Measuring the housing market

Housing data remain mostly bleak as Valley awaits mortgage-relief details

by Catherine Reagor - Feb. 25, 2009 12:00 AM
The Arizona Republic

Most key indicators used to track the Valley's housing market are still going the wrong way, but there is one measure of the market that has begun to defy the downturn.

Pending listings, which are home sales in negotiation or under contract, are up 90 percent in the Valley.

Real-estate agent Michael Orr, who tracks Arizona Regional Multiple Listing Service data, said there are currently about 9,600 pending sales in the system. If all of those pending sales - or even most of them - turn into actual closings, March and April could be good months for the Valley's housing market.

Here are the Valley's other latest housing data:

• New-home sales, or closings, fell 47 percent in January from December 2008, reports RL Brown's Phoenix Housing Market Letter.

• Home building hasn't picked up after slowing dramatically last fall. There were 301 single-family permits issued across metropolitan Phoenix in January, according to the Housing Market Letter.

• Metro Phoenix posted a 34 percent decline in home prices during the last three months of 2008, according to the Standard and Poor's/Case-Shiller U.S. National Home Price Index released Tuesday. Las Vegas and San Francisco were right behind the Valley, with drops of more than 31 percent.

Nationally, home prices plunged more than 18 percent during the quarter from the prior-year period, the largest drop in the index's 21-year history.

Help is on the way

Federal help is on the way for the housing market.

There's the new $8,000 credit for first-time home buyers, which should spur sales; next month, $121 million in Neighborhood Stabilization Program funds will be coming to Arizona to help areas hardest hit by foreclosures; and final details for the plan to aid both people facing foreclosure and those who can't refinance because of falling home prices will be unveiled March 4.

The economic-stimulus package should help about 70,000 Arizonans keep their jobs or find a new ones, which means more people will be able to buy homes or keep paying their mortgages.

If you have questions about the new federal housing plan and whom it will help, go to azcentral.com/realestate and click on "Leave a question for Catherine Reagor."

Housing director departs

Fred Karnas resigned as director of Arizona's Housing Department last week, and he's already in Washington, D.C., for his new job. Karnas is a now senior adviser at the U.S. Department of Housing and Urban Development.

Karnas' parting comment: "All state agencies have to deal with Arizona's budget shortfall, but the Department of Housing is looking at a cut that's disproportionate. Look forward: If the Housing Trust Fund is devastated, there won't be the help for the homeless and the first-time home buyers (that) there has been in Arizona for the past several years."

The Arizona Housing Trust Fund is facing a $29 million cut from its 2009 budget of $33 million.

 

Fed: Economy likely to shrink through '09

by Jeannine Aversa - Feb. 19, 2009 12:00 AM
Associated Press

WASHINGTON - The Federal Reserve warned Wednesday that the nation's crippled economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilize.

The Fed's bleak estimates indicated that unemployment could climb as high as 8.8 percent this year and that the economy would contract for a full calendar year for the first time since 1991.

The central bank's latest projections came hours after a separate report showed that new home construction and applications for future projects both fell to record lows last month.

Still, some economists saw a silver lining in the otherwise dismal housing report: Scaled-back building should reduce the number of unsold homes and contribute to an eventual housing recovery.

The Fed's latest forecast says the unemployment rate will climb to between 8.5 and 8.8 percent this year. The old prediction, issued in mid-November, estimated that the jobless rate would rise to between 7.1 and 7.6 percent.

Many private economists believe the current 7.6 percent jobless rate - the highest in more than 16 years - will hit at least 9 percent by early next year even with the $787 billion stimulus package.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent.

The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

The grim outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

"Given the strength of the forces currently weighing on the economy," Fed officials "generally expected that the recovery would be unusually gradual and prolonged," according to documents on the Fed's updated economic outlook.

In another sign of the troubled economy, production at the nation's factories, mines and utilities fell 1.8 percent last month, more than economists expected. That figure, the third monthly drop in a row, was dragged down by a 23 percent drop in production at auto plants and their suppliers.

Meanwhile, construction of new homes and apartments plummeted 16.8 percent in January from the previous month, the Commerce Department said, falling to a seasonally adjusted annual rate of 466,000 units, a record low. Analysts expected a pace of 530,000 housing units.

Building permits, a measure of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 percent drop from the prior month.

The Fed also reported Wednesday that production at the nation's factories, mines and utilities fell 1.8 percent last month. Many economists expected a 1.5 percent decline.

 

Great to Live for Less

Forbes magazines has compiled a list of cities where $500,000 will still buy an exceedingly comfortable lifestyle.

To choose these 10 locations, Forbes examined the cost of the typical four-bedroom, two-bathroom, and 2,200-square-foot home. They also factored in the amount of patent and venture capital activity, average commute, and an average cost of living below $100,000.

