Finances delay project near Chandler Fashion Center

Developer says he's 'reorganizing' financing

by Luci Scott - Jun. 16, 2008 12:00 AM
The Arizona Republic

A slow leasing market has halted construction at Chandler Piazza, an 18-acre mixed-use project at the southeastern corner of Frye Road and Ellis Street, east of Chandler Fashion Center.

Work stopped about a month ago on the retail portion, and the start of construction has been delayed on the two-story office building.

"We're reorganizing the financing," said E.J. Pospisil, CEO of Momentum Commercial Real Estate, the Scottsdale-based developer.

He had intended to lease the retail space, but is negotiating with three restaurants that want to buy space instead.

Pospisil predicted construction would resume within two to three weeks.

"Banks are a little nervous these days," he said. "They're holding back a little bit, and we're being cautious. . . . We don't want to extend more money on construction until we get new financing in place."

The start of the office building has been delayed because "leasing has been slower than we'd hoped," Pospisil said.

Once some preleasing is accomplished, construction will begin.

"Activities have picked up recently with people looking, and we have two large (office) tenants we are negotiating with to get leases in place," he said.

A hotel in the project will be an Element, a new luxury extended-stay brand that owner Starwood says was inspired by Westin.

Hotel construction was delayed because new city approval was needed after the flag changed from Marriott to Element.

The hotel had been expected to open early this year. Now groundbreaking is expected in 60 to 90 days, Pospisil said.

"It's a difficult market, but I think we're going to work right through it," he said.

Arizona's population projections were off due to housing boom

Estimates based on new homes hurt cities, schools

by Catherine Reagor - Jun. 15, 2008 12:00 AM
The Arizona Republic

Accurately tracking and projecting Arizona's growing population are crucial to financial and development plans across the state.

Taxes, freeways, commercial and residential projects all are based on how many people are expected to move here.

For decades, everyone assumed Arizona's population-projection figures were reliable. Turns out they are not.

Metropolitan Phoenix's housing boom of 2003-06 skewed the state's population numbers, leading to projections that planners, economists and government officials agree are inflated. As a result, cities and towns across Arizona, particularly in the Valley where most of the state's residents live, are struggling to figure out what's the real population base and how it might grow in the future.

Nobody can say how off the mark the state's population projections are. But some of the area's top economists and the Arizona Department of Commerce are now working on a better way to calculate projections without relying so much on housing.

"Population growth is the beginning of the food chain of Arizona's economy," said Ioanna Morfessis, founding chief executive of the Greater Phoenix Economic Council and economic development consultant for some of the Valley's new communities, including Maricopa. "But if the numbers are wrong, and I think the state's population numbers are inflated, it's going to be a house of cards for the economy."

During the height of the boom in 2005, state and census estimates showed a record 196,000 people moved to the Phoenix area. That startling figure led to projections for the Valley's population to more than double to 12 million as soon as 2030.

But those projections, based largely on housing permits and occupancy numbers, didn't accurately reflect how many people were moving to the Valley.

The large number of investor-owned properties inflated figures. And the number of building permits exceeded the number of houses actually sold. For example, a record 62,000 new homes went up in metro Phoenix during 2005 but only about 40,000 of those were bought by people who moved into them.

Then in mid-2006 the housing market started to slow. By early 2007, the economy had begun to contract. Municipalities began cutting services, schools started closing, home builders walked away from subdivisions, retailers closed stores, businesses laid off workers, and foreclosures started to soar. It became clear that Arizona would not grow at the expected pace. Attention turned to adjusting the state's population projections.

Six months ago, projection estimates showed 105,000 people moving to metro Phoenix in 2008. That figure recently was adjusted to 85,000.

The drop translates to about $24 million less in tax revenue for the state. Each Arizona resident contributes $1,200 in state income tax and net sales-tax revenue, according to an estimate from Marshall Vest, a University of Arizona economist.

Until accurate projections are complied, all types of financial and development plans across Arizona are in limbo.

Formula inflates total

For nearly 40 years, the Arizona Department of Economic Security has calculated the state's population projections.

State economists started with employment and Social Security data. They factored in new jobs and salaries to predict which industries were growing and how that would affect population growth. They tried to track undocumented workers and seasonal residents, including farm and construction workers and retirees. And they used housing data such as building permits, home prices and household size.

