At Valley dinner parties and soccer games, the talk still turns to real estate. Whose home is for sale? What is it worth? Why did they lower the price so much? Did you see that foreclosure sign on the next block? Is now the time to buy low?

So we invited the state’s three wise men of real estate - RL Brown, Jay Butler and Marshall Vest - to a dinner party at Kai restaurant to talk about the Valley’s market. After the wild years of 2004-05, when home prices jumped 50 percent, prices are down in most parts of metropolitan Phoenix, and foreclosures are outpacing sales in some far-flung suburbs.

What does it all mean for the economy and home values? Over steak, scallops, lobster and foie gras, we found out. Republic reporter Catherine Reagor talks with three leading experts about the Valley’s real-estate market - the challenges and the future.  

Catherine Reagor: So, gentlemen, when is the housing market going to come back or at least stop slowing?

Jay Butler: Builders are telling me over and over again that they’re seeing better traffic. There’s some encouragement there, but it’s grim. There are just fewer buyers out there.

RL Brown: I think a lot of people are looking for the deal.

Butler: When we do find the bottom, we are going to find it’s uneven. For example, Pinal County is probably a couple years further away from recovering than other parts of the Valley.

Marshall Vest: Foreclosures are key to a recovery, and they continue to rise.

Butler: I think what we’re now going to start to see is the traditional foreclosure: people losing their job and their home. It’s been mostly the investors who have lost most of the homes to foreclosure so far. Nobody cares about them.

Brown: Take your typical young family: Their loan resets, their payments go up and they say forget it and are walking away and letting it go into foreclosure. But they don’t say “foreclosure,” they say, “We’re giving it back to the bank.” Then that couple moves a few doors away to a rental, where the payment is $1,000 a month, instead of the $2,500 their mortgage was costing them.

Butler: A lot of these people can afford a house; they just can’t afford the house they bought.

Brown: That’s right. They just overbought because of the frenzy and the aggressive advertising of loans that didn’t make sense.

Vest: It used to be you’d fall behind on your credit cards but you made your house payment no matter what. It’s a different generation, I guess.

Reagor: What does people walking away from homes do to home prices?

Butler: Prices are dropping about where they should be.

Brown: They haven’t gotten down to where they should be yet.

Vest: Prices are likely to drop another 10 percent.

Reagor: Whose fault is all of this?

Butler: Everybody’s, and everybody is blaming everyone else. A few years ago, if a lender told a borrower a loan wasn’t right for them, that borrower could walk out the door and . . . get the loan from someone else.

Reagor: What’s the fallout from the housing market’s problems?

Vest: The economy appears to be in a freefall. I’m talking about the national economy. . . . I think we’re in the panic stage right now.

Brown: You mean the policymakers are panicked? Or are the consumers panicked?

Vest: Some of the economic statistics for the nation just look really dismal. It’s clear that the economy is contracting, certainly in Arizona. The economy has to improve before the housing market can. That could be two years.

Butler: It used to be that the industry would lay off and then hire again when the market came back. But the mortgage brokers aren’t going to go back to $100,000-a-year jobs.

Reagor: Will Arizona fare better than other parts of the country during this downturn?

Brown: We’re faring worse because we had a higher level of greed or a higher level of frenzy. Arizona’s going to suffer more in the near term. In the long term, the general outlook is good. You can argue or discuss or speculate when job growth will come back, but it will come back.

Reagor: What about a recession?

Vest: What’s different this time is Arizona is leading the nation. If you look back in history, we’ve always lagged behind the national economy in recession times. It goes back to what’s going on in housing. Housing was the driver of our economy.

Brown: I don’t think there’s any question that the confidence of the consumer has to come back first. . . . There’s no confidence in jobs, there’s no confidence in government. We have to see confidence come before we can expect housing to start some form of recovery.

Vest: A well-respected national economist recently said housing sales will pick up by the end of the year, and home building will bottom out and pick up early 2009.

