Home Buyer Tax Credit: How It Works

First-time homebuyers in 2008 can take an income-tax credit on their purchase, thanks to passage in Congress earlier this year of the first-time home buyer tax credit.

The definition of first-time homebuyer is generous. To get the credit, the homebuyer cannot have owned a home in the previous three years. The home must be a principal residence and purchased between April 9, 2008 and July 1, 2009.

The credit is equal to 10 percent of the purchase price, up to $7,500. Single taxpayers with modified adjusted gross income up to $75,000 and couples with MAGI up to $150,000 will qualify for full credit. Singles with MAGI up to $95,000 and couples with MAGI up to $170,000 will get a reduced amount. Those with higher incomes don’t qualify.

If the amount of tax a homebuyer owes is less than the amount of the credit, they get to keep the difference in the form of an IRS refund.

The homebuyer must begin to repay the credit in two years in increments of about $500 a year over a 15-year period for those who received the full credit

Homebuyers who sell their home before the credit is repaid must pay off the loan with any profits. If they sell the home at a loss, the loan is forgiven.

[Editor's Note: The credit is set to expire in mid-2009, although industry groups, including the NATIONAL ASSOCIATION OF REALTORS®, are encouraging Congress to extend it. NAR is also encouraging Congress to make the credit available to all buyers and to eliminate the repayment requirement. More detail on how the credit works is available from NAR on REALTOR.org.]

Source: Chicago Tribune, Mary Umberger (12/28/2008)

Less stress in markets could be a nice start

by Russ Wiles - Dec. 28, 2008 12:00 AM
The Arizona Republic

A little less excitement, please, in 2009.

The financial markets, and investors, could use the time to regroup.

Big-name business failures marked 2008, not to mention a stock-market crash, partial government nationalization of the banking industry, an automaker bailout, layoffs, a credit freeze, a collapse in oil prices and near-Depression-like housing conditions.

Nor is it common for the economy to spend a full 12 months in recession - something that hadn't happened since 1982.

With all that in mind, here are some trends to watch in 2009 - factors that will influence the tone of the investment climate:

• The "shape" of the recovery.

Economists generally see the recession ending in 2009, but the timing and strength are up for debate. Optimists hope for a solid, V-shaped rebound, while others foresee lingering softness and L-shaped action. And there's always the chance for false starts and whipsaws along the way, that would generate a W- or S-shaped pattern.

Regardless, it will be tough for the economy to make headway without housing-price stability, rising consumer spending and a lot more hiring.

• The degree of fear.

Consumers have cut back, businesses have laid off workers and investors have fled to the sidelines.

Many people are so nervous they're willing to accept near-zero returns for the privilege of parking their cash in ultraconservative Treasury bills, bank CDs and money-market mutual funds. They're shunning not only stocks but corporate and municipal bonds, too.

"The market is effectively pricing in a depression today, where investors expect default rates to rise substantially," said Michael Roberge, a senior officer at MFS Investment Management in Boston.

Yet confidence eventually will return, and when it does, today's safe havens won't look as attractive.

Roberge predicts that investors who have piled into Treasuries will regret it sooner or later.

• The inflation/deflation tug of war.

It's usually a safe bet to assume consumer prices will rise. But the recession, collapsing commodity prices and other signs could make 2009 the first deflationary year since 1954.

Deflation anxiety explains why many investors have piled into default-free Treasury debt. But you could also make the argument for much higher inflation ahead, given recent interest-rate cuts and other stimulus tactics.

"There are so many diverse outcomes," said Stephen Barnes of Barnes Investment Advisory in Phoenix. "It makes it hard to build a portfolio."

How this battle unfolds will be of key significance.

• Strength of the dollar.

It's ironic that the global recession was brought about largely by a U.S. problem - housing. Yet some foreign economies have been hit worse and their financial markets and currencies shredded.

Recent strength in the dollar reflects the safe-haven role of Treasury debt. Look for some greenback weakness in the months ahead as confidence slowly returns. As long as the move is gradual, that should be welcome all around.

• Credit conditions.

Too much easy lending in prior years got banks, borrowers and ultimately the economy itself in trouble. The pendulum then swung too far the other direction in 2008, with some credit markets shutting down completely.

So look for backing and filling to a more normal lending pace in the months ahead, with loans still off-limits to people with poor credit records but available to most everyone else.

"Borrowers with good credit scores and a payment history will be able to get loans," said Mariner Kemper, chairman and CEO of Missouri-based UMB Financial Corp.

• Stock market stress.

The year's headline-grabbing developments showed up most readily in the stock market. Stocks gyrated through 28 daily swings of 4 percent or more - mostly losses - during a 10-week stretch from mid-September to early December. In the past quarter-century, there were only 25 daily swings of such magnitude.

Stocks aren't likely to suffer anything close to a second straight yearly drop around 40 percent, as happened in 2008.

But investors won't start feeling better until the market sheds its casino image, and that will take a while.

 

Forecast: Valley real estate close to bottom

December 23, 2008 - 5:52PM

Edward Gately, Tribune

The Valley's struggling real estate market may be on the eve of finally bottoming out, according to a new forecast by real estate brokerage Grubb & Ellis/BRE Land Group.

Foreclosures and notices of foreclosure dropped significantly last month across Maricopa County, while the prices of new homes have begun showing signs of stabilizing, according to the report.

"Some argue that (the drop in foreclosures) is an artificial drop because the banks are not being as aggressive in pursuing foreclosures as they have been traditionally," said Ross Smith, senior vice president of Grubb & Ellis/BRE Land Group. "But nevertheless, it helps reduce the oversupply of homes, which is kind of the root of the problem here. We have to get housing supply back in balance with demand."

Also, asking prices for existing homes versus actual sale prices have begun returning to normal.

Another surge in foreclosures is expected in 2009, but federal intervention hopefully can stabilize the market, Smith said.

Mortgage rates and home prices are at record lows, which should prompt more sales and therefore a reduction in the foreclosure inventory on the market, he said.

"There's great bargains out there," Smith said. "I think bank-owned properties are selling below cost in some locations, including peripheral locations."

East Valley real estate agent Jay Thompson has noticed an increase in people looking to buy homes in the past three to four weeks. The surge is unexpected for this time of year, he said.

"Things typically slow down between Thanksgiving and Christmas," he said. "The fear seems to be subsiding a little bit. There is no question my Web site traffic and phone traffic and e-mail traffic have all picked up with buyer inquiries. Friends of mine who are agents outside my brokerage also seem to be a little busier than they have been lately. Busy's good."

After steady increases since the first of the year, sales of existing homes dropped in November, according to the report. Many potential buyers still are waiting to see how low the market will go, Smith said.

"There's definitely a danger of values falling further, but I think we're fairly close to the bottom," he said.

The areas of the market most distressed are those located farthest out from the central Valley, Smith said.

"There's more demand for homes at higher prices closer in," he said.

Thompson expects the market to be "relatively flat" next year.

 

Home builders weigh possibility of merger

Standard Pacific, Engle in talks

by J. Craig Anderson - Dec. 24, 2008 12:00 AM
The Arizona Republic

Two home builders with a significant Valley presence say they are involved in talks about a possible merger.

