Ted Simons: A new ASU report shows that the median price for a single family home in the Phoenix area was at $175 thousand, that’s a 30 % year over year, and it's got some housing analysts concerned. Joining us is Arizona Republic real estate reporter Catherine Reager and Economist Jim Rounds of Elliott D. Pollock and Company. Thanks for coming in. Now we have ASU, 30 %. Prices are skyrocketing.
Catherine Reagor: Well, it's only up I think almost 4% from March, so we have had a steady 4% every month. Over the year 30% is nice. We have had some slow-down, months where it was faster. It's nice to see a median price of 175 instead of 119 if you're a homeowner but not a buyer.
Ted Simons: What's going on? Why are these prices doing this?
Jim Rounds: Keep in mind prices fell significantly, so we had this really low base to work off of. When your looking -- working off a low number we're realizing growth in population, some growth in employment, but the real estate market has to work through some unusual things that happened also. We expected a decent rate of growth this last year, maybe into the next year, but it's not sustainable over a five-or six-year period, so people need to temper their expectations some.
Ted Simons: The idea we hear oversupply, year after year. Now we're starting to have too few homes available?
Catherine Reagor: I guess undersupply is what you would say. Particularly 150-thousand dollars or less, very tight market. Then so we're seeing fewer investors but investors are still out there, like 29-30% of the deals were cash deals with investors, but they are mostly buying $250-thousand, and below. So really to balance the market we need some more sellers. The more home homeowners feel like they are not under water.
Ted Simons: That's a lot -- it seems like is it sustaining or dipping?
Jim Rounds: It's going to slow some. We were around 45% of sales to investors a year, year and a half ago. The question is what are the investors going to do with their homes. We did overbuild. There's a temporary shortage. Prices are set based on what's available today, not necessarily what's going to be available in two or three years. If the investors put these homes back on the market over a short time frame we have a problem. So far they are talking about putting them back on the market over six or seven years and some are going to keep renting the product. We're not going to see much of a blip in the economic data if they do this slowly enough.
Ted Simons: Is that what you are seeing in the investor market? Does it seem like there is a little bit of patience here?
Catherine Reagor: There's smart money behind this. This is Wall Street money, big money. The really big buyers, Blackstone. They say they are going to hold on and I still see them buying a few homes, but have not seen them putting things on the market. It's the first generation investors who bout in 2009, 2010, who can now sell and make money.
Ted Simons: Even so, it seems as though, we were all here back in 2006 and 2007, when things went topsy turvy. Compare and contrast what's happening now with what happened then.
Jim Rounds: We overbuilt by a lot of units. In greater Phoenix about 80-thousand units. Prices fell significantly. There were lots of problems in the mortgage market. We troughed. Then slowly we started getting back to more normal conditions. We had the investors come in. That helped stabilize prices and then pushed prices up over the last couple of years. That's part of the reason for that 30% increase. What you'll see is that 30% is going to give way to maybe 15% this next year and then I think we'll get back to 10%. Compared to 30, that doesn't sound like a lot but compared to the long perm average of 3 to 4 % that's not bad. You have to get those rates of growth to get back to normal by the end of this decade.
Ted Simons: You're saying 4% per month, but that will ease here.
Catherine Reagor: Yes. We're in prime home buying here from January to June. We could see that ease in August. Buyers, it's tough for regular buyers to get a loan. The lending guidelines are really tough.
Ted Simons: Is that still going on?
Catherine Reagor: First time home buyers have a little better shot because of the programs out there, but I'm talking about the documentation needed. It's 10-15 % down. That's not a bad thing for the market.
Ted Simons: What about the impact of those who walked away from their homes? Those folks are still probably having some trouble wrestling up the cash.
Jim Rounds: Fortunately the investors step in. Some are saying unfortunately, but it was needed to stop the bleeding. It's good to have the home in your neighborhood rented rather than vacant with weeds in the yard. It was a good thing over all. It depends how we work our way out of the investors. Right now 22% of the market is for rent. Normally it's around 12 . Normal conditions will probably be around 15 .
Ted Simons: What is that doing to the rental market?
Catherine Reagor: The rental market has become more competitive on the housing market except now I'm hearing on the apartment side it's flattening out, that we have so many rental homes it's hurting on the apartment side. Last summer is when it really picked up. There were people last August standing in line at rental homes. Six contracts coming in. Because there are more rentals out there, but with population growth and more people coming here we'll see. I'm also hearing some of these investors are looking at selling to the renters. So we have seen that trend come out.
Jim Rounds: A large percentage of those renting homes want to buy them. That's why to some extent those homes are absorbed. They are being rented but it's really a paperwork issue. We're not in as bad a situation as we initially thought but I still think it comes down to the investors. The plan for them is not to dump the product and run. They were originally talking about a two-year hold and exiting the market. You're seeing improvement in other economic data too. Last year some of the non-normal type resales was about a third of the market. Not the bank owned properties or foreclosures. Now it's two-thirds of the market, so we are seeing some underlined conditions, and prices are improving.
Ted Simons: Housing reflects economy, economy reflects housing. Which is chicken, which is egg?
Jim Rounds: In Arizona it's a little bit of both. We're moving in the right direction. Housing is moving in the right direction too. But if we see a 30% increase again for another year, then there's some stuff going on that will cause some imbalances. You see , 10-15% we're going to be okay.
Ted Simons: Last question. Foreclosures, what's the situation?
Catherine Reagor: Down. 900 last month, 900 the month before. Hasn't been at that level since 2007 . Don't you love now that we are talking about regular home sales we have to call them normal home sales because we have been doing foreclosures and short sales for so long. We're back. Pretty soon we won't have to say normal resale. Just sales.
Ted Simons: It's nice to have a discussion on this housing market and not be so doom and gloom. Good to see you both. Thanks for joining us.