October 21, 2009
Host: Ted Simons
- For the first time since 2007, average home prices went up in the Valley from one month to the next according to a new report from Arizona State University’s W. P. Carey School of Business. Learn more about the report from ASU economist Karl Gunterman.
- Karl Gunterman, Economist, Arizona State University
Ted Simons: For the first time since 2007, median home prices went up in the valley from one month to the next. That's according to a new report from Arizona state university's W.P. Carey School of business. Here now to talk about the numbers is the man behind the report, ASU economist Karl Guntermann. Good to have you here, thanks for joining us.
Karl Guntermann: Nice to be here.
Ted Simons: All right. Median home prices up month to month, first time since 2007. Why?
Karl Guntermann: Well, I think the market is finally stabilizing. Prices have been falling a lot of foreclosures and prices are down to a point where there's a lot of buyers in the market, demand's picking up and prices are stabilizing.
Ted Simons: We're talking a relatively slight change here though, correct? Something like 2%.
Karl Guntermann: That's correct, yeah. I don't want to overstate it. You know, with all the bad news we've had for so long it's easy to get excited, but it does show some stability. Median price actually bottomed out in April. It's been bobbing around a little but July was up.
Ted Simons: It's still a foreclosure heavy market though, is it not?
Karl Guntermann: That's correct. That's correct. It's a very artificial market in that sense. There are a lot of foreclosures on the market. Lenders are holding a lot of properties, there will be more foreclosures, so that whole supply side is still very uncertain.
Ted Simons: I want to get back to lenders holding properties in a second here. But the first time buyers in a tax credit that they can take advantage of, are they taking advantage? Are you seeing signs of that out there?
Karl Guntermann: Oh, yeah. There's a good deal of evidence that that's been an important factor.
Ted Simons: How long is that tax credit going to be involved?
Karl Guntermann: It's set to expire December 1st and for the first time I'm hearing things about it being extended.
Ted Simons: Let's get back to the idea of lenders holding on to property that -- just the time frame it takes for a foreclosed sale to go through, critics are saying that this is all fine, that maybe the numbers aren't falling as fast as they were, but next year all you know what's going to break loose when this stuff is released on the market. Is that a valid criticism?
Karl Guntermann: Well, it is but I think it's really hard to say what's going to happen. There's just so much uncertainty. The economy is improving and to the extent the economy turns around, and interest rates remain fairly low, we may not see the foreclosures next year that are expected. So there's just too much uncertainty to say with any definiteness that prices are going to continue falling.
Ted Simons: And I bring this up because there was another report out there, a national report, that did mention Phoenix among the places hardest hit, saying home prices next year because of this flood and because of arms and different types of loaning mechanisms coming to term, that we could lose like 20 some odd percent even from where we are now. Does that make sense to you?
Karl Guntermann: One figure I saw was 17.3% which seems very precise to me for such an uncertain topic.
Ted Simons: It does.
Karl Guntermann: But yeah, there may very well be price declines. That's why I wouldn't get too excited about a 2% increase for a month. The market's just too unsettled and it's too hard to say, you know, it appears that we've bottomed out, but it's too hard to say prices are going to start going up and, you know, depending on what happens we very well could see another round of significant price declines next year.
Ted Simons: And to be clear, again, we're still prices are still declining just not so much.
Karl Guntermann: That's correct. Our index measures price changes from a year ago. And the July number was the prices are down 28% from July 2008. And that's an improvement from June which was 31 and September it's down to 23%. So that's still a significant annual decline.
Ted Simons: So it's like if you're sick and had 104 degree temperature it's now 101, good for you.
Karl Guntermann: That's right, and you know, given what we've been through for several years that's optimism.
Ted Simons: Yeah, better than -- O.K. I worry because of what we went through about investors, the investor who was out there and who was so responsible for a lot of what the market was, the bubble that we had, are we seeing a lot of investors buying now and does that concern you?
Karl Guntermann: Well, we are seeing a lot of investors, you know, the first time tax credits bringing out first time home buyers and there are a lot of investors. I guess I'm not as concerned about the investors as I was a few years ago, for the simple reason that the investors then were more flippers, they'd come in and buy it, take advantage of the appreciation and sell and get out. The investors that are coming in now, many of them are paying cash for the property, they understand the condition of the market. They understand this is a long-term investment in the sense of a number of years. At some point those properties will come on the market, so to that extent it is still an artificial market and will be for several years.
Ted Simons: Back to the median prices here, it sounds as if the lower priced homes are getting hit harder than the higher priced homes, correct?
Karl Guntermann: That's correct. We estimate the index for cities and regions, we started estimating it for the upper portion and the lower portion of the housing market and unfortunately for the lower priced houses the decline from July to July was 41%. Compared to 21% for higher priced houses.
