>>Ted Simons: Good evening. Welcome to "Horizon", I'm Ted Simons. Home prices nationwide dropped by the steepest rate ever in May, as according to a closely watched housing index. The Standard & Poor's Case-Shiller Index looks at home prices in 20 cities across the US. The Index recorded a nearly 16\% decline for May, compared with a year ago. Phoenix was among nine metropolitan cities that showed the greatest decline in home values. Las Vegas showed the worst. Joining me now is Real Estate analyst Jay Butler, an Associate Professor with ASU's Realty Studies. Jay, good to see you again.
>>Jay Butler: Glad to be here.
>>Ted Simons: This index, steepest rate ever. I know the index hasn't been around for that long. Still, is anybody surprised that these numbers are dropping like this?
>>Jay Butler: No, because every other index is showing the same thing, and every number is showing a decline. It actually has been around for quite awhile. But now with the problems, everyone likes looking at it. The cities that showed the greatest declines a couple of years ago are showing the greatest increases.
>>Ted Simons: Interesting. We had Vegas first. I think Miami was second. Where is Phoenix on this list?
>>Jay Butler: Third or fourth. San Diego is up there. LA itself. All the areas that had heavy appreciation back a few years ago are up there in the numbers. Basically, I don't think they had any city that showed positive growth. There were a few that showed growth May over April of this year. Texas has been doing pretty well because it has fairly low home prices and land is showing somewhat of a rebound. But again, that shows difference. We're declining because of the housing market. If you go back to the Midwest, declines like in Cleveland and Detroit, they are having serious economic issues which may be more difficult to rebound from.
>>Ted Simons: And those serious economic issues from some parts of country keep people from moving out here, because they can't sell their homes back there.
>>Jay Butler: They can't sell their homes back there. I'm not necessarily convinced that they will move here. A lot of people stay because they stay where their family is. They need family support whether young or old. That's prime issue for people.
>>Ted Simons: how much further before this market--here in phoenix, in the valley--how much further before the correction is corrected?
>>Jay Butler: if we knew that, we could retire. Basic consensus is we are nearing that bottom and bounce along. It's inconsistent you had homes moved through foreclosure. 44\% of all resales were foreclosure. City of Tempe had 20\% of sales foreclosure but El Mirage was 66\%. Some areas will be better and others will lag behind.
>>Ted Simons: foreclosures are affecting prices a lot.
>>Jay Butler: you're seeing so many clustering of these things. Basically a lot of homes foreclosing in the area and driving the prices down. One of the issues in real estate is the adage that bad dries out good.
>>Ted Simons: interesting. Tightening by lenders, how much is that effecting home prices?
>>Jay Butler: well, it's more difficult to qualify. If you are looking to buy a home which many are doing at this time, get pre-qualified because tighter FICA scores and whatever the requirements are, lenders are looking to restrict lending requirements.
>>Ted Simons: Interest Rates creep up, and mean prices creeping down.
>>Jay Butler: Creeping up and down and bouncing up and down. They are running 6.5\% for a 30-year right now. Again, it's a trade-off. A lot of people want to wait. But interest rates will probably start to move up and you want to do it. It's very important if you're going to buy, to look at the neighborhood that you're going to buy into and the physical condition of the home itself before you make the commitment.
>>Ted Simons: the folks keeping an eye on foreclosure properties keep aware of. How is it affecting rental markets?
>>Jay Butler: it's opening up. A lot of single-family homes are running out and condos, etcetera. Apartment vacancies are up because they are competing against single-family homes. You are seeing investors returning to the market because they feel there's an opportunity. That's driving some aspects of certain parts of the valley.
>>Ted Simons: the areas suffering the worst and the areas doing the best? Is the same as it's always been out and in?
>>Jay Butler: Basically western communities. Lower-priced home attractive to lower-priced housing. You have traffic congestion issues. More traditional neighborhoods are stable and close to the freeways and jobs and people are less likely to move out of those homes.
>>Ted Simons: As always when it comes to real estate, if you're buying a home to live in for a long time, all of this stuff kind of flies below the radar, correct?
>>Jay Butler: yeah. We have to understand there are a million 50,000 single-family homes in the Valley. We have 45,000, 50,000 on the list. Another 45,000 in foreclosure. The great majority of the people are living in their home, probably very good interest rates or packages on them. Yes, the value of their home has declined but to some degree it probably doesn't matter because they have very nice home.
>>Ted Simons: it's like watching your 401K on a day-to-day basis.
>>Jay Butler: You probably don't want to do it.