Richard Ruelas: The 2014 housing market is expected to slow with big price increases declining or even reversing. Demand has fallen sharply and investors are showing less interest in the market. Mike Orr, director of the Center For Real Estate Theory and Practice at ASU's W.P. Carey School of Business, is here to talk about his latest report. Thanks for joining us this evening.
Mike Orr: My pleasure.
Richard Ruelas: Should we be worried about what seems to be a slowdown this year?
Mike Orr: I think we should expect it anyway. Prices going up as much as they have last year, eventually demand starts to get depressed. You can't have prices going up , 20-25% each year without demand dwindling. Prices are pretty much back to where they would have been if we just applied inflation to where we were in 2001.
Richard Ruelas:: If we hadn't had the bubble --
Mike Orr: And the burst
Richard Ruelas: which was so much fun.
Mike Orr: It wasn't all that much fun for most people.
Mike Orr: Now back to a normal, balanced price, and demand is relatively weak in that situation. We've really driven away the investors because we don't have many bargains anymore. That was really driving all of their interest. They have taken their money and they are buying elsewhere. The market is relying on ordinary buyers and a number of areas that the demand is weak still partly from the boom and bust.
Richard Ruelas: Are people suffering from not being able to get financing still?
Mike Orr: Well, that's part of the problem. A whole group, the Milliennials, age 20 to 35 who have only seen a real estate market that got really scary --
Richard Ruelas: It's a market they don't trust yet?
Mike Orr: some are a little scaredAnd some are participating in buying homes to a much lesser extent than previous generations, they are tending to rent. They need somewhere to live. The rental market is doing well but homes to purchase are not doing as well as the baby boomers did at the same age.
Richard Ruelas: What would it take, besides time, to get their faith back in the market?
Mike Orr: That's a really good question. They don't have a lot of examples of people who have bought homes and done well out of it. They are not going to take the example of their parents. Many of those actually got foreclosed, a counter-example. If you sit them down and say here's what you're spending on rent and here is what it would save you money to buy a home, plus over the long term, 40 years, generally owning a home has been a very good thing to do for your long term wealth, that's not a message many of them have internalized yet.
Richard Ruelas: With the investors being out what does that signal?
Mike Orr: That means we don't have a lot of distressed properties at bargain prices. That's really a good thing for the market. But investors thrive on being able to buy homes at 25% below the normal value. They are still doing fix and flips, but not many are doing the fix and then renting out. Very few new rental homes being created. It could become an issue if we get a population expansion where people want to rent. There's no more supply coming along.
Richard Ruelas: Investors pulling out doesn't indicate --
Mike Orr: They are not selling what they have got, they are just not acquiring any more. They have got as much as they need. In fact, their financial strategy is looking pretty good. Having bought over the last four years they are in at low prices, they are getting good rents. The rents might go up. They will probably hold on to those and keep them for a number of years.
Richard Ruelas: If stability is the goal rather than a price run-up, it seems like you want to see the owner occupied level where we have it?
Mike Orr: I would like to see a little more demand. We've got demand dropping to a level which is causing concerns for sellers. At this time last year buyers had the problems, there were too many of them and not enough homes for sale. Now there are so few buyers that some of the sellers are starting to get a little nervous and are competing with each other. It's a good time to be a buyer. You can pick and choose. You can ask your seller for concessions like help with closing costs or even with a down payment. There are a lot of things to make it much more pleasant to be a buyer now. You're in the sort of best seat for negotiating. It won't last forever. So if you're in the market now is really good timing for buying. All of these things are very cyclical and Arizona and Phoenix in particular changes very quickly. That's what makes my job fun.
Richard Ruelas: Are values down across the board in all regions?
Mike Orr: I think what's happened is prices have gotten to a point where they are fairly stable, they haven't changed a lot in the last four or five months. There's no upward pressure anymore. They may settle back a little bit with the current situation. We're not looking at a crash or another bust. No real further movement upwards and maybe a little bit settling back over the next months.
Richard Ruelas: But are there areas of the county that you're seeing fewer -- more or less price increases? Or decreases?
Mike Orr: It does vary a lot. It's not so much the area, it's the price range. And the luxury end of the market has taken longer to feel this lack of demand. It's actually feeling it now, but for the last half of last year it was doing very well. That's partly because the stock market is doing very well in the past year and that tends to provide impetus for the housing market in the luxury area. Plus, a lot of the lenders are very anxious to write jumbo loans right now. They are competing to write large loans to people who are already wealthy.
Richard Ruelas: That's where they can play.
Mike Orr: Always fascinating, hopefully you come back with good or at least stable news next time we talk, thank you very much.
Mike Orr: Thank you very much.