Butler: It’s difficult to measure price changes in new homes because of the chronic concessions.

Brown: True, you can’t measure what’s been given away with concessions on new homes, and there’s no question there are deals. A guy told me … that he bought a new Shea home for $183,000. . . . The same house sold for $300,000-something in the Valley two years ago.

Reagor: How can we best track the housing market now?

Butler: There’s no such thing as a national housing market. There’s no such thing as a Maricopa County housing market. It’s really what’s happening in your neighborhood. Some neighborhoods are holding up. There’s very little turnover, and people are very happy. . . . In others, you’re going to get foreclosures and sellers cutting prices to get out.

Vest: By the end of this downturn, prices are going to be back to the same place they were at the end of 2004 (before the run-up).

Butler: There are parts of the Valley where nobody wants to be in at the moment. Young households don’t want to spend too much time on the freeway. So if you buy a home to raise your family, you’re not going to do it in Maricopa or Casa Grande or Buckeye or Surprise because it’s too far away.

Brown: Let me ask you an obvious question, Jay. Let’s assume everything you say is true. If housing prices in Pinal (County) regress to where they were five years ago, will the area’s affordability draw people again?

Butler: I think people are going to be very cautious about what and where they buy. A lot of people that already live out in Pinal County want out but can’t get out.

Reagor: What about the subprime loans? What will the ultimate fallout be from those?

Butler: There are two groups of people who are losing their homes. One’s the investor, especially the amateur, and those who simply stretched their income to buy. Both used loans they shouldn’t have. Should they have been able to get those loans in the first place?

Brown: And there are the homeowners who tapped all their equity to buy toys. Now they are candidates for foreclosures. . . . Think about the homeowners in the Valley who have had their houses for several decades and seen them triple in value.

Vest: You think, 30 years from now, people who just bought are going to see that kind of appreciation?

Brown: I think there’s potential to see that.

Vest: Is Arizona a better place to live today than it was 20 years ago? Are we headed in the right direction?

Brown: We’re not headed in the right direction because we’ve not done what’s required to keep up with the same level of service and infrastructure that we had 20 years ago.

Butler: One of the examples I always use is that we used to have flower growers on Baseline Road. Now they’re condos and apartments. That’s good housing, affordable housing for people who live in the area, but the flower gardens are gone.

Reagor: What role did speculators from a few years ago play in the problems the housing market is having today?

Butler: The professional speculators bailed in 2004-05. Who really got suckered were the amateurs because they didn’t understand what is required to manage investment properties, and they believed all those infomercials. I had a student who worked for UPS, and a few years ago, they were shipping enough of those little infomercial tapes about investing in Phoenix homes to fill eight semitrucks a night.

Brown: The real investors are scoping out the neighborhoods and doing the right kind of homework.

Butler: I have a neighbor who owns 10 homes, but he knows how to manage them. The amateur doesn’t because they think these tenants are actually nice people. My friend, the investor, once told me he’s having a good day when DEA (Drug Enforcement Administration) isn’t kicking in the door of one of his houses.

Reagor: What will the employer-sanctions law, which will crack down on illegal immigration, do to the housing market’s labor force?

Butler: I did a thing for the Arizona Landscaping Association, and the small guy’s convinced that the big guy’s trying to force them out of business with the sanction law. It’s the small guy who uses the labor, and if they have to pay someone $12 an hour instead of $6, they are going out of business. In today’s economy, people will pay $30 or $40 a week to have their lawn done. But if they have to pay $60 or more, they will mow their own lawn.

Brown: The approach in the home-building industry is that they’re going to go through the verification process.

Vest: It will mean higher inflation.

Reagor: Should Valley homeowners keep putting money into their homes?

Brown: If you’re going to live there, you should invest enough to make it the way you want it. You shouldn’t double the size….

Vest: The real problem is the word “invest.” People are looking at homes as investments instead of a safe and comfortable place to live. Do something to your house that you’re going to enjoy. Right now it’s cheap to renovate because there are contractors available.

