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June 15, 2009

Host: Ted Simons

Housing Prices

  |   Video
  • The decline in housing prices is slowing down. One Arizona State University professor says that could mean we've reached the bottom of the housing market crisis. ASU professor Karl Guntermann will talk about the new report on housing prices.
  • Karl Guntermann - ASU professor
Category: Business/Economy

View Transcript

Ted Simons: Good evening, and welcome to "Horizon." I'm Ted Simons. At a press conference today, Governor Jan Brewer says she wants lawmakers to send her the budget bills they passed more than a week ago by 5:00 p.m. today. If they refuse, the governor says she'll ask the Arizona Supreme Court to force lawmakers to do so. In addition, the governor criticized senate President Bob Burns for walking away from budget negotiations last night. And she says she'll no longer insist on a temporary tax increase to balance the 2010 budget, but she says it may be needed in future years. A new Arizona State University study indicates that while housing prices in Arizona continue to decline, the rate of decline has slowed in each of the last three months. Experts say that could be a sign that Arizona's housing market has reached a turning point. Here with more on the study is Karl Guntermann, the Fred E. Taylor Professor of Real Estate at A.S.U.'s W.P. Carey School of Business. Good to have you here. Thanks for joining us.

Karl Guntermann: Nice to be here.

Ted Simons: This study is the repeat sales index. What does that mean?

Karl Guntermann: It's the most accurate way to measure changes in house prices because it pairs houses that sold in a given month with prior sales of those same houses and statistically those rates -- return of return are put together to develop an index and we measure price change in the index from a year ago.

Ted Simons: So there are signs that our housing market is starting to turn around. What are some of those signs?

Karl Guntermann: Well, the preliminary data shows that prices, the rate of price decline is slowing. The decline in March from March 2008 was down 37%. The preliminary for April is down 35% and from May, down 33%. So it's not a big sign of optimism, but in this market, it's a hopeful sign.

Ted Simons: We're free falling at a slower rate in other words?.

Karl Guntermann: Prices declining slower rather than fast.

Ted Simons: Why do you think?

Karl Guntermann: Well, prices have fallen dramatically, the March data, the total decline in Phoenix, in our data, it's something like 47% from the peak in the fall of 2006. And so prices have fallen to a point where a lot of buyers are now in the market. Investors are coming back. People who couldn't buy a house two, three years ago when prices were so high, are now able to buy houses. A lot of foreclosures are at discounted prices and the market is working, it's correcting.

Ted Simons: The market has been so bad for so long. Has this particular study, this index or any other studies or indices shown anything like this?

Karl Guntermann: No. No, the biggest previous decline in terms of duration was back in the early 1990s. Prices went down 17 months, but with the March data, prices are now down 25 months in a row.

Ted Simons: Where are the prices falling the most and why do you think that is?

Karl Guntermann: Well, we do the index, we calculate the index for regions and certain cities -- with the index for regions and certain cities and the worse area, north and southwest regions. Glendale and Peoria tend to show the biggest declines and they were areas that developed last in the cycle. And so they're the most remote locations.

Ted Simons: What about the mildest declines? Where are we seeing those?

Karl Guntermann: The mildest is places like Tempe because it's centrally located. The northeast region has declined least among the regions. Prices didn't go up as much in the northeast, and so they -- maybe for that reason in part haven't fallen as far.

Ted Simons: It still sounds like, though, there's a ton of inventory out there. Especially foreclosure inventory. A) Is that perception correct? And B) do we have to wait for that stuff to sell?

Karl Guntermann: I think the perception is correct. And unfortunately, yes, we do have to wait for the market to correct. It took several years for prices to get to the peaks and it's taken several years to get back to where they are now. And I suspect it will take another year or more for the market to really get back to any sign of what I would think of as stability.

Ted Simons: Median price in the valley -- median price in the valley?

Karl Guntermann: In March it was $119,000. And the preliminary for April was $117,500, and May, $115,000.

Ted Simons: And that corresponds to how far back? What kind of marker are we looking at? 1990’s?

Karl Guntermann: Well, late 1998. Those median prices would go back to late 19 -- 1998.

Ted Simons: So does that mean that if you are in the market to buy a home, or if you’re sitting on a home thinking of selling it., Do you have to pretty much go back and think along the lines of what was going on in 1998, 99’, those prices?

Karl Guntermann: For a typical house. Inflation is a problem. On the other hand, in Phoenix, you can buy the typical house for 1998 prices.

Ted Simons: So there is some optimism. It's still tempered by a whole lot of correction that needs to go on.

Karl Guntermann: That's right. If you own a house, you've seen a lot of paper equity disappear. If you're in the market to sell, this isn't a good time. The number of people who are waiting for the market to improve before they sell their house and unfortunately, my judgment is that's still going to be some time.