The top cities were:

1. Irvine, Calif.
2. Raleigh, N.C.
3. Bellevue, Wash.
4. Portland, Ore.
5. Sunnyvale, Calif.
6. Redmond, Wash.
7. Austin, Texas
8. Chandler, Ariz.
9. Rochester, N.Y.
10. Plano, Texas

Source: Forbes, Matt Woolsey (02/12/2009)

Valley median home price hits 8-year low

by J. Craig Anderson - Feb. 18, 2009 12:00 AM
The Arizona Republic

It's official: Phoenix-area home pricing has overcorrected for the housing bubble.

Preliminary same-home resale data from Arizona State University show the Valley's median home price fell to $130,000 in January, equivalent to the median price in January 2001.

That was three years before home prices began their meteoric climb, fueled by a frenzy of building, lax lending and overreaching buyers.

While the numbers probably will not shock those who have tracked recent developments in the housing market, they underscore the severity of the Phoenix area's real-estate crisis, which prompted President Barack Obama's visit to Mesa today to outline his $50 billion plan for reducing home foreclosures.

The ASU Repeat Sales Index, measured monthly by W.P. Carey School of Business real-estate professor Karl Guntermann, shows the Phoenix-area median home price fell to $150,000 in November, the same as in October 2003, just before the price run-up began.

Rather than hitting solid ground, the median price continued to slide in December and January, early ASU housing data show.

The Repeat Sales Index tracks repeat sales of the same homes over a period of years, considered the most accurate way to measure changes in the market value of housing.

Data from November 2007 to November 2008 show a record year-over-year price decline of 32 percent. That number probably increased to 33 percent in December and 34 percent in January, Guntermann's preliminary research shows.

"It will probably be months before the index levels off, which would be the first step in ending the home-prices decline," he said.

As median home prices plummet, affordability is skyrocketing, Guntermann said.

He also measures what's known as the Affordability Index, which tracks the relationship between median home price and median income.

An index of 100 means that a household earning the median income can afford a house selling for the median price at prevailing interest rates. An index of 125 means a median-wage earner can afford a home that's 25 percent above the median home price.

The Phoenix area's Affordability Index has gone from a low of 74 in 2006 to well above 100 in most Valley cities, Guntermann said.

The most-affordable city in which to purchase a home in the fourth quarter was Phoenix, he said, which led the Valley with an index of 152.

The least-affordable city measured was Tempe, which had an index of 87.

Scottsdale and Paradise Valley were not measured.

 

Housing Bill

I have had quite a few questions about what the stimulus bill meant for valley real estate.  I have been holding off on posting anything until the bill was passed due to the fact that a lot of the debate was over real estate credits and limits.  Below is a excerpt from the National association of Realtors that I think best Summarizes what was passed.  Feel free to e-mail or call me with any questions.

 

 

 

So here's what we have achieved: 1) the loan limits will be raised to $727,000 in high cost areas, 2) the tax credit will be raised to $8,000 with NO payback [a true credit], 3) interest rates have come down 125-150 basis points, and 4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES's thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have - which some tend to forget is always on the table when these negotiations start up again - mortgage interest deductability, real estate tax deductability, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit -- and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carryback deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of 'what we are willing to give up to get a $15,000 tax credit' and kept the debate again, on how much it should be. It's pretty hard to complain when they give you what you ask for and you lose something you never had.

While we study the Treasury specifics on their major role in providing the rest of the housing solution -- there is much more to come and we are working diligently with the Administration to help 'unclog the pipeline' and get capital flowing into housing again.

 

 

Foreclosures continue upward climb in Valley

The 'good' news: Plummeting median price sparks 49% sales jump

by J. Craig Anderson - Feb. 13, 2009 12:00 AM
The Arizona Republic

Phoenix-area home foreclosures were on the rise again in January after a holiday break from bank repossessions, according to the latest home-resale figures from Arizona State University.

It's a troubling start to a year in which many experts believe foreclosure activity will reach its peak, as equity continues to dissolve and another wave of foolish-in-retrospect mortgage loan products reset to higher monthly payments.

The upside in January was a 49 percent increase in detached, single-family home resale activity from a year earlier, according to the report from Realty Studies at the Morrison School of Management and Agribusiness at ASU Polytechnic.

Still, resales were down 17 percent from December 2008.

The foreclosures driving up sales in recent months have created opportunities for many buyers, but they also have forced residents out of their homes and chipped away at property values across the Valley, said Jay Butler, Realty Studies director.

Deep anxiety about the country's economic future leaves little chance of a housing-market recovery this year, he added.

"The local housing market will continue to be vexed well into the next year by eroding consumer confidence, brought on by a weak economy, possible job losses and tighter mortgage underwriting guidelines," Butler said in his report.

Michael Brauneis, a financial loss-mitigation expert and consultant to the mortgage industry, agreed that things are likely to get worse before they get better.