Brown: If you’d have bought that house 10 years ago, you would not have bought it as an investment. You would have bought it as a place to live, and that’s the approach people should take now.

Reagor: What surprised you all the most about the boom and then the downturn?

Brown: The real ramifications relative to the whole credit issue. The credit markets have to get squared away before we rebound. I’m really hoping this is the bottom, but it might not be. It’s certainly not the bottom in terms of home-price wars. There’s too much inventory.

Reagor: Is this a good time to buy, even though prices could continue to fall and credit is tight?

Butler: Yes. Prices may drop some more, but you can sit around and worry about a car hitting you in the intersection, too.

Vest: You need a place to live, and if you can afford the loan and plan to hold on for a while, then buy.

Brown: It’s the best time to buy a house that we’ve seen in at least the last three years. Decide where you want to live, and then start focusing on that neighborhood. When you see the “for sale” signs start disappearing, it’s a clue that the area is in the process of recovery. Then prices in that neighborhood have probably bottomed out, and you’d better make your move.
Source: Az Republic

When you need a Realtor, select one that is knowledgeable about today’s real estate market in the Phoenix metro area. Call Bette Zerba, GRI Re/Max Desert Showcase at 602-791-1766. Search the complete Phoenix MLS free at www.freephoenixmls.com or www.centralphoenixliving.com

Home sellers in the West Valley have slashed their asking prices up to 30 percent since February, and the price cuts are spurring sales in Surprise, El Mirage and Goodyear, according to a report from Arizona State University.

Though home resale activity has dropped in Glendale, Peoria and Avondale, it is only because fewer homes are for sale in those communities, since they have more established economies and infrastructures and less housing turnover, said Jay Butler, director of realty studies at ASU’s Morrison School of Management and Agribusiness.

The ASU report measured the Valley’s home resale activity from February to March. The school is expected to release April sales figures later this month.

In the West Valley, resale figures show that home values in the newest West Valley communities are still correcting, where as values in the more established municipalities closer to metro Phoenix have become more stable, Butler said.

“You really got two sets of communities: Glendale and Peoria are older, more mature communities. And then, there are the new ones under development like Surprise, El Mirage to some degree, and Goodyear . . . those are the ones that really got hit hard (by the housing slowdown),” he said.

The steep price drops in those newer communities have revived buyer interest, however.

Butler said that investors are once again purchasing homes in those areas, as are new snowbirds.

When looking for a new home in the West Valley of Phoenix, Peoria, Glendale, Westgate, Goodyear, Surprise, Estrella and beyong, call Bette Zerba FRI Re/Max Desert Showcase for help in finding a home, negotiating the best price, mortage assistance and more. Call Bette ar 602-791-1766 Search the comple Phoenix area MLS free at www.freephoenixmls.com

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005.

New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50%, and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high — but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 — or seven months of supply — by the end of 2008.

This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages.

And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year.

Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to sub-trend growth for a couple of years.

Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Source: Wall Street Journal, By Cyril Moulle-Berteaux

May 6, 2008 Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

When buying a home in Phoenix metro area, or selling your home, you need a realtor who can market your home, has negotiation skills for buyers and understands the short sale process , foreclosures and REO processes. Contact Bette Zerba 602-791-1766 for exceptional and ethical real estate assistance. Search the Phoenix complete mls free at www.freephoenixmls.com, or www.centralphoenixliving.com

34 year trading ‘vet’ spills the beans on Thursday…Worried about a portfolio ‘wipeout’? Watch this…Emergency trading web-seminar (#1 tip revealed)…

I seriously hope we’re not too late but we just got wind of this…

Someone convinced 30 yr. trading veteran Bill Poulos to spill the beans to a small group of traders in a LIVE web seminar, for NOTHING!

If you don’t know Bill, he’s one of the most well-respected names in trading education circles for teaching methods he himself uses and for his dedication to making his students better traders.