Ted Simons: Thanks for joining us. We appreciate it.

Karl Guntermann: My pleasure.

Solar Jobs Bill

  |   Video
  • Senator Barbara Leff talks about SB 1403, a bill she’s sponsoring that provides tax incentives to solar companies that locate their headquarters or manufacturing facilities in Arizona.
  • Barbara Leff - State Senator
Category: Business/Economy

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Ted Simons: Arizona's economy relies heavily on the housing industry and jobs in construction. Today, the Arizona senate passed a bill that aims to diversify our economy by adding more renewable energy jobs to the mix. I'll talk with the sponsor of the bill in a moment, but first, David Majure has more on Senate Bill 1403.

Michael Bidwill: Over the last decade or so, Arizona has ranked as one of the top job-producing economies in the United States. Up until about 2006 and --

David Majure: At a recent meeting on commerce and economic development, representatives of the greater Phoenix economic council talked about the state of Arizona's economy.

Michael Bidwill: We dropped 17th and then 49th and now last in job creation among the 50 states.

David Majure: Arizona's economy is largely built on growth. The more people who move here, the more homes must be built but the current economic recession is proof that Arizona can't rely so heavily on construction.

Barry Broome: The question for us is how do we diversify this economy? And the first question is what industries are going to be big enough and strong enough to shift the market away from simple economic outcomes like housing and construction into export industries.

David Majure: One of GPEC’s answers to that question is solar and renewable energy. In recent years GPEC's been trying to get solar manufacturing companies to locate in Arizona.

Barry Broome: We've lost for almost two years, almost every major opportunity we've pursued.

David Majure: GPEC says Arizona is not competitive with other western states when it come to the cost of capital.

Michael Bidwill: Right now we've got 13 companies looking to build projects valued at $3.5 billion, probably 5,000 high paying jobs with benefits that could come to Arizona, waiting on the passage of Senate Bill 1403.

David Majure: Senate Bill 1403 provides income and property tax incentives to companies that locate their headquarters or manufacturing in Arizona.

Michael Bidwill: Senate Bill 1403 will give us an opportunity to compete and that's why GPEC is supporting it.

David Majure: The bill is intended to produce high paying jobs. To qualify for the incentives, a company must pay more than half of its full-time employees an annual salary of at least 125% of the state’s median income. Currently about $46,300, and cover at least 80% of their health insurance premiums. A company can earn an income tax credit up to 10% of its capital investments depending on the number of jobs it creates.

Barry Broome: The program has an annual cap of $70 million for five years. The way the tax credit is positioned, the company comes in and there's a formula so we know whether or not we're making money on the credit.

David Majure: In addition to income tax incentives, Senate Bill 1403 also provides a property tax break. To companies that invest $25 million or more in new facilities, equipment and infrastructure.

Ted Simons: The state senate passed Senate Bill 1403 today by a vote of 16-12. It now goes to the house for further consideration. Joining me now is the sponsor of Bill 1403, State Senator Barbara Leff, a Republican from Paradise Valley. Good to see you.

Sen. Barbara Leff: Nice to see you too.

Ted Simons: This legislation is designed to do what?

Sen. Barbara Leff: Legislation is designed to bring jobs to Arizona. We desperately need to diversify this economy and need jobs and this legislation is a combination of bringing jobs to Arizona and incenting the renewable energy companies to come for manufacturing, research and development and regional and national headquarters. We really want to bring those companies to this state. We have plenty of exciting generation happening, especially on solar, but don't have the manufacturing jobs and those are the high-paying jobs we want to bring.

Ted Simons: Why don't we have those jobs here? Again, it's a cliche, but you walk outside and there's sun all the time.

Sen. Barbara Leff: You don't need sunshine to do manufacturing and we would like to see the companies do everything here. The generation is going to happen anyway, there are going to be solar panels and we're going to generate electricity through solar. What we don't have are the manufacturers coming and there's a lot of competition among a lot of states to incent them to come to their states. Oregon and New Mexico are competing and offering lucrative incentives because they understand that those companies, when they come, they bring lots of business with them. They'll bring all of the supply companies and research with them and those high-paying jobs.

Ted Simons: What kind of incentives?

Sen. Barbara Leff: Talking about income tax and property tax incentives. Especially it's a problem for Arizona, for capital investment in Arizona. Our property tax for business is just too high and it's hard for capital intensive companies to come to Arizona without offsetting that cost.

Ted Simons: Critics say giving tax credits to one industry isn't fair. Your response?