Brauneis said his biggest concern is the high number of interest-only "Option ARM" and stated-income "liar" loans scheduled to reset to higher monthly payments in the coming year.

Such loans can be difficult to modify, because in many cases the borrower's income simply isn't high enough to afford payments that include both interest and principal, he said.

"Foreclosure rates are definitely still on the way up," said Brauneis, director of Protiviti, a subsidiary of Robert Half International.

"It's going to get ugly."

In January, the median sale price for single-family detached homes in Maricopa County was $136,000, ASU reported.

That's a 44 percent drop from the median of $243,000 the previous January.

Home prices fell 7 percent from December's median resale price of $146,000, according to ASU.

In the past two months, a high volume of sales in Phoenix at disproportionately low prices has pulled down the median home price Valleywide.

In December, 1,360 Phoenix homes were sold at a median price of $90,000.

In January, the number of sales decreased to 1,190, while the median price fell to $74,500, ASU reported.

The Phoenix median price was January's lowest in the Valley, surpassing perennially last El Mirage, which had a median home price of $76,125.

As usual, other areas fared considerably better, Butler said.

Chandler's median price was $230,000 in January, down roughly 18 percent from $280,000 a year earlier.

The median price in Tempe experienced a reduction of 14 percent, from $255,000 to $219,000.

 

Housing Inventories Fall in 29 Major Markets

The inventory of existing homes for sale in 29 major markets covered by ZipRealty declined an average of 2.5 percent in January 2009, compared to December 2008 and down 13 percent compared to January 2008.

This is a good sign, especially when considering that typically inventories rise in January after the holidays. In the last 25 years, the average increase in inventory in January has been 8.7 percent, according to Ivy Zelman, CEO of research firm Zelman & Associates.

Housing-market analysis Altos Research reached similar conclusions, saying that the listings in its 10-city composite index declined 3.3 percent in January compared to December 2008.

This data doesn’t include New York City, where appraisal firm Miller Samuel Inc. reports that inventories were at the highest level in the last decade, up 6 percent from December and 36 percent from January 2008.

Source: The Wall Street Journal, James Hagerty (02/10/2009)

Lack of Credit Threatens Commercial Sector

A severe lack of credit threatens commercial real estate and poses significant risks for the whole economy, according to a NATIONAL ASSOCIATION OF REALTORS® work group.

The Commercial Economic Stimulus Work Group has developed a plan to address high-priority issues like lack of credit to avoid further losses in the commercial real estate markets and identify strategies as part of the national economic recovery plan.

“Most lenders have withdrawn from the market and there is no secondary market for commercial mortgages,” says NAR President Charles McMillan. “If lenders cannot meet the growing demand for credit to refinance performing commercial real estate loans which are due to mature soon, a wave of defaults could worsen the current credit crisis. Policymakers must act swiftly to enact measures to restore credit capacity.”

Commercial real estate plays a vital role in the national economy. Income-producing commercial property is valued at approximately $5 trillion. The commercial sector provides more than 9 million jobs and generates millions of dollars in federal, regional, and local tax revenue. Local governments, in particular, depend on this revenue for roughly 70 cents out of every dollar in local government budgets. Tax revenues from commercial real estate provide vital public services including education, road construction, law enforcement and emergency planning and response.

“Commercial real estate creates the framework for much of what happens in our economy,” says Robert Toothaker, chairman of the REALTORS® Commercial Alliance, which organized the work group. “A major collapse in this area would be felt throughout the economy.”

Addressing the crisis in commercial real estate markets will require a multifaceted approach. Stabilizing the mortgage-backed securities market is one component essential to a successful recovery plan, because of the importance of the mortgage and housing markets to economic recovery.

Toothaker says many property owners are concerned that during 2009 and 2010 they will be unable to refinance existing loans, including land and residential development projects, and that lenders may consider loans on performing properties in default because of problems determining the fair market value of those properties.

“Accounting rules should be made more flexible. The U.S. Treasury and Federal Reserve also should exercise their authority to implement and expand the Term Asset-Backed Securities Loan Facility,” he says, adding that the TALF should be encouraged to purchase commercial mortgage-backed securities and conventional commercial real estate loans to help stabilize the market.

The work group also recommended tax policies to strengthen the commercial market. “Any changes that would make investment in commercial property less attractive would reduce property values in an already fragile marketplace. Capital gains rules that apply to appreciated property, like-kind exchanges and carried interests must be kept at the existing 15 percent, and passive loss rules should be suspended,” Toothaker says.

Finally, a comprehensive program for recovery must stimulate and support investment in commercial real estate. For example, the federal government should free up spending for capital improvements to the nation’s infrastructure, including transportation, roads, and energy grids.
“We must avoid policies that artificially raise the cost of construction and operation of commercial real estate properties. And the commercial real estate sector needs to invest in energy efficiency and environmentally friendly initiatives through tax and other incentives,” Toothaker says.

