Ted Simons: Home prices in Phoenix dropped over 8% in 2010, according to the latest Standard and Poor Case-Schiller home price index. Here with more on what is happening in real estate is Catherine Reagor, a reporter for "The Arizona Republic." And a good friend of the program. Good to see you again.
Catherine Reagor: Good to see you.
Ted Simons: This is 8% at the end of the fourth quarter. Can we update that?
Catherine Reagor: It's probably down closer to 10 to 12% so far. January was a rough month, our median price is down to $109,000, where we were in the late '90s. And it's tough. And it's foreclosures.
Ted Simons: I want to get to that in a second, as far as raw numbers are concerned, how do we stand compared to the rest of the country?
Catherine Reagor: We are dropping, but the thing is, other cities are catching up. Washington, DC, New York, and they were immune to the housing crash at first, but now are seeing bigger drops than we are seeing. And I don't want to say -- but you know, misery loves company. So we'll see. We're all in it together now.
Ted Simons: Really, no one has been -- has anyone been immune to this?
Catherine Reagor: No. And it could be -- the hope is we went -- we had the biggest run-ups, like California, Las Vegas, Florida, we had the biggest crash, and maybe we are now bouncing around the bottom, and possibly our ills will be behind us sooner.
Ted Simons: Let's focus --
Catherine Reagor: optimistic.
Ted Simons: Let's focus in on those. Why are our prices continuing to fall?
Catherine Reagor: Foreclosures. Foreclosures dropped off late last year because particularly B of A's moratorium, but now they're climbing again. And unfortunately the loan modification programs are not working, homeowners are getting frustrated because the home down the street, people can't get a short sale, they can't get a loan modification, the bank takes it back and sells it for a fourth of what a short sale or modification would go for.
Ted Simons: Why aren't they working? I think the plan was for them to work.
Catherine Reagor: Yes. And there was a federal program, and incentives, two, $3,000 per lender. Part of the issue with metro Phoenix has been how much our home prices have dropped. And so homeowners are so underwater, lend would have to cut principal. If you owed $200,000 by cutting your interest rate by 2% from 7% to 5%, isn't enough to cut your payment. They need to eat some of that principle and drop what you owe from $200,000 to $150,000 to make the program work. And they just have not been willing to do that.
Ted Simons: I know you recently wrote foreclosures as far as could you tell were the most important gauge, the most important factor of the home market why did you write that?
Catherine Reagor: It's just everything follows through from foreclosures. It starts with basically the home being taken back, what it's resold for, and that is affecting home prices. Foreclosures the number of foreclosures out there, people who walk away, we can't predict who is going to get frustrated. Those are more homes for sale that's going to drive down prices as well. Preforeclosures, the best leading indicator we have and those are three months, if you fall behind -- if those climb, we know foreclosures will climb, we know supply is going to climb and prices will drop.
Ted Simons: You mentioned the moratorium. I think we've talked about this, there was always stories out there that banks are holding back. And they're holding back. And eventually we're going to get a flood of these properties again. Are we going to get a flood of these properties again?
Catherine Reagor: It's a real concern. If you look at the number of foreclosures and the number of homes listed for sale, they're holding on to them. And there are some tax incentives for them to do that. If they flood the market again, that's when our prices plummeted. 50%. Because of all those foreclosures came back on the market for homes that have mortgages for $250,000, came back on the market for 60,000. If you're in that neighborhood, what does that do to your home price?
Ted Simons: We heard maybe 70% of homes in the Phoenix area under water, is that an accurate number?
Catherine Reagor: It was probably accurate about a year and a half ago, and now because there are so many foreclosures and short sales, they dominate the market, almost 70% of all home sales. Foreclosures being resold and short sales. It's closer to 40%. We are behind only Nevada and Nevada is still above 50% under water, and that's -- not because of our home prices unfortunately continue to dip, it's because fewer people are under water because they no longer have the home.
Ted Simons: You mentioned the factor of people walking away from their mortgages. Are more folks doing this? You hear radio shows, and people on the internet, everyone saying if you're in this situation, just go ahead and walk away. Do people understand the consequences?
Catherine Reagor: I think people do, I think in some cases it's like a bad investment and they're making that decision. I would be very upset if my neighbors walked away because what that would do for my value. On the other hand, when foreclosures are selling for homes in central Phoenix, south Phoenix, nice suburbs are selling for under $100,000, and they don't have the credit, they can't get a mortgage, but they might be able to save the cash and buy an all-cash deal. And right now its mostly investors big those homes, but you don't make your mortgage payment for a year, unfortunately not good for the neighborhood, but good for your bank account.
Ted Simons: It's an interesting phenomenon, because you got folks who are not the kind who would walk away who are now trumpeting go ahead and do it, it's the best thing not only for your finances, they're saying it's best for the economy.
Catherine Reagor: And you feel like you've done everything right, you qualify for the program and your lender loses your paperwork, the Arizona attorney general sued Bank of America last year over these issues, losing paperwork, and there are instances where it appears allegedly it was done on purpose. To stall it, stall it, stall it. And then if you continue to pay where could you have walked away, it's become a very nasty game.
Ted Simons: A couple more questions here. Right now who is doing the buying, and where are they buying?
Catherine Reagor: Investors, investors, investors, and they are buying in those suburbs with good schools, where people who are foreclosed or sell a house to short sale or walk away can rent in the same neighborhood two to three, four-bedroom, that their kids went to school for half of their mortgage payment.
Ted Simons: So investors for the most part, in the nicer areas for the most part, but I know, we talked when this was starting off, investors were a part of the original problem. Are people looking at this situation saying, this isn't necessarily the healthiest thing?
Catherine Reagor: It's tough, because you automatically think too many investors have you an issue. But if these homes were not selling, the glut we would have -- Detroit, the homes are not selling. And they're setting -- sitting empty. In this case if someone is buying, they're paying cash, what are the chances they'll walk away And they're renting it and receiving like six to 7% return on your dollar, which you cannot get, because we have people to continue to move here, job growth is coming back, and people need houses.
Ted Simons: wow. What a dynamic. Great stuff, thanks for joining us. We appreciate it.