They paired all of that with census data, which included births, deaths, housing occupancies and permits and national migration patterns. They then arrived at a range for population projections.

"Up until a four or five years ago, the numbers were almost always right in range," said Vest, who has been counting the state's population since the 1970s and is working on the state's new model. "What happened in the housing market a few years ago inflated the population statistics. We are trying to figure out by how much, but it will probably take a decennial census count to do that."

Jay Butler, director of realty studies at Arizona State University Polytechnic, says part of the current formula for projecting Arizona's population assumes 1 to 2 percent of the state's homes are vacant.

"Now we know at least 10 percent of the new homes built during the boom were vacant, and foreclosures are leaving more homes empty," Butler said. "We have tried to go to door to door in the past to track vacant homes, but now with the Valley's size, it's a daunting task. No one really knows how many homes are empty."

As part of the new method to project the state's population, accurate occupancy data will be sought from local governments and utilities such as Arizona Public Service.

Depending on population

Problems from inaccurate population projections ripple through Arizona's economy and communities.

State government receives federal funding based on the number of new residents. Local taxes can be raised or lowered depending on how many people will be paying them. Municipalities receive their share of state taxes and other funds based on their populations.

"Arizona is very dependent on its population numbers because we have a revenue-sharing system," said Kent Ennis, deputy director of the Arizona Department of Commerce. "A municipality's growth determines how much they get of sales and income taxes and highway funds. Billions of dollars are riding on how much an area grows and how good population estimates are for that area."

The town of Buckeye on the far west side of metro Phoenix is one of many municipalities that bet on population forecasts.

When home builders and developers started buying land in the town in 2000, city leaders realized significant growth was headed their way. Based on forecasts, Buckeye had the potential to balloon from 30,000 residents to 2 million by 2030. The town sped up the annexation of tens of thousands of acres, beefed up its planning staff, formed its first economic-development group and looked forward to a bigger share of tax and other state government money to prepare for its population boon.

But growth slowed so much in Buckeye that some home builders who bought parcels in new developments have lost those holdings to foreclosure, shutdown or filed for bankruptcy. Investors who bought homes during the boom believed they could quickly flip them for a profit because so many people were going to move to the town. A growing number of those homes are now in foreclosure.

In the past few years, Buckeye's planning staff has been downsized. Though the city gets more state funds for the additional land it annexed, Buckeye has to pay to maintain its vast borders where fewer than expected taxpayers now live.

"DES has a history of underprojecting populations for fast-growing Arizona towns," said Elliott Pollack, a long-time Arizona economist and real-estate investor. "If you were Buckeye and saw the big forecasts for growth, you would see you had the most vacant land and could easily assume a large part of that growth would come your way."

Unless the projections are wrong and not as many people show up.

Concern over numbers

Concern over some of Arizona's population numbers began just as the housing boom did.

Maricopa Association of Governments, the regional planning group for metro Phoenix, began analyzing population numbers for a big transportation initiative. One of the things it found was that the population was growing faster than expected, which is another flaw in the projections. DES had projected in 1997 that Pinal County was expected to grow to 300,000 by 2030. But in 2002, Pinal County already had that many residents.

"We knew something was wrong with the numbers and encouraged the state to look at them," said Eric Anderson, transportation director with MAG. "In states like Michigan and Ohio, where growth is much slower, population projections aren't as important. But here, they are crucial to preparing the necessary infrastructure new residents need."

He said anyone dealing with the bumper-to-bumper traffic on Hunt Highway in Pinal County will see firsthand what happens when governments can't accurately plan for growth.

In 2006, based on MAG's findings and looming budget shortfalls, Gov. Janet Napolitano called for a state task force to investigate Arizona's population numbers. Inflated population counts and projections are most likely to blame for part of Arizona's budget shortfall. But so far there's no data to quantify how much that has impacted state revenue, officials say.

The task force included DES, the Arizona Commerce Department, MAG, municipalities and economists, and delved into the state's data just as the housing boom started to slow.

Called the Arizona Data Estimates and Projection Task Force, the group first looked to other states for better models to project population. But since few states besides Nevada have experienced the same rampant growth, there were none to copy.

Last fall, the group came back with its recommendations to create a new model for population forecasts. The model should:

• Move the state's population and job data collection and forecasting from DES to the Commerce Department.