Source: NAR

Fannie Loosens Refinancing Rules

Fannie Mae plans to eliminate some credit-score requirements, scale back income-documentation standards, and waive the need for appraisals in some cases, starting on April 4.

The mortgage finance company believes the changes will allow more home owners to refinance into new home loans at near-record low interest rates.

Analysts say the relaxed rules for loans that Fannie Mae owns or guarantees are unlikely to have a significant impact on mortgage-bond investors and mortgage insurers.

Source: The Washington Post, Jody Shenn (02/06/09)

ON to close Valley plant; 350 workers to lose jobs

by Andrew Johnson - Feb. 5, 2009 12:00 AM
The Arizona Republic

ON Semiconductor Corp.'s manufacturing presence in metro Phoenix will be nil by next year, when the chipmaker will close its remaining Valley fabrication plant.

The semiconductor manufacturer on Wednesday said that it will close the facility, which makes filters, diodes, rectifiers and transistors for electronic devices, by the end of the first quarter of 2010. Its other fabrication plant in Phoenix closed last year.

The announced closure eliminates 350 manufacturing jobs in metro Phoenix. Production will be moved to ON's plant in Malaysia.

ON currently employs about 1,100 workers in the Phoenix area, including the workers affected by the announcement.

The company also operates an engineering and design center in Chandler. That facility and ON's corporate headquarters in Phoenix are not affected.

In an earnings conference call with analysts on Wednesday, Keith Jackson, president and chief executive officer, said that the plant closure would result in a cash charge of $8 million to $10 million but eventually will result in annual savings of $36 million.

For the fourth quarter that ended Dec. 31, ON reported a net loss of $519.6 million, or $1.27 per diluted share, compared with a profit of $61.1 million, or 20 cents per diluted share, in the same period a year ago.

The Phoenix plant, which has been in operation since the 1960s and makes chips on six-inch wafers, is located at ON's corporate headquarters, 5005 E. McDowell Road.

ON is one of several semiconductor manufacturers to close plants and reduce headcount amid plummeting chip sales, as the recession hampers demand for consumer electronics, mobile phones, automobiles, home appliances and other products that contain the chips.

Annual semiconductor sales fell in 2008 for the first time in seven years. Industry analysts expect sales to continue declining this year.

ON's fourth-quarter sales actually increased 19.8 percent year-over-year, to $488.7 million. However, they decreased 16 percent from the third quarter.

"The end of 2008 and the beginning of 2009 have been a challenging time for the semiconductor industry . . . and we are expecting further declines in the first quarter 2009," Jackson said. "We are uncertain as to the depth or duration of the current recession."

ON's shares closed up 22 cents, or 5.4 percent, to $4.27 Wednesday.

The sluggish environment is prompting manufacturers to shutter aging facilities in favor of newer U.S. plants and fabrication plants overseas where labor and other manufacturing costs are lower.

Last month, ON said it planned to lay off 1,500 workers across the company during the year, cut merit increases and require employees to take a two-week unpaid furlough.

ON also said it was accelerating three previously announced plant closures this year - two in Slovakia and one in Idaho - and close a fourth plant. The fourth plant turned out to be the Phoenix facility.

The closures are partly the result of two acquisitions ON made in 2008, spokeswoman Anne Spitza said.

After the four plant closures, ON will have 10 fabs around the world. The company currently has about 14,500 employees worldwide.

Several other semiconductor manufacturers with Arizona operations have announced layoffs, salary cuts and furloughs in recent weeks, including Intel Corp., Texas Instruments Inc., Freescale Semiconductor Inc., Microchip Technology Inc. and STMicroelectronics.

Market analysts and trade groups are hopeful President Barack Obama's proposed stimulus plan of $900 billion, which includes several billions of dollars for infrastructure projects, could give the semiconductor industry a much-needed boost.

 

Commercial property values post big quarterly decline

Reuters

Wed Feb 4, 2009 9:02am EST

By Ilaina Jonas

NEW YORK (Reuters) - U.S. commercial property prices by institutional investors posted their greatest quarterly fall in 22 years, according to an index developed by the Massachusetts Institute of Technology Center for Real Estate.

The transaction-based index, which MIT developed in 1984, fell 10.6 percent in the fourth quarter, surpassing the record fall of 9 percent seen in the fourth quarter 1987.

The index tracks the prices that institutions such as pension funds pay or receive when buying or selling commercial properties like shopping malls, apartment complexes and office towers.

"It now seems likely that this down market will be at least as severe as that of the early 1990s for commercial property," Professor David Geltner, director of research at the Center for Real Estate, said in a statement.

The index fell a record 15 percent in 2008, and easily surpassed the 9 percent decline seen in 1991 and the 10 percent drop in 1992.

That period marked one of the most severe recessions in commercial real estate recession and was the result of the savings and loan debacle and U.S. tax code changes in 1986.