Standard Pacific Corp. and TOUSA Inc., which operates in Arizona as Engle Homes, confirmed they are "engaged in preliminary discussions and the exchange of information . . . regarding a possible transaction," according to statements released by both companies.

Standard Pacific, based in Irvine, Calif., sells houses in eight Valley communities, including Cortessa in the northwest Valley, Vincenz in Gilbert and Canyon Trails in Goodyear.

Engle Homes sells houses in 10 local communities, including Verrado in Buckeye, Vistancia in Peoria and DC Ranch in Scottsdale. Parent company TOUSA is based in Hollywood, Fla.

TOUSA filed for Chapter 11 bankruptcy protection in January, two months after it was delisted by the New York Stock Exchange.

It reached a reorganization agreement with creditors in October that presumably includes the potential merger, although neither company is calling it a done deal.

Industry insiders say the common link between Engle and Standard Pacific is private equity firm MatlinPatterson Global Advisers, which specializes in revitalizing distressed companies.

The equity firm is the largest shareholder in Standard Pacific and one of TOUSA's major creditors.

Standard Pacific, which is traded on the New York Stock Exchange, announced Thursday that it had named MatlinPatterson partner Ken Campbell as its new president and chief executive officer, with founder Jeffrey Peterson stepping aside but staying on as a director of the company.

 

Arizona eyes share of $850 billion stimulus

by Max Jarman - Dec. 21, 2008 12:00 AM
The Arizona Republic

Construction-industry and government leaders are forming a coalition to make sure Arizona gets its share of the estimated $850 billion in economic-stimulus funding proposed by President-elect Barack Obama.

The Transportation and Infrastructure Working Group has identified more than $10 billion in public projects that could be undertaken with the stimulus money.

The group plans to aggressively lobby Arizona's congressional delegation and other lawmakers for funds that could become available soon after Obama's inauguration Jan. 19.

"We need to get in front of the line and let them know we are not going away," said Phoenix Mayor Phil Gordon, a coalition member.

Much of the proposed $850 billion would go to fund infrastructure projects including new airports, highways, bridges, reservoirs and wastewater-treatment plants.

The construction projects would create new jobs in Arizona that could replace the approximately 100,000 jobs lost because of the housing bust and the recession.

David Martin, president of the Arizona chapter of the Associated General Contractors of America and a member of the coalition, estimated that each $1 billion invested in infrastructure construction could generate up to 35,000 jobs. That's close to the 40,000 Arizona construction jobs lost in the past year alone.

Using a multiplier to account for rounds of spending, Martin said the total economic impact of the $1 billion direct investment balloons to more than $5 billion.

Martin is confident that Arizona's construction-labor pool, much of which was employed framing houses during the housing boom, has the skills to work on more complex infrastructure-improvement projects.

"The crossover from vertical to horizontal construction won't be a problem," he said.

The Arizona coalition is scrambling to come up with a list of projects that can be started quickly if funding becomes available.

"It's a very fluid number, but it looks like about $10 billion worth of work," said Sarah Morgan, vice president of the contractors group.

Many are planned projects that have been postponed because of a lack of funding. They include expanding the light-rail system in Phoenix, airport improvements in Yavapai County and the beginnings of the Loop 303 freeway in the northwest Valley.

"We have the immediate ability to create jobs that will help people stop foreclosures on their homes, buy new cars (and) airline tickets, and get the economy moving again," Gordon said.

Phoenix has come up with a list of 120 projects, valued at $2.1 billion, that could be undertaken with stimulus dollars. Besides light-rail improvements, they include airport improvements, public-housing projects, advanced suspect identification for police and street repairs.

Phoenix's jobs are included in 725 projects, worth more than $7 billion, that have been identified by the Maricopa Association of Governments.

The Arizona Department of Transportation has an additional $1.2 billion in projects that could be started within 180 days and provide a quick jolt to the economy. They include work on the Loop 303 and a new Cordes Junction interchange on Interstate 17.

 

Unfinished subdivisions stuck with underfunded HOAs

by J. Craig Anderson - Dec. 21, 2008 12:00 AM
The Arizona Republic

When the San Tan Heights Homeowners Association switched from developer control to homeowner-elected leaders in August, its new board members and management company learned that the HOA was practically DOA.

Its problems included nearly $1.6 million in unpaid dues that the previous HOA board in the Queen Creek-area community had made no effort to collect.

The biggest individual delinquencies belong to bankrupt home builders.

Developer abandonment is likely to become a serious issue in the coming year for as many as 200 of the more than 10,000 Arizona communities under HOA control, both opponents and supporters of Arizona's HOA policies say.

Partially completed subdivisions and newer communities more prone to home foreclosures are the ones most likely to suffer, experts say, while well-established HOAs in older neighborhoods may not have any trouble at all.

Homeowners in neighborhoods with underfunded HOAs have seen their association fees increase at the same time amenities and services are being reduced or eliminated.

They fear the worsening conditions will further hurt their property values and quality of life.

San Tan Heights is one of several boom-era subdivisions Valley developers have abandoned before completion during the past year.

Homeowners in some other communities have been unable to wrest control of their association from developers, who usually are among the HOA's principal debtors.

Ricky Doxie, owner of a condominium at Village at Rio Paseo, said that developers Engle Homes and Sunbelt Holdings still control the Goodyear community's destitute HOA despite the demise of their joint development venture, which produced 27 of 144 planned units.

Meanwhile, homeowners in the community have been forced to fend off worsening blight, angry creditors and interruption of essential services, he said.

San Tan Heights HOA board members say the association will go bankrupt in 2009 unless homeowners each agree to pay an extra one-time $750 assessment, which many residents say they can't afford.

The board also accused developer Miller Holdings of tapping the association's reserve fund to pay operating expenses.

However, owner Larry Miller said he simply did whatever he could to pay the HOA's bills while member delinquencies mounted, adding that it would have been a waste of money to go after bankrupt HOA debtors who had no money to give.

Miller said the HOA is suffering because San Tan Heights, like scores of other communities in the Valley, provided homes to entry-level buyers, many working in the construction industry, at or near the housing-market peak.

"Every one of those subdivisions is having the same problems," he said.

Advocates for HOA reform say lawmakers could have prevented problems caused by the housing-market downturn by passing tougher restrictions on what critics describe as a developer-friendly system that often treats homeowner rights like an afterthought.

"Unfortunately, I think we've dug ourselves into a big hole here," said Clint Goodman, Mesa attorney and homeowner advocate.

The HOA age

Homeowners associations have become ubiquitous in recent decades, as local governments have sought to limit the impact of population growth on the demand for municipal services.

Development standards have evolved to the point where developers are required to include large parks and open spaces in each new community - recreational amenities once provided almost exclusively by the public sector.

"Cities like it because they don't have to maintain certain areas," said Goodman, president of the Homeowners Institute.

Fast-growing Arizona cities and towns such as Gilbert require all new residential development to be under HOA control.

Another requirement, which Reed Porter, president of T2 Homes, said has become a challenge, is that the developer must finance and construct those amenities in each new community before selling a single home.

Porter knows firsthand how amenities can become cash-sucking monsters in a half-empty community where the developer has gone out of business.