Sen. Barbara Leff: I think most states do have healthy economies pick out certain industries they want to incent. We have aerospace and semiconductor, bioscience, optics and it's a smart move because you have a lot of growth and other companies that come and the entire economy improves because of that. Look at Chandler with Intel. We're trying to incentivise them. If you sit around and say, whoever comes, fine, you don't end up with the synergy you need to create the economic engine that Arizona needs.

Ted Simons: Again from the critical aspect. The idea of instead of picking one industry, just lowering the tax rate of all businesses, lower it all and solar will follow.

Sen. Barbara Leff: That would be great if we could figure out the way to lower the property tax for business in the state. If you lower that, all residential property tax rates go up.

Ted Simons: Is there a concern that we're talking subsidies with no guarantee of success? It's a new growing industry -- we're not sure what's going to happen. Should we subsidize something we don't know what the return is?

Sen. Barbara Leff: Before a company gets any tax credit, they have to have built their company and spend all of the money and pay the construction taxes and hired all of the employees and show that they're providing 80% of the comprehensive health insurance for the employees and pay above the -- more than half the jobs have to be above the median wage in Arizona. The companies will be here and hire people and people will be working before they can get one penny in a tax incentive back.

Ted Simons: How does that compare with Oregon or New Mexico or Texas or California? Similar or a little bit different?

Sen. Barbara Leff: It's a little bit different. Some states -- I believe New Mexico has a deal closing funds, Oregon has very, very high incentives for companies to manufacturer in Oregon, everybody that wants to be around California. That's the key. California is going to be a large renewable footprint and companies are looking to be around California, not in California, because their tax structure is difficult for business. And different states do different things. This makes us competitive. Not number one, but competitive. We keep losing job after job to other states, and right now there are 13 companies waiting to see what we do, to see if Arizona is saying come to our state. We need and want you and will help you get started.

Ted Simons: I know there was one lawmaker who suggested we're too far behind on this already, why even bother?

Sen. Barbara Leff: Well, that's not true in renewables. Renewable energy is a brand new industry. It's going to only get better. We are not ever going to turn the clock back and not look at renewable energy sources. This is exactly the time to say this is a new industry, come here, grow here. We have no idea what the potential is going to be. I think it's going to be tremendous.

Ted Simons: How many jobs talking here?

Sen. Barbara Leff: Thousands of jobs.

Ted Simons: What parts of the state? Cities, rural areas?

Sen. Barbara Leff: City -- well, probably not in cities. Rural areas, some parts of the city. And then companies in addition to the ones we're incenting will supply those companies and we talked to a glass manufacturing company. They're talking about coming to rural Arizona so they can get their glass products near where the manufacturing is going to occur.

Ted Simons: The incentives? General, how much will it cost the state, initially?

Sen. Barbara Leff: I would say it depends on the definition of cost. We're capping at $70 million a year total of all the companies to come. In order for that to be given, a condition, has to spend $700 million in capital investment. Over a 5 year period there's a $350 million tax credit potential, but that leaves $3.5 billion in capital investment will have occurred in Arizona already if that happens.

Ted Simons: For the person watching right now that runs the nursery or restaurant or any other type of business not getting this kind of incentive, how do you convince that business owner that this kind of break is a good idea?

Sen. Barbara Leff: You have jobs and when you create jobs those jobs create money for people. That money is used by those people to go to those other businesses that you talked about. Look at Chandler and Intel and what's created around it. They'll go to those other businesses and spend their money. Everybody gets helped when you have large numbers of jobs in your community. Arizona is hurting because we don't have enough jobs outside of housing and construction.

Ted Simons: Thanks for joining us. We appreciate it.

Sen. Barbara Leff: Thank you.

The Start of the Monsoon

  |   Video
  • June 15th marks the official start of Arizona’s monsoon season. ASU’s Randy Cerveny talks about the monsoon and his new book “Weather’s Greatest Mysteries Solved!”
  • Randy Cerveny - ASU professor

View Transcript
Ted Simons: Despite our sunny skies, today is the official start of Arizona's monsoon season. At least as far as the National Weather Service is concerned. Joining me to talk about the monsoon is Randy Cerveny. He's an A.S.U. professor of climatology and the author of a new book entitled, "Weather's Greatest Mysteries Solved!" Thanks for being on the show. Good to see you again.

Randy Cerveny: My pleasure.

Ted Simons: The monsoon starts today, June 15th. We've decided on a date. Why June 15th?

Randy Cerveny: We’re patterning it over what they do in Florida with the hurricane season. Even though we don't have hurricanes the first of June, usually, they classify the start as June 1st. The idea is we want to get people aware of what the monsoon is, what to do about it. Preparations to make and we can do that without having those annoying thunderstorms taking up the news media at that time and get the message out about safety.

Ted Simons: Has the monsoon ever started this early?