• Collect much more data from state agencies, the federal government, state Indian communities, local governments and utilities.

• Gather better housing data.

• Hire the first state demographer.

"We can't emphasize enough how important good population projections are, which is why the state made it a priority to develop a new method for tracking them," said Shannon Scutari, the governor's policy adviser for growth and infrastructure. "If the population numbers aren't accurate, crucial growth decisions are made on faulty data."

The job to project the state's population was handed over to the Commerce Department at the end of last year. It is now working with the Department of Motor Vehicles to get data on driver's licenses; the Department of Education for school enrollments; the health department for statistics on hospital stays, illnesses and patient records; the U.S. Labor Department for more detailed job records and the Internal Revenue Service for tax-return data.

As for better housing data, the state agency is working with local governments to track how many homes were actually built out of all the housing permits issued. And to figure out many homes and apartments are vacant, it's working with utilities such as Arizona Public Service to gather information on new hookups and power usage.

The state will need a demographer to launch the new projection model. But because of Arizona's more than $1 billion budget shortfall, the Commerce Department can't yet hire one.

"Until we track population with this new model, population growth is just a wild guess," Pollack said.

Central Arizona Governments, which plans for Pinal County, can't wait. It has already hired Vest and other economists from UA and ASU to create the recommended new model. New population forecasts for Maricopa, Pinal and Pima counties are due out this fall.

"Everyone wants a population number they can count on, even if it's not the number we want to hear," said Morfessis of the Greater Phoenix Economic Council.

Govt. suspends property-flipping rule

Jun. 13, 2008 12:54 PM
Associated Press

WASHINGTON - The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers as part of an effort to help speed the sale of foreclosed properties.

For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold and receive government-backed loans.

The policy was put in place in 2003 to deter property "flipping" schemes, in which buyers are overcharged for foreclosures or other distressed properties. But the surge in vacant properties resulting from borrowers who were unable to afford their mortgages has become a far more pressing concern.

"A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community's recovery," FHA commissioner Brian Montgomery said in a prepared statement.

The new policy "will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes," Montgomery said.

Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from the same month last year and up 7 percent from April, foreclosure listing company RealtyTrac Inc. said Friday.

Real estate agent boom over, too, in Arizona

Misty Williams, Tribune

In the past year, real estate school instructor John Dyer has watched class enrollments dwindle, as agents struggling amid the stagnant housing market fled the business.

Agents, homebuilders mend business relations

Many of those leaving got into the industry during the boom to make a quick buck, the Scottsdale broker said.

"When it came down to having to know what the heck you were doing, they didn't want to," Dyer said.

A growing number of Valley real estate agents are putting away their for sale signs and jumping into other jobs.

In June, the number of active real estate licenses fell to 69,771, down 5.6 percent from a year ago, according to the Arizona Department of Real Estate. Meanwhile, the number of inactive licenses has risen to more than 16,500, up from roughly 9,400 in 2002.

Some former agents are going back to school or teaching jobs. Others are bartending, waiting tables or selling cars.

Industry professionals say it's tough for inexperienced agents who haven't developed a client base to compete.

In 2001, an agent who wanted to make $100,000 needed to keep nine listings, averaging $250,000, at any given time, Dyer estimated. Now, they need to keep 27 listings to bring in the same amount, he said.

Dyer said his classes, which used to be at least half full with newer agents, are filled mostly with veterans now.

"It's the easiest business to get into. It's the hardest business to succeed at," said Mike Wasmann, president-elect of the Arizona Association of Realtors.

Agents who pushed themselves to become skillful in marketing, sales and other keys to the business are surviving, Wasmann said.

Those staying in the game are also scrambling to become experts in short sales, bank-owned properties and other niches. Dyer's classes on short sales - where a lender agrees to accept less than what a borrower owes - are standing room only these days.

"If you don't know short sales and foreclosures, you only have 20 percent of the market to deal with," he said.

Agents are taking classes on Federal Housing Administration, or FHA, loans, said Bill Gray, chief operating officer of the Arizona School of Real Estate & Business. The government-insured loans don't have specific credit score criteria and allow borrowers to put 3 percent down.

"That's the hottest market you will see today," Gray said.

Enrollment at the school has fallen to 2001 or 2002 levels, but Gray is optimistic.

More students have been signing up in recent weeks, he said.