"Now, there's 500 residents living in a community with amenities for 1,000 residents, and then they see the community start to deteriorate," he said.

Porter, also the former president of bankrupt builder Trend Homes, abandoned one Gilbert subdivision fitting that general description early this year.

Cooley Station North in east Gilbert is one of seven communities Trend Homes was building before filing for Chapter 11 bankruptcy protection in January.

Porter later joined Najafi Cos., a private-equity firm, to start a new company, incorporated as T2 Homes but operating under the Trend Homes name.

Still, T2 is not planning to build or sell any more homes in Cooley Station North and is not liable for the original Trend's unpaid HOA subsidies, Porter said.

Trend built about 280 homes inside the community, which contains 865 subdivided lots.

Nor is the community's principal landowner, Trend Homes' former - also bankrupt - land bank Taro Properties Arizona, responsible for cleaning up the acres of weed-infested vacant land inside Cooley Station, he said.

"The problem is, bankruptcy protects you from all that," Porter said.

His choice of the word "problem" seems less ironic when one learns that Porter served as the board president of the Cooley Station HOA until earlier this month.

That's when Taro agreed to release its nearly 500 mortgaged lots to Bank of America, the jilted lender. BofA will become the community's sole institutional landowner.

It has been an ordeal that required board members to make tough decisions such as closing two of the community's three swimming pools, he said.

Like it or not, Porter said, municipalities will have to change their standards to allow incremental development in the wake of so many failed subdivision projects.

"The developer gets these huge loans to build all these parks and amenities," he said. "I'm sure that the next go-round, banks won't lend on all that stuff up front."

Defeated purpose

Garin Groff, spokesman for the town of Gilbert, said that the reason town officials require developers to complete parks and other amenities in advance is to protect home buyers from the unfulfilled promises of developers.

However, he said Gilbert has been working to accommodate recent requests for more incremental development.

"The town is flexible and will work with developers to phase certain elements," Groff said.

He added that residents of Cooley Station can file complaints with the code-enforcement department in Gilbert about the weeds, which some residents believe are a fire hazard in addition to being unsightly.

The town's enforcement staff will contact the landowner, in most cases a bank, to pressure for a cleanup of the area, Groff said.

Porter said bank repossession of developer land is usually beneficial to struggling HOAs, because banks generally resume payment of fees and clean up vacant land to prepare it for resale.

In the meantime, some communities have formed homeowner cleanup crews to tackle vegetation, trash and construction debris on developer- or bank-owned vacant lots. Groff said, though, residents should obtain permission from landowners so they don't risk being accused of trespassing.

Doxie said he and his neighbors confronted a similar problem earlier this year, when tumbleweeds took over the vacant lots in Rio Paseo.

They had a lawyer send letters to the HOA demanding removal of the weeds, which were cleared out soon afterward.

In general, Rio Paseo residents have learned by experience to take an active approach to dealing with problems in the mostly empty community.

At one point, a landscaping contractor who claimed he was owed money by the developer-controlled HOA had his attorney get liens placed on every homeowner's property.

On another occasion, residents received notice that the community's water service, paid through their $165-a-month association fee, was scheduled to be shut off the next day for non-payment.

By getting involved, the homeowners were able to get the liens removed and keep the water running, Doxie said.

Still, he said that some HOA services have been eliminated without input from homeowners and that the association has not provided any update about its financial situation since a year ago.

"Nobody has contacted us to this day with any information about what is happening here," Doxie said.

Richard LaPorta is board treasurer of the San Tan Heights HOA. He said the community's previous HOA board had a policy of limiting homeowner access to financial information, forbidding residents to copy any documents or remove them from the management office.

Goodman said such policies are commonplace but illegal.

"I sue homeowners associations all the time because they don't disclose financial records," he said.

Lack of accountability and a widespread lack of interest in tougher HOA laws have turned associations that could benefit both home builder and homeowner into "a setup that's ripe for fraud" and financial shenanigans, Goodman said.

"It seems like the main purpose of HOAs has backfired," he said.

 

Mortgage Rates Plunge to Record Lows

In response to the Federal Reserve's cut in the federal funds rate to near zero, Freddie Mac reports that the 30-year fixed mortgage rate fell to 5.17 percent during the week ended Dec. 18--down from 5.47 percent last week and the lowest since the survey's inception in 1971.

Interest on 15-year fixed loans slipped to 4.92 percent from 5.20 percent.

Meanwhile, the five-year hybrid adjustable mortgage rate dropped to 5.6 percent from 5.82 percent; and the one-year ARM dipped to 4.94 percent from 5.09 percent.

A year ago, the 30-year fixed rate stood at 6.14 percent, the 15-year fixed rate at 5.79 percent, the five-year hybrid ARM at 5.9 percent, and the one-year ARM at 5.51 percent.

Source: The Wall Street Journal, Steve Kerch (12/19/08)

Commercial Real Estate Is at a Standstill

NAR -  December 17, 2008  

 

With the exception of cash transactions, investment activity in commercial real estate sectors is nearly at a standstill because commercial lending has essentially halted, while job losses are curtailing the demand for space, according to the latest Commercial Real Estate Outlook of the NATIONAL ASSOCIATION of REALTORS®.

Lawrence Yun, NAR chief economist, said there are serious structural problems in commercial lending.

“Although access to residential mortgages has improved, the opposite is true for commercial loans,” he said. “We need liquidity for commercial mortgage-backed securities not only to free the market, but also to rollover existing debt. At the same time, the loss of jobs has had a significant impact on the demand for commercial space.”

Yun added that default rates on commercial real estate loans are very low by historical standards. “However, commercial defaults could deteriorate significantly without a properly structured stimulus that addresses liquidity for commercial mortgages,” he said.

REALTORS® Commercial Alliance Committee chair Steven Good, president and CEO of Sheldon Good & Co. in Chicago, said market conditions are very challenging. “Given that supply and demand for commercial space varies greatly depending on location, it’s important for businesses who want to sell or lease space to consult with a practitioner familiar with local conditions,” he said.


The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by Torto Wheaton Research.

Office Market

Office rent is likely to contract next year as erosion in the job market curtails demand for space. Vacancy rates are projected to increase to 16.4 percent in the third quarter of 2009 from 13.4 percent in the third quarter of this year.

Office markets with the lowest vacancies currently include New York, Honolulu, and Seattle, all with vacancy rates of 9.6 percent or less. The highest vacancies are in Detroit, Phoenix, and Dallas, with vacancies exceeding 20 percent.

Annual rent in the office sector is expected to slip 0.4 percent this year and decline another 3.6 percent in 2009.

In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, is seen at 12.3 million square feet this year before contracting by 63.0 million in 2009.

Industrial Market

The industrial sector has been holding up fairly well based on the strength of exports, but the global economic slowdown will take a toll. Vacancy rates in the industrial sector are forecast to rise to 12.1 percent in the third quarter of 2009 from 10.7 percent in the third quarter of this year.

Industrial markets with the tightest vacancies include Los Angeles, Salt Lake City and Tucson, Ariz., with vacancy rates of 6.8 percent or less. Areas with the highest vacancies include Detroit, Stamford, Conn., and Phoenix, with vacancies of at least 15.7 percent.