Ted Simons: Why is that? What do you think's happening?
Karl Guntermann: That's where more of the foreclosures are, those properties were, you know, located further out, more marginal buyers, many cases of people who shouldn't have qualified for a loan. So there's just a lot more, you know, downward pressure there.
Ted Simons: Talk about the townhome and condo market, because that almost seems at times to be separate and apart from what's happening with single homes. First of all, is it separate and apart and secondly what's going on?
Karl Guntermann: Well, it is separate. It's a distinct segment of the market. There are people who prefer townhouse condo, patio home lifestyle. We started this month estimating an index more townhouse condo. It's data that was not included in our single family price index. So it's an entirely new set of data and entirely new index. And unlike single family housing, what we found was the townhouse condo prices from July to July were down 36%, which was actually an acceleration from 31% in June. So that segment of the market appears prices are still heading down.
Ted Simons: Yeah, so it's still 104 degree temperature on the condos and townhouses.
Karl Guntermann: That's a good way to put it.
Ted Simons: Your repeat sales index that you use, it's different than what we see other housing experts and forecasters use. What's the difference and why is your way better do you think?
Karl Guntermann: Well, maybe to start off with an analogy, in retail they talk about same store sales, they compare same store sales from a year ago as a measure of what's happening to the company. We do that with house prices. We take, for example, all the sales that took place in July and we pair them up with previous sales of those same houses. Sometimes multiple sales and our data goes back to 1989. And we then calculate the rate of price change and through a very sophisticated statistical procedure we estimate an index and what I really report is the change in that index from the previous month and from a year ago.
Ted Simons: And other forecasters look at what?
Karl Guntermann: Well, the easiest way to do this kind of comparison is to take the median price which would be the midpoint price of all the houses that sell in July and compare that to a year ago or June. The problem with that and the error that gets introduced is that mix of houses is different every month. So you have bigger houses one month and another older, etc., so you're not really controlling for the quality of the houses.
Ted Simons: Bottom line from this last report, your headline would be what, would it be a positive headline? Would it be a cautious headline? What do we take from this?
Karl Guntermann: I would put a cautious headline in it, you know, the rate of decline peaked out last February and March, and that's shown pretty steady improvement. Median prices appear to have bottomed out and are moving up slightly, so I take those as positives but again I would be cautious, just because of the foreclosures, because of the investors in the market, and potential foreclosures next year.
Ted Simons: All right. Karl, good to have you here, thanks for joining us.
Karl Guntermann: My pleasure.
- Arizona Attorney General Terry Goddard will talk about the latest news from his office.
- Terry Goddard - Arizona Attorney General
Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. The legislature's main proponent of anti-illegal immigration laws wants more of those laws to fight the problem. Republican senator Russell Pearce is calling for a special session to pass legislation he calls the support our law enforcement and safe neighborhoods act. The legislation would make it a state crime to be in the country illegally and prohibit cities from restricting enforcement of immigration laws and would give subpoena powers to prosecutors enforcing the state's employer sanctions law. Pearce also says he plans to file a citizens initiative in case his legislative efforts fall short. The Arizona attorney general's office recently settled two mortgage fraud cases totaling over a million dollars in fines and restitution, crackdowns continue on companies that prey on vulnerable homeowners. Here to talk about that and more, Arizona's attorney general Terry Goddard. Good to have you on the program. Let's start with the mortgage fraud cases.
Terry Goddard: Very different cases. The first is what we call foreclosure rescue, that's a situation where somebody's in trouble in their mortgage and literally the scam artist shows up on your front doorstep and says madam homeowner or Mr. Homeowner, I'm here to save your house, and they proceed to give them right there a set of documents which include right in the middle a quit can deed and money changes hands and what happens is the individual perpetuating this particular scam ends up with title to the house, the homeowner becomes a renter and is very quickly evicted from the property. We got them -- we sued one of the companies taking care of investments which was in fact perpetrating hundreds of these around the valley and is now the case has been settled and they're going to pay back some of the damage they've done. Another one is mortgage modification or loan modification scam, and that is where similarly they find out if somebody's in trouble with the mortgage, knock on the door and say I'm an expert at home mortgages and if you give me a big fee up front I will fix it for you. I will get your payment reduced. And that's the last you hear from them. They take the fee and then they do nothing.
Ted Simons: That one seems pretty clear as to what state law rez broken. The first one, explain exactly what laws are being broken when a homeowner voluntarily signs over a deed.