Economists agree state is in recession

Ed Taylor, Tribune

Has Arizona entered a recession? Prominent economists who monitor the state’s economic landscape are answering with a firm “yes” these days. And they say it’s likely to be awhile before the state returns to its normal growth mode.

There is no government agency that officially declares recessions on a state level, but economists cite many Arizona indicators that are pointing in negative directions: jobs and employment, migration into the state, retail sales, sales and income tax receipts, housing inventories, apartment vacancies and bankruptcies.

Marshall Vest, director of the Economic and Business Research Center at the University of Arizona, thinks Arizona is one of nine states that has entered a recession. The others are states like Arizona that enjoyed a construction boom followed by a bust — Florida, California, Nevada — and others that have specific industrial problems like Michigan, hard hit by the auto slump.

“As I look at the Arizona data, it was one of the first to begin a recession,” Vest opined. “It started in the third quarter of last year.”

He noted that employment peaked last August and retail sales peaked in February 2007. The housing slump, which has resulted in the loss of construction, financing and real estate services jobs, was a major cause, he said.

Another indicator: the increase in the number of residential utility customers has slowed to less than 2 percent at an annual rate, which suggests that population growth is way down, he said.

“Virtually every measure you look at suggests Arizona is in a recession.”

Brian Cary, economist for the Salt River Project, is concerned about a drop in the number of jobs, which he sees as the key indicator of the economy’s health. In both March and April there were fewer jobs in Arizona than in the same months the previous year, an unusual occurrence for the normally rapidly growing state.

“In April there was a drop of about 4,900 jobs,” he said. “That’s on a base of 2.7 million jobs, so it’s only a couple of tenths of a percentage point. But still it doesn’t happen very often. The last time was in the early 1990s.”

Becky Holmes, economist for Cox Communications, sees the crisis in the housing sector as the key factor driving the state into a recession.

“When you live in a state that gets 20 percent of its growth from construction and related finance and retail around that, it’s not surprising,” she said. “We are not even seeing moves within the Valley. All the Realtors, furniture store owners, the pool and landscaping companies are really suffering right now.”

A panel of real estate experts expects the number of single family home permits will decline to about 17,600 in the Valley this year, which is a drop of 71 percent from the peak in 2005, said Elliott Pollack, a Scottsdale-based economist.

The group expects a 26 percent increase next year to about 22,300 units, but “even if that increase occurs, it would still make 2009 the second-weakest year since 1992,” Pollack said.

When the recovery does begin, probably late this year or in the first half of next year, it will be weak, most of the economists predict.

“Given that the real estate is driving it, and there is no end to those problems in sight, we will continue to have a bad economy for an extended period,” said Tom Rex, an economist at the W.P. Carey School of Business at Arizona State University. “A year from now we could still be seeing a recession.”

For the recession to end, the inventory of about 60,000 homes in the metro Phoenix area will have to be reduced to a manageable number, a process that will be slow because of the low in-migration to the state, Vest said. He also said the problems in the credit markets will have to be worked through so that banks will be willing to lend money again. And the final key will be to bring inflation – especially gasoline prices – under control, he said.

“Consumers are being squeezed,” he said. “The tax rebates will help growth in the third quarter, but it’s not enough to get the economy rolling. It will only limit the downside.”

Pete Ewen, chief economist for Arizona Public Service, doesn’t see the situation as very different from previous recessions the state has endured. Eventually the forces that attract people to Arizona will reassert themselves and population growth will resume, he said. But it could take as long as two years, he said.

“The long-term fundamentals are still there in the sense that Arizona is a relatively low-cost state situated next to a high-cost state (California) that is a huge market,” Ewen said.

Until growth picks up, economists advise residents to be cautious — reign in spending and get your finances in order.

“If you have deep pockets, there are some marvelous opportunities,” Vest said. “We’re already seeing foreclosed houses selling briskly. Clearly people are buying in the expectation that in five years they will be worth a lot more than they are now.”

Personal, business bankruptcy filings in Valley up 77%

Russ Wiles
The Arizona Republic
Jun. 12, 2008 12:00 AM

A weak job market, housing woes and other financial stresses took a toll last month, as 999 Valley residents and firms filed for bankruptcy - a 77 percent jump from 563 in May 2007.