Annual rent is estimated to ease down 0.8 percent this year and decline another 4.0 percent in 2009. Net absorption of industrial space in 58 markets tracked should total a negative 57.2 million square feet this year and a negative 134.9 million in 2009. Many obsolete structures remain on the market because much of the new construction has been built to suit specific needs.

Retail Market

Declines in consumer spending are impacting the retail sector. The retail vacancy rate will probably be 12.7 percent in the third quarter of 2009, up from 9.8 percent in the third quarter of this year.

Retail markets with the tightest vacancies include San Francisco; Orange County, Calif.; and Honolulu, with vacancy rates of 4.5 percent or less. Markets with the highest vacancies include Detroit, Columbus, Ohio, and Fort Worth, Texas, with vacancies of 15.6 percent or higher.

Average retail rent is expected to contract 2.0 percent in 2008 and fall another 7.3 percent in 2009. Net absorption of retail space in 53 tracked markets will likely shrink by 7.3 million square feet this year and contract by another 35.7 million in 2009.

Multifamily Market

The apartment rental market—multifamily housing—continued to benefit from weak home sales. Multifamily vacancy rates are forecast at 5.8 percent in the third quarter of 2009, unchanged from the third quarter of this year.

Markets with the tightest vacancies include San Diego, northern New Jersey, and Boston, with vacancy rates of 4.2 percent or less. Areas with the highest vacancies include Jacksonville, Fla., Phoenix, and Orlando, Fla., with vacancies of 8.5 percent or higher.

Average rent is projected to grow 2.9 percent in 2008 and 2.8 percent next year. Multifamily net absorption should be 24,400 units in 59 tracked metro areas this year and 142,000 in 2009.

Home builders continue their retreat

by Catherine Reagor - Dec. 17, 2008 12:00 AM
The Arizona Republic

Home building continues to slow across metropolitan Phoenix. Only 295 new-home permits were issued Valley-wide last month, according to an early count by RL Brown's Phoenix Housing Market Letter.

Lenders continue to resell foreclosure homes for bargain prices, which is making it difficult for builders to sell new houses for a profit. Almost 50 percent of all the Valley's resales last month were foreclosure homes selling for 20 to 30 percent less than regular resales.

Housing analyst RL Brown said another reason for the continued slowdown in building is there are still as many as 5,000 speculatively built homes sitting unsold in the Phoenix area. He said it's tough to get an accurate count because some builders aren't disclosing their figures.

Many of the publicly traded builders have a few hundred spec homes sitting empty in the Valley. Some built houses in anticipation of more first-timers and winter visitors purchasing homes now.

New-home closings also fell in November. That tally will be out later this month.

Home-building permits have been steadily falling since last summer. In August, the number of new permits fell to about 1,100, the lowest level since the last real-estate-led recession in 1990.

Brown said though it's painful for the industry, builders need to pull back, as they currently are, until more spec homes are sold and the foreclosure inventory drops.

Arizonan on task force

Arizona Department of Financial Institutions Superintendent Felecia Rotellini has been appointed to a task force that will examine the nation's financial-regulatory system.

The Conference of State Bank Supervisors has pulled together a group to look into any moves made by Congress to regulate the industry. Besides Rotellini, regulators from California, New Jersey and North Carolina are on the task force.

 

Officials tout Luke to Air Force

W. Valley base could be home of F-35 program

by Michael Senft - Dec. 15, 2008 12:00 AM
The Arizona Republic

Peoria Mayor Bob Barrett and Arizona Attorney General Terry Goddard are urging Air Force leaders to make Luke Air Force Base the future home of the F-35 Joint Strike Fighter.

The two met with Air Force Secretary Michael Donley; Gen. Norton Schwartz, the service's chief of staff; and other officials last week at the Pentagon to discuss the future of the West Valley base.

"We had a positive and productive discussion with Secretary Donley and General Schwartz," Goddard said in a statement. "In addition to briefing Air Force officials on state and local requirements put into effect to protect the base, we made it clear that Luke and its current and future missions have overwhelming support across Arizona."

Luke is a finalist in the Air Force's efforts to determine which bases will become primary training facilities for pilots of the F-35, which is scheduled to replace the aging F-16.

Luke is home to the world's largest F-16 training school. Mountain Home Air Force Base in Idaho is considered its primary rival for landing the F-35 program.

"If we are successful in acquiring the F-35 for Luke, it will help the mission of the base for the next 40 years," Barrett said. "We aren't talking about a short-term solution - after they begin arriving in 2010, the F-35 will secure Luke Air Force Base through 2050."

According to Barrett, who represented West Valley cities in the discussions, the meeting focused on three points:

• The support of West Valley cities for the Glendale base.

• The impact of the F-35 on Maricopa County's pollution levels.

• The noise contours for the area and whether the new fighter bombers, which are louder than F-16s, would meet those standards.

Barrett said he was able to allay the Air Force's concerns.

"Fortunately, Maricopa County had conducted a pollution study and concluded the F-35 would not significantly increase pollution levels," he said. "And when they set out the noise contours for Luke, they figured them for F-15s and F-16s. The F-15s are dual-engine planes and are significantly louder, so we figure the F-35 will fall within the existing contours."

Barrett believes that with the F-16 due to start phasing out within the next 10 years, the F-35 program is critical to the future of Luke.

The loss of Luke would have a tremendous impact on the West Valley. Barrett argued that its prosperity is tied to the base.

"This is a $2-billion-a-year economic engine that is essentially recession-proof," he said. "We need to continue to join forces and do everything we can to secure the West Valley's financial future - that's essentially what we are talking about. This supersedes all other issues in the West Valley."

 

2008 FHA Loan Limits to Extend

The 2008 loan limits for FHA, Freddie Mac, and Fannie Mae will expire on December 31, 2008. NAR and several Congressional supporters have been working to extend this deadline, but it is unlikely to happen before the expiration date. However, Rep. Barney Frank (D-MA) this week announced that he expected the 2008 loan limits to be restored as soon as the 111th Congress convenes in January.

Resale-home median price in Valley fell 7% in Nov.

by J. Craig Anderson - Dec. 12, 2008 12:00 AM
The Arizona Republic

The Valley's median resale price for detached single-family homes fell by more than 7 percent from October to November, bringing the year-over-year median-price decline to about 35 percent, according to the latest figures from Arizona State University.

The November median price of $162,000 was down from $249,000 a year earlier.

November's 3,370 resale transactions represent a 31 percent increase from the 2,580 transactions in November 2007. In addition, there were 3,095 foreclosures, up about 178 percent from 1,115 foreclosures a year earlier.

ASU realty studies Director Jay Butler said the increase in resales suggests lower home prices have sparked some renewed interest in the market.

November resales were down about 25 percent from 4,465 transactions in October, ASU reported.

The decrease is partly a seasonal phenomenon and is also likely due in part to elimination of seller-funded down-payment assistance. Despite the federal ban taking effect Oct. 1, a number of sales involving the practice closed in October.