Terry Goddard: That one is more difficult, you're absolutely right. And what we were able to do through the Arizona consumer fraud act is to establish what we call an equitable mortgage. The courts looked at it and said well, did this person really know they were selling their house? And when they sold it did they have any redemption rights? Was there a mortgage being issued here? Or was it a knowledgeable arm's length sale? And when we took it through several different actions before we got to this one we're talking about tonight, they basically said no, the homeowner was fooled. They shouldn't have lost their rights as a homeowner and as somebody with a mortgage and at the very least what happened was they got a new mortgage. They didn't have a sale which ended up making them a renter. Usually these frauds are perpetrated against seniors and so very often they were taking advantage of the confusion of the homeowner that they really didn't know and felt they were behind and they were desperate and I guess desperation is the common theme between these two. People so many people are in trouble with their mortgages today, especially here in Arizona, that they are easy marks unfortunately for fraud artists who want to come up and offer them some kind of help.
Ted Simons: We've had you on the show before, talking about frauds regarding mortgage loan modification, these sorts of things, are we seeing less of that? Is it starting to ease a little bit?
Terry Goddard: Interestingly you're seeing less of the first one, the foreclosure rescue, because the reason they do that is to strip the equity from the house. The amount that the house is worth as compared to the value of the loan. As you know right now many, many 70% of the loans home loans in Arizona are what they call under water. The loan is bigger than the value of the house so there's no longer a market for equity stripping. That's kind of a perverse way to say you can't do that fraud anymore. But the one we're seeing that is a growth industry and I think it's tragic is the loan modification scam. These up front fees essentially to take the last dollars that many homeowners have, to try to work out a better modification with their lenders are going to a scam artist and I just feel we've got to stop it any way we can. We're prosecuting them but people need to be alert to the fact that if somebody demands an up front fee with extravagant promises of fixing your mortgage, they're probably a fraud.
Ted Simons: The banks are supposed to be helping, as far as loan modification programs are concerned. The programs are there, the banks are there, feds are supposed to be looking over this business, is it not streamlined?
Terry Goddard: The key is supposed to in your questions. They are supposed to be and it's to their best interest to do so, I mean, the banks tell me over and over again they'd rather have a performing homeowner even at a lower interest rate or smaller payment than put the house into foreclosure, have it sit empty, then have to resell it. That's what's caused the Arizona market to be in such chaos. But it's not working. One of the reasons these modification scam artists are so successful is that people can't get a clear answer from their bank. They'll call, submit modification applications, send all the documents they're asked for, they can't get a clear answer, the bank would just say yes or no, and the fraud artist wouldn't have any room to run. But if they say maybe, and we'll look at it, maybe next month, and all of a sudden these homeowners are turning to any port in the storm, anybody who they think would help them.
Ted Simons: Real quickly, I know your website has a foreclosure resource center, azag.org.
Terry Goddard: Azag.org, we have access to a lot of good information that homeowners who are facing trouble can go to. We've got forms there that you can use and the names of all the housing counselors, nonprofit legitimate counselors who can help walk somebody through this situation.
Ted Simons: We've had you on the program before talking about wire transfers to and from Mexico, possibly used for drugs, smuggling immigrants, I know you have a suit with the western union. Reports are there's a settlement coming. How much can you talk to us about this?
Terry Goddard: Well, you're absolutely right. The whole time I've been attorney general we've been working on the illegal transfer of money across border to pay for human smuggling and human trafficking. It's done by wire transfer, western union is the largest wire transfer company in the world so they have been the focus of an awful lot of our attention. We've been working with them to tighten up their procedures to make sure this money laundering is stopped. And that's about all I can say. We've had discussions with the company. They're not complete. So I can't announce any kind of solution. I hope we find one. I hope we find a way to cut off this flow of almost $2 billion a year into the cartels in Mexico to pay for facilitating people coming illegally into the United States.
Ted Simons: So when western union reports they think a settlement is near, you're saying could be.
Terry Goddard: That's exactly right. I can't say that the settlement has been obtained because it has not and I can't talk about any details that would have been discussed because until we sign the document, anything could happen and it may not end up happening.
Ted Simons: You've got a $900,000 settlement with Bristol Myers Squibb and I know this can get complicated and so we can't go too deeply into it.
Terry Goddard: I understand.
Ted Simons: It's a fascinating case and it sounds, just sounds horrible. Talk to me about what this company --
Terry Goddard: Let me try to be succinct. It's called average wholesale price, a reimbursement formula which is used when a doctor prescribes a drug and dispenses it in the office, they charge the patient for that drug and then they charge back to the federal government to Medicare for reimbursement. And the average wholesale price is a list that is set up and the drug companies determine what the price should be. For drugs that aren't all really very popular that may be going off active distribution, the reimbursement formula gets very high, I've seen it as high as 100 to one, so if the doctor pays a dollar for the drug they get reimbursed $100. That sounds like a fraud to me and we have sued 42 drug companies to stop this practice. And we just from one of them Bristol Myers Squibb obtained $900,000 and the agreement not to ever do it again.