Still, the latest figures showed modest improvement from April, when 1,104 consumers and businesses sought protection from creditors, according to the U.S. Bankruptcy Court in Phoenix.

"I'm seeing people filing to stop a foreclosure or modify the debt on their homes," said Diane L. Drain, a Phoenix bankruptcy attorney.

A bankruptcy filing can be used to remove a second lien for homeowners with two loans on a property, said Drain, who also cited job losses and big medical bills among the other catalysts driving up bankruptcy filings.

"We don't expect it to slow down anytime soon," she said.

For all of Arizona, 1,419 individuals and businesses filed in bankruptcy court last month, up 66 percent from 853 filings in May 2007 but down from 1,552 in April.

Chapter 7 filings, which essentially offer a fresh financial start, accounted for more than three-fourths of filings in metropolitan Phoenix and statewide. Chapter 13 filings, which create repayment plans for debtors with regular income, accounted for most of the rest.

So far this year, 4,593 consumers and businesses have filed for bankruptcy protection in the Valley, an 82 percent jump compared with 2,528 over the first five months of 2007.

The statewide total of 6,426 filings year to date represents a 73 percent increase compared with 3,724 for the January-May stretch of 2007.

The American Bankruptcy Institute is predicting more than 1 million consumer filings for the nation this year.

May filings of 91,214 were up nearly 31 percent from May 2007 but down 1 percent from April.

April home sales up; experts wary

J.W. Elphinstone
Associated Press
Jun. 10, 2008 12:00 AM

NEW YORK - Pending home sales unexpectedly rose in April to the highest reading since October, an industry group said Monday, but experts say the large proportion of distressed-property sales will continue to weigh down prices.

The National Association of Realtors' seasonally adjusted index of pending sales for existing homes rose to 88.2 from a March reading of 83.0, the lowest since the index was started in 2001. However, it's still 13 percent below April 2007's reading of 101.5.

Wall Street economists polled by Thomson/IFR had predicted the index would remain steady at 83.

A reading of 100 is equal to the average level of sales activity in 2001.

However, Global Insight economist Patrick Newport tempered his enthusiasm for the surprising increase in April's pending sales.

"It's good news, but . . . it's telling me that banks are dumping properties at fire-sale prices, spurring home sales," he said.

Newport noted that inventory remains at record highs and is growing, especially in the West where foreclosures and so-called short sales make up the bulk of deals. A short sale is where the house is sold for less than the amount owed on the mortgage.

Pending sales there climbed 8.3 percent from March and are 4 percent higher than a year earlier.

Real-estate funds can be house of returns

John Waggoner
USA Today
Jun. 8, 2008 12:00 AM

Real-estate mutual funds are faring surprisingly well in the worst real-estate market in decades. One reason: Real-estate funds invest in commercial properties, which march to a different drummer than the residential market. Will the commercial real-estate rally continue? Probably, but it wouldn't hurt to move in slowly.

Real-estate funds invest primarily in real-estate investment trusts, or REITs, which, in turn, invest in apartments, offices, storage facilities and other commercial real estate. Real-estate funds have gained an average 6 percent this year, vs. a 5.3 percent loss for the Standard & Poor's 500 stock index with dividends reinvested.

REITS have high dividend yields, which make them popular in uncertain markets like, say, this one. The average REIT yields 5.17 percent, according to the National Association of Real Estate Investment Trusts, a trade organization. In contrast, 10-year Treasury notes yield 4.04 percent, and the S&P 500 yields just 2.01 percent.

Dividends help cushion your portfolio in market downturns. And REITs, by nature, are dividend machines. REITs must pay out at least 90 percent of their taxable income to investors through dividends.

Inflation hedge

Inflation fears help REITs, too. The consumer price index, the government's main gauge of inflation, has gained 3.9 percent the past 12 months that ended in April. Food and energy prices have soared far more, raising fears of a burst of persistent inflation.

People tend to buy real estate, gold and other tangible assets when the value of paper money declines. "In the long term, physical property has offered a hedge against inflation," says Joe Rodriguez, lead manager of the AIM Global Real Estate Fund.

Finally, REITs are also doing well because Wall Street hit them with a wrecking ball last year. The average REIT fund fell 14.7 percent in 2007, according to Morningstar, the mutual-fund tracker. "The REITs' elastic band got stretched so far in one direction last year that there was nowhere to go but up," says Alec Young, strategist for S&P.