 

30-Year Rates at Lowest in 4 Years

Freddie Mac reports a decline in the 30-year fixed mortgage rate to 5.47 percent during the week ended Dec. 11 from 5.53 percent last week and 6.11 percent a year ago.

Some lenders are locking in even lower rates as they build on momentum started when the Federal Reserve announced plans last month to purchase a substantial number of mortgage-backed securities. HSH Associates and Inside Mortgage Finance are reporting interest on 30-year fixed loans at 5.33 percent and 5.09 percent, respectively.

Freddie Mac chief economist Frank Nothaft says mortgage rates also were driven downward by the recession and rising unemployment.

Source: The Washington Post, Dina ElBoghdady (12/12/08)

Experts meet in Valley, say 2009 may be start of recovery

by Betty Beard - Dec. 11, 2008 12:00 AM
The Arizona Republic

The state's economic slide will continue through the new year. A turnaround could begin sometime in 2009. Consumers, weary of living on edge, will start spending again. But how long until a full recovery? It may not come until 2011 or 2012.

That's one view of the future, at least, from the experts who offered their annual economic outlook Wednesday at the Phoenix Convention Center.

Other key findings and predictions:

• The recession is "extraordinarily deep and extraordinarily widespread," the most dangerous since the 1920s, said Joel Naroff, a Philadelphia economic forecaster.

• Arizona's economy is in the worst shape of any state in the West - and its job market has seen the second-largest losses in the nation, behind Rhode Island - because of major overbuilding of homes in 2005-06 and weak job growth today, said Lee McPheters, an economics professor and director of the JPMorgan Chase Economic Outlook Center at Arizona State University.

• Still, this downturn isn't expected to become a full-on depression, said Rajnish Mehra, E.N. Basha Arizona Chair at ASU and a widely published economics expert. A lot of it is being driven by self-fulfilling fear, he added.

At last year's Economic Forecast Lunch, also sponsored by JPMorgan Chase and ASU's W.P. Carey School of Business, experts had dour predictions for 2008, but no one knew then how bad things would get. This year, experts said they had been surprised at how quickly things worsened, especially after September's financial panic and subsequent credit freeze.

And although experts offered glimmers of hope for a recovery, they noted that the slide hasn't stopped yet.

"The economy is deteriorating very, very rapidly," McPheters said. "Our forecasts have been changing every month."

But Naroff, who has been honored by Bloomberg Business News, USA Today and ASU for being especially accurate, is more optimistic than many forecasters.

He said that because of falling energy prices, federal actions taken to calm the financial markets and President-elect Barack Obama's proposed stimulus package, the economy will show gains next year. And, at some point, consumers will get tired of being afraid and begin to spend again.

Mehra said that when he looked at recessions over the decades, each recession has been shorter and each expansion longer than the one before. Also, over the long term, the national gross domestic product has steadily improved. So, 2009 is unlikely to be like 1929, he said.

Jobs

Arizona's job numbers have been falling monthly through most of the year. The latest job numbers, down 2.8 percent from a year ago, are the worst since 1976, McPheters said. He expects no growth in jobs next year.

The state went from being the nation's No. 1 job creator in 2006 to 49th this year, according to the U.S. Bureau of Labor Statistics.

Arizona's unemployment rate, which reached 6.1 percent in November, is likely to rise to at least 7 percent, McPheters said. But it has been worse, reaching 10 percent in 1976 and 1982.

The construction industry is expected to lose about 80,000 jobs, or about one-third, from its peak in 2006 by the end of next year. The brightest spot is that health care is gaining about 1,000 jobs a month, McPheters said.

Real estate

The residential-housing market probably will recover faster than other real-estate sectors, such as office, industrial and retail, Scottsdale economist Elliott Pollack said. But the housing market is still three to four years away from full recovery, he said.

The problem is that there was a surplus of single-family homes built in 2005 and 2006 and there aren't enough people moving to the state, enough jobs being created or enough people confident enough to buy new homes.

Pollack estimates metro Phoenix has a housing surplus of 40,000 to 50,000. Tucson and Prescott also are suffering from an oversupply of homes, but the rest of the state is not, he said.

"My guess is that the residential market is not going to reach normal until 2012," he said.

At the same time the Valley is coping with too many houses, Arizona Public Service Co. has reported its lowest number of residential hookups since it began keeping records in the 1950s, an indication that in-migration has slowed dramatically.

Construction of offices, industrial buildings, apartments and retail space also has outpaced the demand, and construction is likely to slow down if not stop in a year or two, he said.

Retail

Naroff said the lack of consumer confidence and spending is now a more serious problem than the ailing housing market. Consumer spending accounts for about two-thirds of the country's economy.

The Arizona Blue Chip Economic Forecast, a consensus of about 20 economic experts in the state, predicts retail sales will fall 3 percent this year in Arizona and increase only about 1 percent next year.

But eventually he and other experts expect that consumers will get tired of sacrificing and curtailing their purchases because of the dour economy.

"Once that psychology changes, I wouldn't be surprised in one year if growth will happen a lot faster than anyone expected," Naroff said.

 

State's population growth now at a crawl

Population rose 1.6% in past year; smallest gain since 1990

by Catherine Reagor - Dec. 10, 2008 12:00 AM
The Arizona Republic

Arizona's population is expanding at the slowest rate since the last real-estate-led recession in 1990, new figures show.

Arizona grew by 1.6 percent, or about 100,000 residents, during the past year, according to U.S. Census data analyzed by University of Arizona economist Marshall Vest. That's less than half the growth rate of just two years ago. Most of today's growth can be attributed to births, which are outpacing deaths, rather than from new residents.

Vest and others say the new population figures are conservative estimates, unlike the ones released a few years ago by the Arizona Department of Economic Security. The agency accidentally overstated the number of residents by tracking new-home permits.

At that time, Arizona's housing economy was booming. Big growth rates were a predictor of good times for the state's biggest industry: Past studies have shown one in every three dollars spent in the state was linked to the housing industry.

Today, the housing market is in a painful contraction, with home values falling and foreclosures at a record high.

Fewer people moving to Arizona means fewer potential home buyers, fewer shoppers in new stores - in short, less growth in a state dependent on it.

Some Valley cities believe their populations are actually shrinking based on drops in utility hookups and increases in vacant homes. Arizona economists say that's possible but that, overall, the state isn't in negative territory for new residents.

"People are still moving to Arizona, but at a much slower rate," Vest said. "More would likely move to Arizona if they could sell houses in other parts of the country with deeper economic problems."

Currently, about 6.5 million people call Arizona home.

Vest is forecasting the state will grow by only 1.2 percent, or 80,000 people, during this fiscal year, which ends June 30. The last time Arizona's growth rate dropped below 2 percent was in 1990. That year, the state population expanded by 1.7 percent.

Inflated numbers

The lower growth figures are vexing many, including state and local governments, who are now facing huge budget shortfalls because of the unexpected drops in population growth. Figures inflated by the housing market are making the situation worse.

When Arizona began growing rapidly in the 1950s, Census population counts and estimates done every 10 years couldn't keep up.

Arizona's Department of Economic Security began tracking the state's population growth in the 1960s by using a model that included home-building figures. The state's system worked well until the housing boom, when tens of thousands of homes were built and purchased by speculators. No one ever moved into them, skewing the results.