The current downturn in commercial property is the result of the credit crisis, which has cut off debt financing for sales. The U.S. recession has also dealt a blow to commercial real estate returns, as business tenants cut staff and office needs, cut hotel demand, or close stores.

The index declined a total of 27 percent from 1987 through 1992, with most of the decline occurring in 1991 and 1992.

The index's performance means that prices in institutional commercial property deals that closed during the fourth quarter for properties such as office buildings, warehouses and apartment complexes are now 22 percent below their peak values attained in the second quarter of 2007. The index has fallen in five of the past six quarters, but the recent drop is by far the steepest.

The MIT Center for Real Estate also compiles indexes that gauge movements on the demand side and the supply side of the market that it tracks.

The demand-side index, which tracks prices potential buyers are willing to pay, has fallen for the past six quarters, and is down 23 percent for the year and 31 percent since its mid-2007 peak.

 

Pending home sales climb 6.3 percent

by Alan Zibel - Feb. 4, 2009 12:00 AM
Associated Press

WASHINGTON - An index that tracks signed contracts to purchase existing homes rebounded in December, as buyers snapped up properties at deep discounts, especially in the South and Midwest.

It was the second positive sign in the past two weeks for the troubled U.S. housing market, and may indicate that a bottom is forming.

Analysts, however, caution that prices are likely to keep falling through 2009, and say the outlook for home sales is uncertain, especially as layoffs mount and banks' lending standards remain tight.

The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for previously owned homes for December rose 6.3 percent to 87.7 from an upwardly revised November reading of 82.5, which was lowest month on record. That's better than the 82.3 reading economists expected, according to a survey by Thomson Reuters.

The reading also was up 2.1 percent from December 2007.

 

Power Road corridor packing wallop

by William Hermann - Feb. 4, 2009 08:44 AM
The Arizona Republic

Just as Phoenix developed a "Power Corridor" on East Camelback Road and Tempe is developing a commercial and residential power center along Mill Avenue, East Valley officials see a corridor of educational, healthcare and commercial development blossoming along, appropriately enough, Power Road.

In a Valley area that only a few years ago was considered the hinterlands - it's 22 miles from downtown Phoenix - developers and city officials see a 15 miles-long swath of elegant homes, modern health facilities, a large airport, upscale retail malls and excellent schools, colleges and universities bringing an economic bonanza to Mesa, Gilbert, Chandler and Queen Creek.

Mesa's Mayor Scott Smith, in a recent press briefing, said many of the components of an educational power center along Power Road already are in place. He said while Mesa has "great educational assets throughout the city," Power Road is becoming an educational focal point.

"When you start up around the McDowell-McKellips area you have the (Mesa Community College) Red Mountain campus, and as you continue southward you go past Mesa Public Schools with their Academy for Advanced Studies and Red Mountain High School and that whole cluster.

"Moving south, right off of Power and Baseline you have the A.T. Still (medical school) campus. And then you get into Gateway where you have, of course, Polytechnic, Chandler-Gilbert (Community College), the University of North Dakota has a presence there, and EVIT (East Valley Institute of Technology) is ready to build a branch campus there. That entire area we call the Power Road Knowledge Corridor."

Roc Arnett, President of the East Valley Partnership, says that one day, Power Road will be the center of the East Valley.

And he says it's already way more than an educational corridor.

"Look at what is already there as far as healthcare---Banner Baywood (hospital) the Banner Heart complex and the A.T. Still dental school," he said. "Then there's a lot of retail: Superstition Springs Mall, Mesa Pavilions, and the malls all around them thriving. Phoenix/Mesa Gateway Airport is a big success and the airport of the future; the Gaylord Resort is going to light up that area; and between Elliot and Warner, land on both sides of the street are being planned for millions of square feet of office space.

"It's truly a power . . . make that the Power Corridor, and it's going to be quite an amazing place."

It is not, of course, by accident that development is sprouting along Power Road. Ten years ago, city officials saw that with Arizona State's University's commitment to developing the Polytechnic campus at Williams Field and Power roads into a major institution, and with the transformation of the old Williams Air Force Base into the Valley's second major airport, significant development would be anchored by the big campus and increasingly busy airport.

Mesa Economic Development project manager Scott Rigby said the obvious assets of the corridor have made it so, "we don't have to steer people there: people have latched onto what . . . has evolved as a key corridor for development and it's obvious that's the place to be."

Rigby says Valley freeway construction has been instrumental in the creation of the Power Corridor.

"Power Road connects to the (Loop) 202 Red Mountain Freeway in the north, the (U.S.) 60 Freeway in the center and the 202 Santan Freeway in the south," he said. "Few roads in the Valley have that much freeway interaction. And Power Road traverses Mesa, Gilbert, Chandler and Queen Creek . . . and is one of three exits points for Queen Creek. So Power Road will only get more prominent as that whole area grows."

