrupt, several had to have big layoffs. So they don't want to overdo it this time.

Catherine Reagor: And pent-up demand certainly helps push up prices. If they're not overbuilding and they're building slow and usual waiting and you have to get in there to buy, these are --

Mike Orr: and if you're a developer -- You don't mind that much, if you're under build the prices go up, that's still good.

Ted Simons: As far as the event -- Basic economics. Regarding the event, last question on this, how do you balance -- If I'm going to the event and I'm an investor or homeowner, I'm guessing it's designed for both, correct? How do I balance conflicting information? Because I've heard I got to watch out for this, I'm hearing there's a glut of homes. I mean, how do you balance all that?

Mike Orr: You read my report.

Ted Simons: OK.

Mike Orr: I try and stay balanced. I'm not going to -- I'm trying to report on what I see every month, and it's freely available from the W.P. Carey School of Business website. You can read about what's happening in the market, what that means for the next month. I don't do long-term forecast, because that's -- It's so difficult to really say what's going to happen in a year's time, but I tell you what's happening now and what that's going to mean if you're buying or selling in the next few months.

Catherine Reagor: Mike, when he came into the market part of this we had really good public records, and mike went in, worked with armless and worked with that system, so we have better real estate data here than any place in the country with those combined and the access. So that report -- And it includes these pending sales indexes. So you see how far out that sale is going to happen. So that helps a lot. I was going to jump on the investors, my column this week will list the biggest investors, the blackstones, how much they own now, the colony capital, American residential, the big Wall Street institutional investors, and really their -- Theriot big ones in the market, and they've probably been reading you from day one and probably won't -- They will be the ones who investors might get in a little too late.

Ted Simons: Is that -- I remember going -- Moderating these things where I would hear the experts say, if you are thinking of investing now in Pinal county, you're too late. Are we back into that kind of situation?

Mike Orr: Well, I think there's some legs in the recovery yet. The pricing has gone up huge percentage, but from a very low point. So we're still nowhere near the pricing we were in , for example. And the supply is still not like -- It didn't grow very much over the median term, so there's still -- It's still likely the priceless continue to go up from this point. At least in the medium term.

Catherine Reagor: Prices medium home sales price went up 4% during February. And I --

Mike Orr: a lot for a single month.

Catherine Reagor: And I checked. There were several months last year that happened, but because I have written about when our median price dropped back to 's level, so watching where we are now, and we're at early 2004 at 170,000. So that's the beginning of the boom. And I'm not trying to be too optimistic, but chart those things --

Mike Orr: we look like we're approaching the long-term trend line. We still have to be under the long-term trend line. Therefore I think the question is not so much whether it's a wise thing to do, but how do you execute the plan of buying a home for the first time. And that's probably the key focus of this event, is trying to get good advice to the first-time home buyer.

Catherine Reagor: How you get a loan.

Ted Simons: What does it look like right now as far as lending is concerned? Still tight?

Catherine Reagor: I am hearing first-time home buyers have a better chance with FHA, less down. Move-up buyers, 20%. Sometimes first-time home buyers, 20%. But we're going to start to see, and I'm hearing this phrase, boomerang buyers. The buyers who lost, sold short sale or foreclosure and now have cleaned up their credit, have a big enough down payment, and they'll be back in the market, and that could fuel more demand, so we need the supply.

Ted Simons: And are they going to find those homes out there? Let's talk about investors. That's always in the equation. Is it a healthy penetration by investors, or is it still curious here?

Mike Orr: I think investors were the people who stopped the price going down. Now three stopped it going down going up, most people say I wish they'd ease up a bit. And indeed they are, as the price goes up. Investors lose a little bit of enthusiasm. There isn't so many bargains there, and they can go to other cities and buy more. At lower prices. So they are starting to ease up. It's still elevated from normal levels, but the investor buying is definitely down over the last months. Which means there's more available for ordinary homeowners to buy.

Catherine Reagor: Part of that demand, foreclosures and short sales are down. Foreclosures have gone back down to early level, and so that means lenders are taking back fewer homes, fewer bargain homes on the market, which investors really -- At those auctions, those reality show we had are going to have a hard time finding them, because fewer homes are being auctioned off.

Ted Simons: Mike Orr: Any time we do a real estate story we always hear from someone who says there's a conspiracy out there among banks and lenders, they're holding on to a ton of distressed stuff and they're just waiting for the market to be ripe and they're going to flood the market with all this property and boom, down go prices. Is that realistic?

Mike Orr: No. I deal with databases every single parcel. I know who owns each one. I can count up how many homes are owned by bank. It's one-tenth of what most people believe. The total for Maricopa County is probably around 4,000 homes. That's a tiny percentage of the total. About 2,000 of those are actually listed for sale around -- Or under contract there. Are about 2,000 homes the banks own that aren't being marketed. So there really is no significant shadow inventory.

Ted Simons: Is there a --

Mike Orr: that's not really going to come along and save us in terms of the supply. The banks don't have it to release.

Ted Simons: You're seeing it as savior move.

Mike Orr: Most people who are in real estate would like to see --

Catherine Reagor: they got used to working with them finally, and we're able to --

Mike Orr: buyers would love to see it. A thousand homes.

Ted Simons: So last question, before we let you go, the status right now, the status maybe six months into the future. What's the general opinion here?

Catherine Reagor: I follow mike's numbers, I follow the home building numbers, and I talk to a lot of consumers and talk to realtors. I am hearing from the demand. I'm hearing from the first-time buyers, they're looking, seeing the foreclosures drop. National forecasters, which, who knows, think we're going to exceed price increase of 12% this year. But that was last month. And that was before we just had a 4% increase in February.

Ted Simons: Is that all markets, lower priced homes and the upper homes?

Mike Orr: It's principally the lower priced homes, but it's affecting the mid-range now. And the upper end homes are increasing in price, just not as dramatically. They're edging up instead of jumping up like we have at the bottom end.

Ted Simons: The operative word is up.

Mike Orr: Oh, yes. There's no there wasn't a single part of the valley I'd found price were down.

Catherine Reagor: We did that with valley home values too. For 2012, most ZIP codes are double-digit increase and we have not seen that since 2006.

Ted Simons: I know the event is sold out. Where and where is this?

Catherine Reagor: In Tempe, April 6th.

Mike Orr: It's at the W.P. Carey school, and we had space for about 320 people, and we've had 400 people register.

Ted Simons: That makes sense. Good to have you both here. Thanks for joining us.

Mike Orr: Thank you.