In 2006, Gov. Janet Napolitano called for a task force to investigate Arizona's population numbers. Government and business leaders and economists found that the housing boom had inflated the figures.

New study

In the next few weeks, a population study commissioned by the Central Arizona Association of Governments, using a new and improved model for tracking growth, is expected to be completed. Vest and Arizona State University economist Dennis Hoffman have been working on the new study of Pinal County for the past year.

But economists say we won't know for sure how far population numbers were off during the housing boom and by just how much Arizona's growth is slowing until the 2010 Census count.

This year, Vest estimates only 20,000 to 25,000 of the state's new residents will be the result of net migration, which is the number of people who move here minus the number of people who move out of state.

That compares with a conservative net-migration estimate of 140,000 to 160,000 during the housing boom of 2005-06.

The remaining population growth in the coming fiscal year will be about 55,000 people. That will be "natural" growth, which refers to the number of births, once deaths are subtracted, Vest believes.

What is clear is that, for the first time in decades, Arizona's growth is being driven by births instead of people moving here. Even though births have begun to slow in Arizona, as they have during every recession since the 1970s, they are still surpassing the number of deaths.

 

Self-Employed Find Getting Mortgage Difficult

Self-employed professionals, even those with good credit scores and big cash down payments, are having difficulty persuading lenders to give them mortgage loans.

Income for self employed doctors, lawyers, accountants, and real estate professionals are often understated because of large business-related tax deductions.

In the past, most self-employed people took out “stated-income loans,” which don’t require income documentation. But in the aftermath of the housing boom, these loans have a bad reputation. Dubbed “liar loans,” they were misused by some people to borrow more than they could afford.

Self-employed borrowers who also want jumbo loans are facing even greater challenges. Jumbo-loan originations declined 71 percent to $87 billion in the first nine months of 2008 from $303 billion during the same period last year, according to Inside Mortgage Finance.

Source: The Wall Street Journal, Nick Timiraos and Ruth Simon (12/01/2008)

NAR Calls for Changes to Appeals Process for FHA Loan Limits

On December 2, 2008, National Association of REALTORS President, Charles McMillan sent a letter to US Department of Housing and Urban Development (HUD) Secretary Steve Preston calling for changes to the process for appealing loan limits on Federal Housing Administration (FHA) and government sponsored enterprises (GSE) mortgages. NAR is urging HUD to restore the appeals process in Mortgagee Letter 2007-01 that was suspended as a result of the enactment of the Economic Stimulus Act of 2008. The 2007 letter authorized ongoing appeals throughout the year. The appeals process for 2008 was limited to 30 days due to the limited time the new loan limits were authorized by Congress and the need to have stability in the mortgage market. The loan limits for 2009 are not temporary and are not being implemented in a shortened time frame so continuing the suspension of the appeals process outlined ML 2007-01 is no longer necessary. Each request for appeals must still contain sufficient housing sales price data.

The 2008 Economic Stimulus limits expire on December 31, 2008. Accordingly, HUD and the GSEs published new loan limits for 2009. The new loan limits take into consideration the lower median home prices being experienced in communities across the country. Based on the permanent legislation passed in July, the new loan limits will fall to 115 percent of local area median from 125 percent. In addition, the high cost ceiling will drop to $625,500 from $729,750. NAR is working closely with Congress to make the higher loan limits permanent as part of its 4-point stimulus plan. However, there appears to be little consensus in Congress to enact stimulus legislation during the lame duck session. NAR is also working with Congress to encourage HUD not to use the new lower median home calculations. In the meantime, the new limits have been published, and those wishing to appeal those limits only have until early December 2008 to do so.

Do your homework before home auctions

SIDE NOTE FROM RUSS:  I had a lot of people ask me about the public auctions and I thought this covered most of the points that can be a pitfall to most buyers.

by J. Craig Anderson - Dec. 7, 2008 12:00 AM
The Arizona Republic

See a 3,000-square-foot home, built in 2005, on the auction block with opening bid set at $50,000. Or a possible rental property, built in 1962, with an opening bid of $10,000.

It's enough to make your palms itch.

But before you raise your paddle, the auctioneer seems to be raising the price without any bids.

Or once you think you have a winning bid to score your bargain buy, the seller kills the deal.

Is this some kind of cheating? Not necessarily. But the auction process can be confusing, frustrating and disappointing to infrequent auction-goers who don't know the rules of the game.

The auction process itself is unregulated in Arizona, which means tactics designed to manipulate bidders - though frowned upon by most auctioneers - are not illegal.

Advocates both for the auction industry and for consumers say the best thing hopeful bidders can do is educate themselves about the way home auctions work before trying to participate.

"Don't let yourself get carried away at this sort of auction or in any high-pressure sales situation," said Anne Hilby, spokeswoman for the Arizona Attorney General's Office.

Pitfalls for bidders

Home auctions represent the fastest-growing segment of the Valley housing market, promising deep discounts to buyers and rapid-fire sales to lenders, home builders and other property owners desperate to reduce their inventory.

Auctions of varying sizes, from a handful of houses to hundreds, have sprung up, and industry insiders estimate that about 80 percent of prospective buyers attending are not frequent auction-goers.

The process can be tricky for the uninitiated.

Phoenix resident Jordan Rubenstein was looking to buy an affordable home for his young family, and a friend who had recently bought a bank-owned home at auction encouraged him to try it.

Rubenstein, 22, attended an auction held Nov. 16 in Mesa by Irvine, Calif.-based Real Estate Disposition Group, commonly referred to as REDC.

Before even showing up to place his bid, Rubenstein said he ran into a problem.

Two of the homes he chose from a list on REDC's Web site to inspect during a scheduled open house were locked when he arrived.

"You couldn't even go inside the house," he said.

Undeterred, Rubenstein settled on two of the auction's 500 advertised homes that he was able to inspect. He did some research to make an estimate of the fair market value for each.

Still, Rubenstein said his due diligence did not prepare him for the auction process itself.

"My experience was horrible," he said.

Rubenstein said he attended the event with his father, and right away they both began to notice the auctioneer was raising the bid on some homes when no one in the audience appeared to be bidding.

Even though the starting bids on most homes were extremely low, Rubenstein had learned that in order to actually buy a home, the bidder would have to reach a certain, undisclosed price set by the seller, called a "reserve price."

In the end, he said, there were some bargains to be had, particularly on homes priced below $150,000.

But winning bids on most homes in his price range of around $300,000 were barely below market value, Rubenstein said, once he factored in the 5 percent auctioneer's fee and what he estimated it would cost to fix damage from previous owners.

"I really didn't see any reason to bid on a home," he said. "On the positive side, it taught me the value of a real-estate agent."

Perception problem

REDC spokesman Rick Weinberg said Rubenstein's story does not reflect the typical auction experience.

Sellers are supposed to make sure a representative is present at each home to show the property during a scheduled open house, he said.

Still, Weinberg said, the auctioneer can only do so much to help sellers help themselves.

"We've heard the story - it's happened before," he said.

Weinberg took issue with Rubenstein's claim that the auctioneer pretended to accept bids on certain homes to raise the sale price, known in the industry as "ghost-bidding."