Rigby and Arnett both say that a key to the development of the Power Corridor is the amount of vacant land that still exists along both sides. Both say the Morrison family's farm holdings that straddle Power Road between Warner and Elliot roads is a prime area.

"That Morrison family land is perfect for housing, commercial and industrial development . . . and a lot of it," Rigby said. "Employers see that area in the inner loop between the 60 and 202 freeways, see the open space, see the excellent educational facilities, see the airport and consider it the perfect location."

Veteran Valley zoning attorney, developer and academic Grady Gammage agrees that the Power Road Corridor is an area of immense promise. But he notes that the Phoenix- Mesa Gateway Airport, "is a wonderful magnet, but it's also a barrier."

"The relationship between Power Road and Polytechnic and all things on both sides of Gateway Airport is not yet fully figured out," he said "Any airport is a barrier. You can't drive where there are runways, and those are very long runways. The airport is huge-it's the size of Sky Harbor--and the runways are on a diagonal. It's a major barrier and big things are planned on both sides."

Nevertheless, Gammage said, the pluses of the airport outweigh the navigational barrier it represents. Combined with the freeways that bring traffic to and from Power Road, the airport represents a powerful engine of economic development.

Arnett sees the airport as the centerpiece of east Valley development-and much of tied to Power Road:

"One day the center of the East Valley will be the Power Corridor, to the north and south," Arnett said. "And the epicenter of the East Valley will be the Gateway Airport. And it's not so far in the future.

"In fact, it's happening right now."

 

Expert: Valley's economy will be either bad or terrible in 2009

Dismal economic outlook for '09 at Westmarc meeting

by Carrie Watters - Jan. 28, 2009 12:15 PM
The Arizona Republic

Anyone who headed to Westmarc's annual economic forecast breakfast Wednesday morning hoping for a pep talk likely walked away disappointed, or downright depressed.

Valley economist Elliott Pollack told the crowd of business, education and municipal leaders who gathered at the Glendale Civic Center that 2009 will likely be termed a bad year or even a terrible one.

"Those are the options," Pollack said.

The gist of the problem, he said, is that in the first six years of this decade, 10 years' worth of housing was built. The last four years will be spent eating that excess until some equilibrium is reached.

Add in the national economic slowdown and credit crunch and it's a rough ride.

The Valley has 20,000 to 40,000 excess homes to absorb, which could take a while - Pollack estimated that last year, only about 3,000 were absorbed.

"Until we work off that oversupply, we've got nowhere to go. It's that simple," Pollack said.

In a Valley so dependent on growth to fuel its economy, building permits are down 90 percent from the peak. Realtors struggle, construction crews feel the slowdown and furniture showrooms are pinched.

"All of this stuff ripples through the economy," Pollack said.

The Valley now ranks 28th out of 32 major employment markets in the country, areas with 1 million or more jobs.

"Cleveland is doing better than we are," he said.

Pollack said recovery would be slow but that 2009 will be better than last year and that the area, in the long term, will rebound.

But for now, it's time to buck up.

"No one will be spared," he said. "You can't have an economy like this and get away with it."

Here's a look at some of the bleak economic indicators:

84.2 percent of the Valley's economy has declined. The 15.8 percent continuing to grow is in education and health care.

A dwindling number of people are moving to the area. If anything, Pollack said, a 1.8 percent growth prediction for 2009 may be too high.

Power company APS is showing the slowest growth in new hook-ups in 50 years, with the biggest slowdown in Surprise and Avondale.

Nationally, a third of homes sold in the past 12 months were sold at a loss. Of those, 19 percent were foreclosed homes. Of homes purchased in the past five years, 41.8 percent have negative equity.

Valley home prices are down 32.5 percent, and they're not done dropping. One of the few benefits is increased affordability. In 2006, Pollack estimated 22.8 percent of Valley families could afford a median priced home. In 2008, that jumped to 72 percent.

Last year, 603,112 square feet of office space were absorbed, but 3.4 million square feet were built and opened. An additional 3.1 million square feet are under construction. Pollack predicted nothing more would be built for another two or three years.

Retail sales declined 10 percent in 2008 and are expected to drop another 4 percent his year. Pollack predicted that should climb 5 percent in 2010.

 

A Commercial Bright Spot: Doctors Are Calling

Medical offices are a bright light in an otherwise less-than-sparkling commercial real estate market.

“There certainly are investors who want this type of property in their portfolio,” said Dan Fasulo, a managing director at Real Capital Analytics. “It’s kind of a recession-proof bet, if you will.”

One advantage that buyers and sellers of medical office buildings have is access to credit. Doctors are viewed as desirable tenants because they are unlikely to move. Plus, demand for office space is growing. The number of health care jobs is up 2.66 percent compared to a year ago.

“There is still real leverage out there, and there is still the ability to get these deals done, versus a standard office building or shopping center,” said Neil R. Shapiro, chairman of the health care finance group at the law firm of Herrick Feinstein in Manhattan.

