Horizon, Host: Ted Simons

September 15, 2009


Host: Ted Simons

Foreclosures


  • The number of foreclosures being sold in the Valley is still high. Arizona State University real estate professor Jay Butler talks about a new report on foreclosures.
Guests:
  • Jay Butler - Professor of Real Estate at Arizona State University
Category: Mortgage Crisis

View Transcript
Ted Simons: Good news and not so good news for the valley's housing market. More homes are being sold but way too many of those homes are foreclosures. A new ASU report shows the ratio of foreclosure sales to regular sales is about 10 times higher than historic levels. Here now to talk about those numbers is Jay Butler, an associate professor in real estate in the W.P. Carey School of Business at ASU. Thanks for joining us. Home sales up but foreclosure sales up, too. Right?

Jay Butler: Right. Basically about 67% of the recorded activity from last month dealt with foreclosures, either the lend are tearing a home which is about 30 some percent and half of what we call traditional, lenders selling home. The foreclosure market is the driving force of the local housing market.

Ted Simons: Compare and contrast what is normal if there is a normal to what's happening.

Jay Butler: Foreclosures were 35%. Historically they are three to 5%.

Ted Simons: What does that tell us?

Jay Butler: There's a lot of foreclosure activity going on out there. Loss of jobs, a big unknown for a lot of people, they are on furloughs. They lose income or are moved from part time to and can't make the payments so they lose their homes. There's still a lot of foreclosure activity going on.

Ted Simons: I have heard some suggest there will be even more in the future because the banks are holding back some properties.

Jay Butler: Well, you know, in a sense that we don't know. That doesn't really make sense because the bankers really found they can sell these properties pretty quickly and for many of them for cash. So there's no real reason sort of hold them back other than to be 2 million to the market that may depress the market a little bit. But you got some areas like Gilbert and Chandler where the mark down from what the lender took the home back for what they sell it is less than 10%.

Ted Simons: It sounds like we are seeing a lot of investor activity on these foreclosed homes.

Jay Butler: That's the driving force. A lot of people are buying. There are groups of people now, one thing we really didn't see in the prior hypermarket, investment clubs, investment networks where a group of people put together the group of money so they can go pay cash for the home so they don't have to worry about the finance.

Ted Simons: That doesn't sound all that healthy to me for the market.

Jay Butler: For the market is really isn't. I think we are beginning to see too many rental properties, too many flipped properties. I have talked to people who have been investors for a long time and for them the market is weak. The homes they have for rent have been on the market for longer than they normally are. People want cuts in rented. A lot of people are renting are in financial problems, too. And so they want the deal. I mean, so it's troublesome in many areas.

Ted Simons: Well, and not only that but it also leading up to this whole housing market fiasco was a lot of investor activity. Are those same clouds bubbling?

Jay Butler: To some degree, yes. At a much cheaper rate. Probably without the financing to it. That's why a lot of investors, especially foreign investors, Canadians and Asians are in these network clubs are paying cash. We're not building the mortgage problem we saw before. But I think in many areas we are simply getting too many of these.

Ted Simons: So could it be, usually it's a good sign if sales continue. But I guess summer months you kind of usually see a dropoff in sales. If you don't see a dropoff that may be a sign the foreclosure active TV has still got a long ways to go.

Jay Butler: It does. Usually we see the resale market in August. Investors probably won't care because they are not going to move their kids or other things. The name of the game is let's make a deal. The problem is investors pay for homes keep the prices low so people who really want to sell their home for good reasons can't because they can't get the price they needed.

Ted Simons: We mentioned a few areas. Talk to me about the areas where you have seen a lot of activity and the more stable areas.

Jay Butler: Well, you see a lot of foreclosure activity and sale foreclosed homes in Maryvale because you can buy homes for 40 or $50,000 or less. The most active market last month was Surprise. A lot of homes that had been foreclosed on were being sold in that area. More stable areas are whether and Chandler and parts of Tempe and east Mesa where although you had foreclosures the market down isn't as great because these are family-oriented, well located houses relative to transportation, schools, and other things. In parts of Scottsdale are also fairly sort of stable.

Ted Simons: But it seems as well from your numbers that some pricey areas are getting hit as well because these folks aren't eligible for loan modification programs.

Jay Butler: There are not eligible for loan modification programs. Also the secondary market for their mortgages, the nonperforming has been really devastated in the last year or so. What's happening a lot of these homes are dropping into, even the FHA range, 340, 350 so a lot of people are seeing that they can buy that really upgrade home and take advantage of the market.

Ted Simons: I know you talked about underwriting standards on the housing market, talked about the economy and jobs and these sorts of things. What do we look for away from hard numbers, sales from one point in time to another point in time? What else do we look for to see if the horizon is getting a little brighter?

Jay Butler: Basically seeing the traditional home being sold where the typical buyer and seller are active in the market where home price is beginning to move up and we don't have so many underwater. Underwriting is extremely tough right now. FICO score for basically mortgages lending is a 720 right now. If you are in the 600's you are looked at askance. You better be willing to put money down to buy these homes.

Ted Simons: All right. Very good. By the way, that's why you are seeing all those cash investors. Don't have to worry about it.

Jay Butler: Don't have to worry about it.

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

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