Apartment REITs have fared best this year. As banks have tightened their lending standards, more people have had to rent instead of buying their own home - and that helps apartment REITs. Continually falling home prices also spur rentals: People figure they can buy later at a lower price. And, with foreclosures going up, former homeowners have to rent. Associated Estates Realty Corp. (ticker: AEC ), is one of the top-performing REITs this year. The apartment REIT has soared 46 percent this year, including reinvested dividends. AEC's net rent rose 3.1 percent in the 12 months that ended in March, and 4.1 percent for its Midwest holdings.

Sensitive to economy

The biggest problem with REITs is that they're sensitive - that is, they fare best when the economy is roaring, office buildings are filled, and shopping centers hum.

Unfortunately, the economy is barely meowing at the moment, which is why Rodriguez likes health-care REITs.

S&P REIT analyst Robert McMillan likes high-end shopping-mall REITs, which sound like an economically sensitive sector if there ever was one. He argues that retailers sign long-term leases and tend not to shutter stores lightly.

For most people, a real-estate mutual fund is the best way to invest in real-estate securities. But there's a surprising amount of variety. For example, CGM Realty fund, run by star manager G. Kenneth Heebner, has rocketed to a 325 percent gain the past five years. In large part, that's because Heebner defines real estate broadly, including companies with large land holdings.

Expert: Downturn hitting Valley hard

Jane Larson
The Arizona Republic
Jun. 7, 2008 12:00 AM

Economic booms and busts are hitting metro Phoenix harder than other cities because of the Valley's large concentration of small and midsize businesses, the chief investment officer for UMB Bank says.

William Greiner, whom Business Week magazine named Stock Market Strategist of the Year in 2005, gave his outlook for the Valley and nation this week at the first in a series of educational events sponsored by UMB Bank's Scottsdale branch.

Other cities with more big businesses have been cushioned by growth in foreign markets and less affected by the United States' recent excesses in finance and real estate, Greiner said. The Valley's comparatively high levels of small-business employment make it unusual and make business cycles here more exaggerated, he said.

"Large organizations that tend to be multinational aren't suffering the same kind of slowdown in productivity and profitability as many small businesses, which tend to be very domestic-focused," he said.

Greiner forecasts that the national economy won't rebound until sometime in 2009, depending on how soon Wall Street debt markets and the housing market turn around.

To weather the slow economy, he advised business owners to plan inventories and hiring carefully over three-, 12- and 24-month horizons.

Watching competitors' moves will be important as everyone fights for a bigger share of a stagnant pie, he said.

Lenders slash prices on foreclosed houses

Jun. 6, 2008 02:41 PM
Associated Press

Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.

The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.

By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.

"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.

Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.

And there's a risk this isn't the bottom at all.

Investor demand could be swamped by the foreclosures expected to hit the market over the next year.

A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.

Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.

"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.

This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.

They've given the property owner until July 18 to respond - an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.

Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.

"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now - more so than they were."

In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.

For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.

Leslie Jordan pulled her family's six-bedroom house outside Orlando off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.

While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.

"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."

For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.

Agents can easily pay hundreds of dollars a month on upkeep - including utility bills, cleaning and lawn care - and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.

Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.

"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"

Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.

"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"

A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.

Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.

Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.

"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."

Still, with foreclosures continuing to rise, there may be no better option than to follow the market.

"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."

Inflation rise worries Bernanke

Interest-rate cuts likely done as prices soar, dollar weakens

Jeannine Aversa
Associated Press
Jun. 4, 2008 12:00 AM

WASHINGTON - Worried about high prices for energy, food and other things? Ben Bernanke is, too.

The Federal Reserve chairman has moved inflation up on his list of worries, suggesting more pointedly than ever that the time for cutting interest rates is over in view of soaring oil and commodity prices and a weakened dollar.

Although the country's economic growth - bruised by housing, credit and financial debacles - is still fragile, Bernanke on Tuesday expressed hope for some improvement in the second half of this year.

At the same time, he sounded a loud inflation warning. To this end, he raised his biggest public concern to date about the slide in the U.S. dollar, saying it has contributed to an "unwelcome rise" in inflation.