"He's totally wrong," Weinberg said. "It does not happen, and it will not happen."

Chris Longly, director of public affairs for the National Auctioneers Association, said ghost-bidding isn't illegal in Arizona.

Neither is a practice known as "shill-bidding," in which an agent of the seller poses as a bidder to drive up the price and foster a sense of competition among legitimate bidders.

The Arizona Department of Real Estate does require home-auction companies to obtain a real-estate license, but it does not dictate auction terms.

Still, Longly said he seriously doubted REDC, a large and well-known auction house, would allow either practice.

"If you get caught ghost-bidding or shill-bidding, you're not going to be in business very long," he said.

It's far more likely that the auctioneer was accepting phone-in bids, Longly said, or that Rubenstein simply didn't see the other bidders' cards being raised.

"These real-estate auctions, they move quick," he said.

New to the game

Most states have their own licensing processes for auctioneers that dictate to varying degrees the way auctions can be operated.

Arizona is one of 17 states that do not.

Hilby said the Attorney General's Office has not received many consumer complaints, but experts inside and outside the industry said the fast-growing home-auction business poses a unique set of public-relations challenges.

Unlike auctions offering cars, antiques, collectibles or artwork, home auctions are often attended by first-time bidders who are unfamiliar with the rules.

John McCann, president of Scottsdale-based National Real Estate Auction Corp., said undisclosed reserve prices are commonplace to anyone who attends auctions regularly.

"The reserve price is whatever the seller sets as the lowest acceptable price," he said. "The opening bid in some cases is lower than the reserve price."

While that may appear scandalous to the uninitiated, McCann said the purpose of an opening bid price is to let bidders know the general ballpark in which they're going to be playing.

Similarly, most auctioneers require bidders to bring a cashier's check with them, usually $3,000 to $5,000, and be prepared to pay a percentage of the home's value on the day of the sale.

"We want to make sure the people doing the bidding are actual, real bidders," he said.

Longly said the professional ethics of auctioneers require them to serve the interests of their clients, the sellers, without misleading or defrauding buyers.

"Our fiduciary role is to represent the seller, but we want to keep our bidders happy," he said.

The rules of every auction are readily available online and on site, but that doesn't always prevent sellers from bending them.

For instance, McCann said a competitor recently held a home auction in the Valley that was advertised as "absolute," meaning there were no reserve prices and the highest bidder would automatically get the sale.

However, when some bids came in lower than the seller expected, "they pulled the plug on the whole auction," he said.

Longly said auctioneers can't encourage sellers to lie about whether they have set a reserve price, but they also can't force an unhappy seller to accept every deal.

"If the seller does choose to call a no-sale on the auction, that's up to the seller," he said.

Sales on the rise

Despite the challenges, it's clear consumers have warmed up to the idea of buying a home at auction.

According to the National Auctioneers Association, gross annual revenue from residential real-estate auctions grew nearly 47 percent from 2003 to 2007.

Automobile auctions still dominated the industry in 2007, selling $87.8 billion worth of cars and trucks, but the fastest-growing sector was real-estate auctions, generating roughly $58.5 billion in sales.

In December, the association launched its own site for real-estate auctions, www.naarealestateauctions.com, which displays properties in a multiple-listing-service-style format.

Most major home-auction companies do business in Arizona. In addition to National and REDC, another big player is Williams & Williams Real Estate Auctions.

Among the three companies, there is usually at least one auction a month in Arizona featuring more than 100 homes.

Weinberg said REDC sold 386 homes during the two-day auction Rubenstein attended, bringing in about $38 million.

"Many of those deals were tremendous bargains," he said, adding that some bidders walked away with homes for $150,000 that had been valued previously as high as $400,000.

REDC President Jim Corum said the auction process can be intimidating to first-time attendees, but the best thing they can do is read the rules in advance and ask questions.

"The single most important thing is for the buyer to educate themselves," he said.

Rubenstein, however, said the bigger problem is that home auctions simply don't always offer the screaming deals they promise consumers.

Asked if he would give auctions another try, he said, "I would definitely not."

 

Valley foreclosures down

17% drop from October comes as lenders ease terms for strapped borrowers

by Catherine Reagor - Dec. 9, 2008 12:00 AM
The Arizona Republic

Valley foreclosures significantly fell in November, suggesting that lenders are finally working with borrowers to help them pay their loans and that the area's housing market may have hit bottom.

Last month, 3,826 Phoenix-area homes fell into foreclosure, according to the Information Market. That is down 17 percent from October.

Foreclosures are likely to fall again in December because notices of trustee sales, or pre-foreclosures, fell 23 percent in November, to 6,509.

In the past few months, several big lenders announced programs to work with more struggling borrowers. Fannie Mae and Freddie Mac halted foreclosures during the holidays and plan to begin lowering interest rates and payments on some loans.

 

Mortgage delinquency rate hits 7% in Ariz., U.S.

by Catherine Reagor - Dec. 6, 2008 12:00 AM
The Arizona Republic

More people are falling behind on their mortgage payments in Arizona and much of the United States as job losses mount, the financial markets struggle and the recession lengthens.

Arizona's mortgage-delinquency rate climbed to 7.39 percent at the end of the third quarter, on Sept. 30, according to new data from the Mortgage Bankers Association. At the end of the second quarter, on June 30, about 6.05 percent of the state's homeowners were late with payments.

Mississippi leads the nation in mortgage delinquencies, with about 11.7 percent of mortgages now past due. Louisiana follows with 10 percent, and Michigan is third at 9.7 percent.

The national mortgage-delinquency rate is 7 percent, the highest it has been since the group began tracking late payments in the 1950s.

"While much of the mortgage problem in some states continues to be overbuilding, poor underwriting and incorrect credit pricing, fundamental economic factors are becoming more important," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

"We have not gone into past recessions with the housing market as weak as it is now, so it is likely that a much higher percentage of delinquencies caused by job losses will go to foreclosure than we have seen in the past."

Mortgage delinquencies are usually a precursor to foreclosures. In metropolitan Phoenix, a record 40,000 homes have been foreclosed on so far this year.

Some lenders are working with struggling homeowners to modify mortgages and lower monthly payments.

Bank of America, which bought Countrywide last summer, has halted foreclosure on more than 2,000 Valley homes as part of a deal with Arizona Attorney General Terry Goddard. Many of those homeowners are now being offered loan-modification programs, but it won't be enough for some borrowers.

Early in 2009, Arizona will get $121 million from the federal housing-bailout package passed last summer. The money is slated to go toward helping neighborhoods hit hardest by foreclosures.

But housing advocates say even more money and aid must go toward helping people avoid foreclosure and stay in their homes.

Arizona State University business professor Anthony Sanders believes modifying the loans of struggling homeowners is one of the best ways to stabilize the housing market. He recently testified in Congress about the financial bailout plan.

"It is of critical importance to find ways to slow down the delinquency and foreclosure waves, if economically viable," he said.