And since the release of his recent consumer trading guide, The Profit Button, Bill’s been getting hammered with tons of questions about the somewhat controversial findings in the guide…

* So, he decided to go LIVE on Thursday, May 9th at 9pm Eastern (New York Time) on a special one-time web-seminar where he’ll address all the controversy and also reveal the #1 trading secret to his simple but highly effective trading method (which is NOT in the report)… Click here to reserve your space!!!

Limited Registrations Available…
“In Just 60 Minutes, You Could Gain A Lifetime Of ‘Time-Tested’ Trading Knowledge, Straight From The Mouth Of A 30+ Year Veteran… If You Register Quickly Enough…”…this secret is the ONE thing too many traders IGNORE, and it can often result in a complete portfolio wipeout! You won’t want to miss this, so, reserve your spot now: Click here to reserve your space!!! (That will give you the private password to the web-seminar.)

If you can get in, you’ll also discover:

** The 4 simple steps successful traders know that you don’t…

** How to maximize your profit potential in any market…

** How to evaluate any trading method to see if it has a “Winnin.g Edge” (and why you should abandon it immediately if it doesn’t)…

** How a simple formula that an 8th grader could solve can determine the profitability of any trading method…

** …and, you can also take part in a rare, live Q&A with Bill…

This exclusive, live event is Thursday, May 8th at 9PM Eastern Time.

…BUT…

There is extremely limited “seating” for this event because the virtual seminar room can only hold so many traders. Honestly, registration may already be locked out (depending on when you get this message), but give it a try here:

Click here to reserve your FREE Instant Profits Run Webinar space!!!

If you’ve been wondering why some traders have success in the markets, while others continue to flounder again and again, this could be one of your best chances to get your trading “fixed”
once and for all.

About The Presenter Bill Poulos

Bill Poulos has been trading the markets since 1974. He’s a retired automotive executive who holds a bachelor’s degree in Industrial Engineering, and a Master’s degree in Business Administration, with a major in Finance.

In his over 30 years of trading experience, Bill has developed dozens of trading systems and methods. In 2001, he formed Profits Run, Inc. to impart his trading experience and wisdom to others so they could shortcut their learning curve and ultimately potentially skyrocket their earnings in the markets.

Bill now has thousands of students all around the world, from all walks of life, and at all experience levels. He prides himself on providing honest and realistic trading education, and is known for the continuous and ongoing support and follow-up he offers his students.

His partner in Profits Run is his son, Greg, who is responsible for marketing and all technical support. In addition, Bill also has a full-time operations staff to ensure his trading education is delivered and supported in a high-quality and timely manner.

Good Trading

Sometimes, the owner still lives in the property even though it has been foreclosed upon. In those cases, the bank often offers the owner a “cash for keys” agreement where the ex-owner is paid a sum of money - between $500 to $2,000 - to leave immediately, and give them the keys. The bank figures this is cheaper than evicting someone.

Post-REO Auction: If the banks can’t sell their inventory as REO inventory, they use a private auctioneer to auction it off (often at hefty discounts). These auctions can be tempting, but you face risks here as well. One issue is you usually cannot inspect the interior of the property before bidding on it at auction. It can also be difficult to obtain financing for these types of properties, since you can’t perform the usual inspections & contingencies to ensure the property is in livable condition. The properties are also sold in “as-is” condition and you have to pay a premium above the final winning bid price (usually 5% to 10%) to the auction house.

Looking to by REO for sale homes…never do it without the help of an expert realtor. Bette Zerba can show you these availble REO sales throughout the Phoenix metro area and help you through the buying process for a smooth, stress free transaction. Call Bette Zerba GRI Realtor Re/Max today at 602-791-1766  Or visit www.freephoenixmls.com

Visit the Ballet Arizona Web Site for info and tickets

Looking for a new home, condo, townhouse in near the ballet in central Phoenix? Call Biltmore Bette GRI Realtor  with Re/Max at  602-791-1766. Or search the Phoenix MLS free at www.centralphoenixliving.com