Source: The New York Times, Alison Gregor (01/27/2009)

Fed Announces Plan to Reduce Foreclosures

The Federal Reserve will take aggressive action to renegotiate mortgages that are likely to enter foreclosure, Fed Chair Ben Bernanke said in a letter to Congress Tuesday.

Under the program, which only affects mortgages owned by the Fed, the central bank will be able to reduce what a home owner owes on a mortgage, lower the interest rate, lengthen the term on the loan, or take other steps that might persuade home owners to keep paying. Borrowers will deal directly with their mortgage servicer.

The Fed says that the mortgages most likely to be affected are those with loan balances that are more than 125 percent of estimated value of the property.

"It's a step beyond what FDIC is doing with its own portfolio," said mortgage expert Alan White, an assistant professor at Valparaiso University School of Law. "Principal write-downs are still the critical issue" in keeping borrowers in their homes.

Source: Washington Post, Neil Irwin and Renae Merle (01/28/2009)

As recession hit, real estate sank

Jan. 28, 2009 12:00 AM

It's over . . . 2008 was a year that won't be soon forgotten," is the headline on longtime real-estate analyst's RL Brown's latest Phoenix Housing Market Letter.

The report, which many market watchers follow closely, has the year-end tallies for new-home sales and building. But Brown's latest edition, sent out Tuesday, also has some interesting predictions and observations.

First, the numbers.

The final tally for Valley home building in 2008 was 12,582 single-family permits, down 60 percent from 2007's pace of 31,172 permits.

December permits didn't drop from November's surprisingly low level of 295, but they didn't rebound much, either. There were 365 single-family permits issued from Pinal County to Peoria last month.

Last year, there were 20,547 new-home closings, or sales, down 46 percent from 38,308 in 2007.

The median price of a new Phoenix-area home fell to $214,397 in December, compared with $242,000 in December 2007. But the median price was up from $206,000 in November.

D.R. Horton was the top home builder in the Valley last year with 3,607 sales. It has held the top spot for the past few years. Pulte Homes was second.

Now for some observations from Brown.

"Fortunes were lost, and one source reports 110 home builders closed their doors or undertook reorganizations," Brown said.

"Many of them were Phoenix companies," he said.

He said subcontractors were especially hard hit.

"One story made the rounds of a builder who notified the sub that they weren't going to pay him for work already done, and then called to demand warranty work" on the same project, Brown said.

And finally, home prices.

"It seems like yesterday that a Realtor called us to dispute our suggestion that the resale median might fall to $150,000," he said.

"It now appears reasonable to assume the resale median could fall into the $125,000 range before mitigation of the foreclosure impact is felt," he said.

"Housing speculators will lose a lot of money."

Brown's forecast is for approximately 70,000 new- and existing-home sales this year, similar to 2008's level.

He sees the market growing to 105,000 home sales by 2013.

 

Ailing Fulton Homes files for bankruptcy

Builder is one of Arizona's largest

by J. Craig Anderson - Jan. 28, 2009 12:00 AM
The Arizona Republic

A home-building company founded by one of the Valley's most generous philanthropists sought legal protection from creditors Tuesday by filing for Chapter 11 bankruptcy reorganization.

Tempe-based Fulton Homes Corp. is one of the largest home builders based in Arizona, with 21 subdivisions selling homes in the Valley.

Like many builders, Fulton has struggled to keep up with its debt payments as banks demand additional capital so their loan values don't exceed the builders' declining property values, market analysts say.

Fulton Homes was founded 35 years ago by Chairman and Chief Executive Officer Ira Fulton, a prominent community figure and one of the state's best-known philanthropists.

The engineering college at Arizona State University bears Fulton's name, and its Mary Lou Fulton College of Education was named after his wife in May. The couple's Fulton Foundation has contributed more than $160 million to ASU.

Doug Fulton, Ira's son, is the company president.

Neither the Fultons nor company bankruptcy attorney Mark Roth returned calls seeking comment. Court documents show that Fulton Homes owes $100 million to $500 million to more than 100 individual creditors, including lead creditor Bank of America.

The company's estimated assets are listed as $100 million to $500 million, the documents show.

The company is scheduled to have its court-mandated meeting with creditors on March 3.

Companies filing for protection under Chapter 11 of the U.S. Bankruptcy Code typically remain in operation while the court reviews creditor claims and resolves debt issues.

Though it's likely Fulton Homes will continue as a company, bankruptcy creates new challenges in securing credit to build homes - and persuading consumers to buy them.

Future lenders undoubtedly will require Fulton to secure its credit with company assets and will charge higher interest rates, making it more difficult to do business in an environment that is already putting many builders out of business.

2008 was a dismal year for home builders everywhere. Companies such as Fulton that were heavily invested in the outer edges of urban sprawl - places like Queen Creek, Maricopa and Casa Grande - fared the worst.