 

It May Be Time to Think About Buying a House

New York Times

By RON LIEBER

Published: December 5, 2008

Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

 

Housing Prices Fall Below Replacement Costs

Housing consultancy Global Insight reports that nationwide, housing prices are now 3.8 percent undervalued, based on total market value. It says values fell at a faster pace in the third quarter after stabilizing earlier in the year.

According to Global Insight’s calculations, prices are now 6.5 percent below their 2007 peak. They fell at a 6.9 percent annual pace affecting 241 of the 330 metropolitan areas analyzed by Global Insight. That’s up from 150 metro areas affected in the second quarter.

Contraction is most severe in the Southeast and Southwest with only the Pacific Northwest remaining overvalued, Global Insight says.

Home prices fell more than 10 percent in the third quarter in nine central California communities. The Central Valley communities of Merced, Stockton, and Modesto have seen property values fall to less than half their 2005 value. Twenty-nine metro areas in California, Florida, and Nevada ­– at one time among the most overvalued – have seen price declines in excess of 30 percent. Similar steep price drops are occurring in Michigan, northeast Ohio, the southern metro areas from Charlotte to Atlanta, as well as in New England.

"Weak economic conditions and wary consumers continue to hold the housing market back. Although many areas are seeing home sales increase, it is largely due to foreclosure homes being snapped up at significantly discounted prices. As the inventory of these homes is removed from the market, prices will remain on a downward path," predicts Jeannine Cataldi, senior economist and manager of Global Insight’s Regional Real Estate Service.

Source: Global Insight (12/03/2008)

SE Valley home prices fall for a record 18th month

by Kerry Fehr-Snyder - Dec. 2, 2008 12:17 PM
The Arizona Republic

Home prices in the Southeast Valley fell at double-digit rates in August but didn't fall as far as some of the other regions of the Valley, according to a report released Tuesday by Arizona State University.

Only one of five regions, the Northeast Valley, fared better than the Southeast area, the Repeat Sales Index Report by real estate professor Karl Guntermann found. The Southeast region includes Apache Junction, Chandler, Gilbert, Higley, Mesa, Queen Creek, Sun Lakes and Tempe.

The Northeast region fell by 16.4 percent in August compared with the same month a year ago. The Southeast region declined by 24.8 percent, the Central region by 28.4 percent, the Northwest by 30.4 percent and the Southwest by 37.2 percent.

The report looked more closely at three Southeast Valley cities:

• Mesa dropped 26.7 percent.

• Chandler fell 21.4 percent.

• Tempe dipped 14.6 percent.

The August decline marked the 18th month in a row of falling home prices, breaking the previous 17-month record during the last real estate downturn from1989 to 1991.

The good news, Guntermann said, is that the double-digit rates of decline that began in March 2008 appear to be leveling off. But he also predicted several more months of falling prices.

The ASU-RSI relies on repeat sales data for the same house and is considered a more reliable measure than using the median home price for an area. The report contains a three-month lag because the data often changes over time.

 

It's official: Recession began in December '07

Using history as guide, recovery possible by this spring

by Betty Beard - Dec. 2, 2008 12:00 AM
The Arizona Republic

Now that we know we're a year into a recession, economists have a better chance of gauging when we might climb out.

No recession in the past 50 years has lasted more than 16 months. If history repeats itself, the U.S. economy could start to see recovery by spring or summer.

Then again, this recession could be deep enough to set its own standard. The National Bureau of Economic Research in Cambridge, Mass., on Monday reported it had determined the United States officially entered a recession last December. That means the economy in general stopped growing and began losing jobs and producing fewer goods.

That declaration appears to be a no-brainer, given the deluge of layoffs, the surge of business closings, deep retail discounts, manufacturing declines and other gloomy economic data. The stock markets plummeted Monday, with the Dow Jones industrial average falling 7.7 percent, or nearly 680 points.

But for economists, the announcement ends a largely academic discussion about whether we are in a recession and helps them better predict when the downturn might reverse itself.

"We're now a year into it, which is good," said Joel Naroff, a Philadelphia economist who was recognized last month by Arizona State University's W.P. Carey School of Business for being accurate in past forecasts.

"A long recession would be 18 months, which means by summer we could be coming out of it," he said.

Still, he and other economists say this recession appears unusually severe because it has hit so many sectors: housing, financial services, automobile sales and others. Recovery efforts haven't yet gotten frozen credit flowing. Another complicating factor: The U.S. economy is more interconnected, internationally and digitally, than in past recessions.

University of Arizona economist Marshall Vest said that the two longest national recessions since the Great Depression, in the early 1970s and '80s, each lasted 16 months.

But this one is already a longer recession than anyone who is 26 or younger has ever lived through.

"My guess is we are going to break that record," Vest said. "Probably somewhere between 18 and 21 months is what I am thinking and what I see other forecasters calling for."

• Why this recession is different: Economists have been saying that it was pretty clear that Arizona's economy had slowed enough by January to be in recession territory. Housing sales had fallen in 2007. And last December, the state began losing more jobs than it was gaining, especially in construction. Net job losses have continued through most of 2008.

But, earlier in the year, many expected the recession to be mild to moderate. Because the dollar was weak, exports were doing well.

Then, the September panic snowballed with the bankruptcy of Lehman Brothers investment bank, freezing credit throughout the financial system. Dennis Hoffman, an economist at the ASU Business School, said, "I was overly optimistic over the past few years that we could weather this storm. But almost every shred of optimism has been wrung out of me, I am afraid."

Naroff said, "It's a totally different recession than anything else we've seen basically since the Depression. . . . This is caused by a massive financial-structure meltdown and a financial panic."

Another difference, he said, is that businesses rely more on information technology and can be more responsive and quicker to lay off workers.

Scottsdale-based economist Elliott Pollack said Arizona still suffers from problems that are going to take years to resolve.

"People have too much debt. They don't have enough savings. Their asset values in their stock portfolios and the house are way down, so they feel poorer and will spend accordingly," he said. "The international economy is weakening, so exports aren't going to be as strong. Industrial markets will be weak. And the housing market again is still in decline because of all the foreclosures and the excess supply. So, there are a lot of things that have to be corrected."

• What kind of stimulus is needed: Economists mostly agree that if there is to be a stimulus program, it should not be a quick fix like the rebate checks that were sent out in the spring.

"People get the checks, and they spend the checks. It's here now, gone tomorrow. We need this to be here now and not gone for a long time," Naroff said.

He supports creation of jobs to build streets, bridges and other permanent projects because infrastructure would aid future economic growth.

Also, public works would have a multiplier effect as each paid worker bought groceries, clothes and other items.

The downside to such a stimulus program is that such projects can take time to build.

• Fearing the next bubble: Economists already are starting to look at what happens after the current recession ends and what the federal government should do to stop another asset bubble from ballooning and causing damage, Vest said.

It's now obvious that the wild real-estate market and the complex securities tied to it spurred the current recession.

Experts worry that federal actions being taken could create a similar challenge. The government has now theoretically loosened up a lot of money. Once people and companies recover their courage and resume lending and borrowing, another bubble could swell.

"The economy could be off like a rocket here within a year or two," Vest said.

In his opinion, the main factor stopping that from happening is fear. "I think we will get tired of being afraid before too much longer," Vest said. "You know, you kind of get worn out after awhile."