Ted Simons: Housing starts are up. 1183 housing permits were issued in June, an increase of 57% over May. That's the highest level in six months. Are we seeing a trend? Here to talk about those and other housing numbers is Arizona State University economist Jay Butler. Good to see you again. Are we seeing a trend?
Jay Butler: It's a trend. Every month this year has gotten better but if you look at the total it barely meets a month during the hypermarket. Much of the driving force they believe is the tax credit. And so the question may be in the next couple months, because got to have the home closed by November, December, that permit activity will drop off.
Ted Simons: That's an $8,000 tax credit for first time buyers?
Jay Butler: First time buyers but anybody who has not owned a home in the last three years including both husband or wife or all borrowers.
Ted Simons: The country as a whole new home sales up 11% in June. Arizona?
Jay Butler: 0Basically flat. Well, the metro area has been fairly flat. Again, they have been working off inventory. The problem is it's to some degree what new home builders have been advertising about is it's better to buy a new home because of all the warranties. Problem is it's cheap tore buy a foreclosed home so it's sort of been this sort of battle between the foreclosed home versus the new home.
Ted Simons: I want to get to those foreclosed homes in a second but are you surprised to see increasing unemployment rates and increasing home sales?
Jay Butler: Well, again, a lot of it, home sales are being driven by investors. To some degree the struck you are of this market is no different than we saw in the hypermarket. The market is dominated by foreclosed property, about 35%. And another 30 to 35% are investor-driven. And that's very argumentative number. It is not driven by the owner occupant which is the historical market. So, no, it isn't surprising because again the owner occupant is not the main force that's moving this market up.
Ted Simons: It sounds like you have just described what we just went through. Are you saying investors are out there artificially increasing some of these sale prices?
Jay Butler: They're not increasing sales price but taking advantage of low prices. For example, in Maryvale, you can buy a home for $40,000. And many of these deals are paid for in cash. These are as much as 50% off the foreclosed value. If you go into areas like Gilbert, you are probably are in a very competitive market, an owner occupied market because mark down is only 10%.
Ted Simons: So it doesn't sound good for traditional buyers. It sounds like investors are once again roaming the landscapes.
Jay Butler: In many areas. In some of the areas where you see more like Gilbert and Chandler, it's very competitive against owner occupants. And other areas the investors, you got to sort of look at the submarkets. Each market is a little bit different and that's really the key thing to look at.
Ted Simons: The, there's a new law out there. And again, we are kind of staying with the investor speculator line of discussion here. A new law in Arizona protecting banks from speculators, investors who don't live in a house for, what, six months something along these lines and have a foreclosure and walk away. What banks want to say and you can't do that if it's a second home or investor home.
Jay Butler: Well, that is a very argumentative. I've been looking at different web pages explaining the laws and it seems to be very confusing. I think the intent was that. Basically, dealing with deeds of trust and power of sale, nonjudicial foreclosures. It would be, there is no deficiency judgment. There is but it's a very limited case. You would have to prove that you lived in this home as an owner occupant for six months. That's not that difficult to do, but it's like trying to prove you are an American citizen immediately. It may be more difficult than it really is. It was aimed at the investor speculator. But that's not appears to be the way the law is. I would suspect they are going to have to do some amending of that law before it comes into effect sometime in September.
Ted Simons: Because it sounds like you could be a second, you could own a home in Flagstaff or Prescott or Payson, you don't live there for six months, you get in trouble and have to foreclosure, all of a sudden the remainder of that loan is on you.
Jay Butler: It is. What they were really look at was the investor who invested in a home and lost the investment home that they then could go after their other assets. And that is fairly common in a mortgages and it's very common in the commercial sector. It isn't common in the deeds of trust. But it appears that's not the way the law is written or at least the way some people are interpreting it.
Ted Simons: I would imagine a lot of folks would think this is not necessarily a bad idea, you just have to figure out how to define fine an investor.
Jay Butler: It is very difficult to do because the time, and, in fact, it's very unclear how many investors we really have buying these homes because the designation of the investor is not clear.
Ted Simons: And critics will say basically what the law is just lenders trying to cover their own --
Jay Butler: Yeah. To some degree it is because they probably should have caught it up front. But also you sort of wonder, this is pretty late in the game. We are sort of in a recovery mode. And most of the foreclosures you are probably going to see in the coming mosses are the classical job loss reasons, not the investment driven. So it seems late in doing that kind of reasoning. But we have the law, and it's going to be interesting dealing with it.
Ted Simons: Something else that's going to be interesting is something that seems like it's been coming like a train, the light is getting closer, the rumble is getting louder, adjustable rate mortgages. What are we looking at as far as these things hitting folks?
Jay Butler: There appears to be two periods. One year from now, in 2010 and a following one in 2011. The big argument is how many of those mortgages will actually be in existent when time comes? Either the homes have been foreclosed on or people have been able to refinance and are out of them. A lot of lenders appear to be willing to more refinance than they are to go through loan modification programs. So much of this impact is going to be questionable. Some contracts were written with a set interest rate and those could be a little more difficult to handle. But there's a lot of argument over exactly what that impact is going to be especially the 2011 impact. That most people should be able to work their ways out of it by then.
Ted Simons: So basically if the mortgage rates can stay low, the impact won't be quite as hard?
Jay Butler: Right.
Ted Simons: The last question here. With all this information and the fact that, I know unemployment is still increasing but are we slowly making our way out of a recession?
Jay Butler: Economically we are making it out of the recession. We basically have an economy, earnings are improving but the average individual is going to find an issue. Can they get a job? Can they feel comfortable in the job they have? No.
Ted Simons: There's also a general belief the Arizona economy will lag behind the national recovery. But from the average individual, the real question is, do I feel more comfortable in the job I have or want? That's way down the line. And do we feel comfortable with this housing information knowing again so much in the way of investors and speculation is involved?
Jay Butler: Hopefully we're going to work our way through it and we'll see what happens. But there's still a lot of unknowns sitting out there.
Ted Simons: All right. Jay, thanks so much for joining us. We appreciate it.
Jay Butler: Glad to be here.