The Fed chief's fresh assessment, delivered via satellite to an international monetary conference in Spain, appeared to mark a subtle shift in Bernanke's views. To help brace the economy, the Fed dropped interest rates in late April to 2 percent, a nearly four-year low, continuing a rate-cutting campaign that started in September. Many economists believe the Fed will hold rates steady at its next meeting on June 24-25 and probably through much, if not all, of this year. However, some believe that inflation could flare and force the Fed to begin boosting rates later this year or next.

Troubled mortgage holders have options

Stephanie Armour
USA Today
Jun. 4, 2008 12:00 AM

Rising payments from adjustable-rate mortgages, mounting job losses and an epidemic of unaffordable loans have thrown more homeowners into a dire situation: They're no longer able to pay.

So what should you do if you absolutely can't pay your mortgage?

Housing experts and counselors offer a host of suggestions from trying to reach a deal with your lender, to consulting credit counselors, to walking away without paying the mortgage, to trying to sell, to letting the bank take possession.

It can be hard for a confused homeowner to cut through a thicket of conflicting advice. Here's what experts recommend:


• Don't do nothing at all.

Lack of communication with a lender will only exacerbate problems. "The worst thing you can do is avoid the phone calls, letters and/or visits from your lender," says Deede Wockenfuss with Assist-2-Sell, a realty brokerage in the East Valley. "The sure way to go into foreclosure is to not talk with your lender."


• Ask your lender to help.

Typically, lenders don't want a home to go into foreclosure because it saddles them with both a house and a financial loss. Many lenders are willing to work out alternative-payment plans. These steps might include lowering the mortgage rate, extending the life of the loan or letting homeowners make up missed payments through a payment plan.

"I'd call your (mortgage) service provider and say, 'What can you do?' " says Mark Zandi, chief economist of Moody's Economy.com.

Try not to delay. Homeowners should contact their lenders as soon as they know they'll have trouble making their mortgage payments. And they should keep copies of all correspondence and a log of all the service providers they speak with.


• Approach lenders with a plan.

One mistake some mortgage holders make is simply to call their lenders and say they can't pay, says Joel Naroff of Naroff Economic Advisors. Instead, they should suggest a loan-modification or repayment plan.


• Seek outside assistance

The Federal Housing Administration can help subprime borrowers who can afford the starter rate on their subprime mortgages but not the higher payments once they adjust.

The Department of Housing and Urban Development can sometimes help those with FHA-secured loans (800-569-4287). The Homeownership Preservation Foundation, a member of the Hope Now Alliance, (888-995-HOPE) is another resource; it deploys counselors, servicers, investors and others to try to help at-risk homeowners remain in their homes.

Wal-Mart hopes to sell Supercenter site in Gilbert

David van den Berg
The Arizona Republic
Jun. 3, 2008 12:00 AM

Wal-Mart is trying to sell the site of a planned mini-Supercenter in Gilbert Town Square.

CB Richard Ellis is listing the 11.3 acres for $5.5 million.

"I'm hoping something big goes back there," said DaNell Willis, who owns Creative Hands Pottery Studio in the shopping center.

In the short term, finding a buyer may be a challenge.

"The chances of finding a replacement for Wal-Mart are much slimmer than they were a couple of years ago when everything was go, go," said Bob Kammrath, president of Kammrath & Associates, a Phoenix-based commercial real-estate research and analysis firm. "At the moment, I would say there probably aren't many prospects."

In 2004, the company announced plans to build a Supercenter covering about 100,000 square feet in the shopping center near the intersection of Gilbert and Warner roads. But nearby residents opposed the development at meetings, and the company delayed the project before announcing earlier this year that it would not proceed with plans for the store.

Wal-Mart representatives could not be reached. The Arkansas-based retailer is one of three owners of space in the center, along with Michael Vesely's investors group and Triple Five Arizona Development Corp.

The vacant Wal-Mart property is the "big void" in the center, said Michael Banach, Triple Five's leasing director. The site's awkward shape, a triangle instead of a square, could be problematic.

Willis, the pottery studio owner, praised the center.

"My business has done real well here," she said.

In July, Creative Hands is expected to move into the space once occupied by Action Performance's the Pit Stop Shop. The move will give the pottery studio a larger space, which Willis said she needs.

Despite the vacant Wal-Mart land and slowing economy, companies are expressing interest in the portion of the center Triple Five is marketing, Banach said.

He said he has two leases pending, one for a retail tenant and one for an office space tenant.