Ted Simons: This has been going on since '05.
Terry Goddard: Going on for many, many years. We sued in '05 but unfortunately average wholesale prices goes back into the last century.
Ted Simons: Got $2 million so far since '05, along those lines. Where's that money going?
Terry Goddard: Most into the consumer fraud revolving fund because the victims we cannot find them. So hopefully this will go to prevent other people from becoming victims of the same kind of scam.
Ted Simons: The back real quickly to the mortgage fraud and the fact that so many folks senior citizens are being affected by this, you've got anticrime universities and you've got senior sleuth out there. My goodness, tell me what's going on.
Terry Goddard: I'm so glad you mentioned that. The anticrime university is the shortest university course in the history of time, only three hours, and usually on a Saturday morning. We've had two so far and my goal is to try to move these all over the state so that wherever somebody is interested in protecting themselves and their loved ones against some of these scams and frauds they can have access to it. So it's a very short course program but we give you a diploma at the end. Go to the website azag.gov to sign up. We'll be in Prescott in about a week, we'll be back at Leisure World in Mesa I believe in December then we're going to be moving this program across the state. Senior sleuths is part of the same effort, and that is to recruit retirees, especially in this bad budget, we need all the help we can get, to be able to stay on top of what appear to be and are proliferating frauds and scams throughout the state. And some seniors especially retired teachers and retired policemen are a tremendous resource to help us stay on top of these frauds.
Ted Simons: Do they get junk mail? Weird phone call?
Terry Goddard: Junk mail, they go to some free lunch lectures and report back to us whether or not it seems to be legitimate or maybe highly questionable.
Ted Simons: Before I let you go I'm trying to get this question out to high profile leaders, political leaders in Arizona, ask the governor last night, we've asked certain lawmakers this. I want to get your response. Lots of studying right now, lots of surveys and lots of talk that Arizona's structure of government in Arizona is broken and if not broken severely sprained. What do you think of that idea?
Terry Goddard: I want to commend Sandra O'Connor and the leaders that have started looking it he problem and certainly there are aspects of Arizona government that could be a lot better and they've isolated a number of the problem areas, but I'm a strong believer that no single fix is going to make a difference because ultimately all of us are responsible for the quality of government we get and if folks don't pay attention to who they elect into legislature and Congress, unfortunately the gridlock we're suffering through right now in our state is directly attributable to those representatives and I think everybody's got to take more responsibility.
Ted Simons: So when people say got to get rid of term limits, got to get rid of clean elections, we need a lieutenant governor as opposed to secretary of state, the same party as the governor so when the governor's elected and she leaves or he leaves, whoever succeeds is of the same somewhat the same, all these kinds of ideas regarding state government, are you saying be careful or are you saying tiptoe, maybe give a couple of them a shot and see what happens? What are you saying?
Terry Goddard: I'm saying there are certainly some things you can do. The two thirds rule for any kind of change in the revenue picture is one. It needs to be looked at, frankly, because you can lower taxes but even in a bad time like this you can't possibly raise them and that puts the legislature in a very, very difficult position. The lieutenant governor it's a good idea, we should have had it years ago, but we've lived somehow without it. You know, the bottom line I think is that there's no single technical fix that changes the quality of government. Ultimately it's the folks that you elect to represent you and those various levels. And that's not a technical question. That's a research and decision by the voter question. So we need to do a better job of that I think. People need to have higher standards for people they elect to the legislature. They need to question them hard and I'm afraid that's not happening, you know, are you really responsible for the decisions that you're making right now we're in gridlock, did the voters of Arizona, did the overwhelming moderate sense of this state, did they approve of some of the radical theories put forth, I don't think so. But that's what's been elected. So I don't think a tweak to the system will change that. You mentioned a couple, I would like to see one absolutely essential change. And that is that we have competitive legislative districts, because right now out of the 30 districts perhaps five of them when you get to the general election really have a head knocking where either side might win. The other 25 are essentially predetermined and the result of the primary is what goes to the legislature. If we could change that and reapportion it, which is coming up in 2012, that would make a tremendous difference.
Ted Simons: Was going to say reapportionment the only way you can change that?
Terry Goddard: That's certainly the best -- that's what's on the horizon, but competitiveness, open debate is the single most important thing for democracy and we haven't had it in most districts in Arizona for a very long time.
Ted Simons: Good to have you here, thanks for joining us.
Terry Goddard: Thank you.