Phoenix analyst Jim Belfiore of Belfiore Real Estate Consulting said home builders were expected to pull only 6,000 to 10,000 building permits in the coming year, a far cry from the 55,000 permits issued in 2005.

Fulton, like many Valley home builders, had a backlog of speculatively built homes from 2005 to '07. It has been aggressively trying to sell those homes and get contracts on new ones by lowering prices, market watchers say. But the builder had started few new homes recently.

Fulton took out 61 single-family permits to build new Valley homes last year, said RL Brown, a housing-market analyst.

The builder reported 428 closings or sales, so the numbers suggest that most of those sales came from Fulton's speculative inventory, built in past years.

How many more spec homes Fulton has on its books isn't clear. The builder pulled only two Valley building permits in December.

Brown said Fulton's financial situation is most likely a direct result of the housing market's problems and not a product of mismanagement.

"It's bloody out there," he said of the Valley's housing market.

The Arizona Department of Real Estate's most recent list of home builders in financial trouble includes 41 projects by a variety of builders that have filed for bankruptcy protection since the housing market hit a stucco wall in 2007.

Those bankruptcies include Trend Homes, KB Home, Americabuilt Communities and Engle Homes.

Bankruptcy erodes customer confidence, especially since many bankrupt builders stop honoring past customers' home warranties. Belfiore said Fulton customers' warranties could be voided by the court even if the builder wants to continue honoring them.

"Some of the control is not going to be in their hands anymore," he said. "Lenders have a say because they're the ones writing off part of the debt."

Brown said Fulton behaved like every other big builder in Arizona. It bought land during the boom and built houses based on speculation that demand for them would continue to grow.

But home sales and construction have continued to slow in the Valley, and land values have sagged.

Fulton Homes started operations in 1974 and grew to become one of the Valley's biggest private home builders.

In December, Doug Fulton told The Arizona Republic that the coming year would bring about "natural selection of the building industry."

 

Chandler's only landfill closer to becoming city park

by Kerry Fehr-Snyder - Jan. 23, 2009 10:15 AM
The Arizona Republic

Chandler's first and only landfill is getting closer to becoming the Valley's first municipal park reclaimed from a city dump.

The Paseo Vista Recreation Area at the northwest corner of McQueen and Ocotillo roads is starting to look less like a giant mound of mud and more like a rolling park, at least from the top.

Chandler has added 300,000 cubic yards of dirt to the top of the landfill as a cap on the decommissioned landfill, which was closed in 2005 after 24 years.

"That was a major accomplishment to get that much dirt moved to the site," said Don Tolle, park planning superintendent.

The park required so much extra dirt that the city had to close McQueen Road from Queen Creek to Appleby roads for a month late last year.

Workers added two feet of dirt to the towering, 40-foot-high mound, which locals jokingly call Mount Chandler or Mud Mountain.

"There needs to be a buffer between the landfill and the recreation amenities," Tolle said. "We don't want it (the landfill) settling to allow the trash that's in the landfill to come through."

The contractor is adding decomposed granite on the dirt and installing wire mesh baskets to control erosion. After that, they will lay a concrete border to the outside of the walking paths and build concrete roadways and parking lots at its summit.

"It's starting to take shape," Tolle said.

Seeing that from the road is virtually impossible as the site is ringed by a barbed-wire fence and much of the work is occurring on the top of the park.

Eventually, the contractor will create a dog park, a disc-golf course and an archery range.

The park is expected to be finished by August or September, Tolle said.

Converting closed landfills into city parks is common in other parts of the country, where open land is in short supply. Among the 250 old landfills that have been transformed from a dump to a park are Flushing Meadows in New York, home to the U.S. Open, and the site of an annual hot-air balloon festival in Albuquerque and an international kite festival in Berkeley, Calif.

The Paseo Vista Recreation Area sits on 2.2 million tons of compacted trash that will continue to decompose and shift imperceptibly, preventing workers from adding basketball courts or any other concrete surface on top.

 

Phoenix Leads nation for Increasing Sales

Property values are down, but in some cities sales are up because motivated sellers are slashing prices and buyers are getting deals.

“There's a pretty active housing market, it's simply at a lower-priced inventory," says Michael Feder, chief executive of Radar Logic, a New York derivatives firm.

In San Diego, Calif., transactions are up 90 percent as buyers compete for available bargains.

"Unlike stocks, housing has intrinsic value," says Barry Ritholtz, chief market strategist of Ritholtz Research, a New York research firm. "Outside of Love Canal or Detroit, house prices do not go to zero."

Here are the cities where sales are up the most in the last three months:

• Las Vegas
• Sacramento, Calif.
• San Diego, Calif.
• Los Angeles
• Detroit
• Phoenix
• San Francisco
• Washington, D.C.
• San Jose, Calif.
• Atlanta

Source: Forbes, Matt Woolsey (01/12/2009)