Incomes, spending slowed in April

1st stimulus checks were slight assistance

Martin Crutsinger
Associated Press
May. 31, 2008 12:00 AM

WASHINGTON - The first round of economic stimulus checks gave a boost to personal incomes in April but a huge question remains: Will people spend the checks quickly enough to keep the economy afloat?

The Commerce Department reported Friday that consumer spending barely budged in April, rising a tiny 0.2 percent, and income growth was just as weak, increasing a similar 0.2 percent.

The growth in incomes, held back by four straight months of jobs losses, would have been just 0.1 percent had it not been for the first wave of economic stimulus payments that the government started sending out April 28.

The impact on incomes should be even larger in the May and June reports, reflecting the bulk of the payments. The Treasury Department reported Friday that so far, 57.4 million payments have been made totaling $50.04 billion, nearly half of the $106.7 billion that will be disbursed this year to 130 million households.

The checks are the centerpiece of a $169 billion stimulus package that Congress passed at President Bush's urging in February with the aim of jump-starting the stalled economy. Analysts said whether they keep the economy out of a recession will depend on how fast people spend the money.

"It will be impressive if consumers can manage to hold on given all the headwinds they are facing," said Mark Zandi, chief economist at Moody's Economy.com. "Nothing is going right. Jobs are down, the stock market is wobbly, home prices are plunging and gasoline prices are at record highs."

All the problems have pushed consumer confidence to recessionary levels. The Reuters/University of Michigan survey of consumer sentiment dropped for a fourth straight month in May, hitting a 28-year low of 59.8, down from a reading of 62.6 in April. The May level was the lowest since June 1980, when Jimmy Carter was in the White House and consumers were being battered by a recession and soaring gasoline prices.

Despite worries that consumers may end up using their stimulus checks to pay off credit card debt rather than spending the money to give the economy a boost, analysts said they believed that about two-thirds of the money will get spent this year, enough to keep the overall economy, as measured by the gross domestic product, in positive territory.

The government on Thursday revised its estimate of first-quarter GDP growth up to a rate of 0.9 percent, slightly better than the 0.6 percent original forecast.

Although many economists had believed that the economy would slip into negative territory during the current April-June quarter, the modest growth in consumer spending in April and hopes of better figures going forward are causing analysts to revise their estimates upward.

The 0.2 percent rise in personal incomes in April was the weakest gain since a 0.2 percent rise in January.

Pending Sales Up 6.3% in April

Daily Real Estate News June 9, 2008

A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007, when it stood at 101.5.

Lawrence Yun, NAR chief economist, says pending sales contracts have picked up notably in areas undergoing significant price drops.

“Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he says. “Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”

The Pending Home Sales Index in the West rose 8.3 percent to 98.8 in April from March, and is up 4.0 percent from April 2007. In the Midwest, the index jumped 13.0 percent to 83.7 in April but remains 13.1 percent below a year ago. The index in the South increased 4.6 percent to 88.8 but is 22.5 percent below April 2007. In the Northeast, the index declined 1.9 percent in April to 79.3 and is 12.2 percent below a year ago.

Here are some other market predictions from Yun and NAR:

• Affordability getting better. NAR’s housing affordability index has been trending up this year and is projected to rise 15 percentage points to 128.0 for all of 2008. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” says NAR President Richard F. Gaylord. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”

• Mortgage rates to go up. “Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.

• Demand for homes only rising. Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”

• EHS to see healthy gains in ’09. Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.

• Prices to stabilize in second half of this year. After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half. The aggregate median existing-home price is likely to decline 8.4 percent in the first half of this year, and then begin to stabilize in the second half before rising 4.4 percent next year to $213,900. “Policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity, or are in an ‘underwater’ situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace,” Yun says.

• New-home sales slow to recover. New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009. “Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.

• A better economic picture. Yun sees an improving economy. Growth in the U.S. gross domestic product (GDP) should be 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate is estimated to average 5.3 percent this year and 5.6 percent in 2009.

• Inflation growing. Inflation, as measured by the Consumer Price Index, is expected to be 3.6 percent this year and 2.4 percent in 2009. Inflation-adjusted disposable personal income should grow 1.4 percent in 2008 and 2.5 percent next year.

Existing-home sales for May will be released June 26; the next forecast and Pending Home Sales Index will be released July 8.

— NAR