Randy Cerveny: You know, normally starts around the first of July, or the seventh of July, if we look at the traditional way of doing it. But in order to get the monsoon, you have to have a lot of hot air that takes the month of June to build up over Arizona and then that fields -- fuels up the moisture to come into the state.

Ted Simons: So its true, the 115-degree temperature, while a lot of people bemoan it. The idea is that draws up that moisture from Mexico.

Randy Cerveny: It acts like a big vacuum cleaner and sucks up moisture from the Pacific Ocean.

Ted Simons: Global climate change, whatever the reasons for it, something is going on out there. Is it affecting the monsoon?

Randy Cerveny: It's one of the things we look at. We have record that's go back over 100 years in terms of rainfall and temperatures and these things. There have been changes to the monsoon. We don't know all the changes and what they're caused by, but we found for example the number of dust storms we get into Phoenix has decreased in recent years as a result of the fact, not of any changes in climate, but rather that the city is built up so we don't have as much dust in the atmosphere.

Ted Simons: It seems like 30 years ago, we were always getting dust storms and cloud formations over the east and south. You're saying the clouds may be there but the dust is not?

Randy Cerveny: If you have strong winds of 40, 50 miles per hour, in order to get the wall of dust we remember seeing at least once or twice during the monsoon, we have to have the dust on the ground. If you put pavement over it, you don't get the dust in the area.

Ted Simons: The asphalt and pavement affect the dust, what about storms in general? Do these monsoons go around the city?

Randy Cerveny: It's not because of the city itself. It's because of the topography. The sky harbor airport is the lowest part of the metro area. Thunderstorms are most active when they’re moving up slope, so places like cave creek get more rain than sky harbor airport.

Ted Simons: Is that why if you live in the east valley, you're getting storms at least a couple times a week, but out in buckeye and the west valley, seeing them from a distance?

Randy Cerveny: To some extent that’s true. We know there are year to year changes where the thunderstorms hit. Sometimes it's the west part of the valley, sometimes the east. Sometimes it’s the west valley. And we don't understand why. But there's a lot of influence by topography.

Ted Simons: I was going to say, predicting monsoons, how do you do it and how accurate can it be?

Randy Cerveny: Well, we keep trying. We haven't gotten that accurate yet. One of the problems, it's a hit-and-miss type of situation, that because it's made up of individual thunderstorms, it's not like the classic cold front that you have in the great plains. Its comprised of just individual little thunder storms. You can have a situation where some parts of the valley get drenched with two inches of rain by one thunderstorm and yet other parts are clear and don't get a drop. Forecasting becomes problematic.

Ted Simons: How about the idea that the conditions will be ripe for a stronger monsoon this summer?

Randy Cerveny: We try it and the climate prediction center is claiming that -- predicting that the northern part of the state will be slightly above normal in terms of their annual or their monsoonal rainfall. We average about six inches of rain.

Ted Simons: These microbursts are energized -- what? -- focused areas of intense thunderstorms?

Randy Cerveny: Right, it's something that's relatively new. You wouldn't think after studying weather for this long, we'd still be discovering new things. But recently, meaning within the last 30 years, we discovered this whole new idea of microbursts, in essence, air bombs that blow out of the bottom of a thunderstorm and smash into the ground and spread out like a bomb blast and they were first discovered with a big plane crash that happened in New York City. But we discovered in the desert they're common because when they hit the pavement and get that dust up in the atmosphere, we can see a little bit of a signature and so a lot of the work that's been done in studying microbursts has been done in the desert.

Ted Simons: A quick question. Rainiest spot in Arizona for the monsoon?

Randy Cerveny: Up in the high mountain areas like Flagstaff. That because of the moisture that comes up from Mexico, gets pushed up the mountains and if you go to Flagstaff, usually about every day or other day, 3:00 or 4:00 in the afternoon, you get a big thunderstorm that breaks. They work their way down to Phoenix, but usually dry out before they get here.

Ted Simons: And the dryest place?

Randy Cerveny: Well, normally that would probably be Yuma. They end up with about three inches of rain for the entire year.

Ted Simons: Great stuff. Thanks for joining us. Congratulations on the new book as well.

Randy Cerveny: Thank you very much.

Ted Simons: Coming up on "Horizon" -- The latest on the budget standoff between the governor and state lawmakers. And a debate on plans to place a moratorium on fees that cities charge homebuilders to help pay for growth. That's Tuesday at 7:00 on "Horizon." Wednesday we'll take a look at A.S.U.'s involvement with NASA's efforts to return man to the moon. Thursday, empty storefronts and high-rise condominiums are signs that the economy has taken a toll on Mill Avenue. Find out what's being done to reinvigorate downtown Tempe. And Friday, it's another edition of the Journalists' Roundtable. That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great evening.