March 2006 Arizona Real Estate Report and News

March 31, 2006

Top Arizona Real Estate Report-Compiled and brought to you by:
Casey and Trisha Ross
Century 21 Centre Point
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Valley home buyers now hold upper hand

By Glen Creno, The Arizona Republic: Feb. 8, 2006

Andre and Petrusia Bilyk are what's known in the housing market as motivated sellers.

They put up their northeast Valley house for sale in November, hoping it would move quickly.

They wanted to use the profit for things like landscaping and window coverings at a bigger place they're building for themselves and their two children. They also wanted to avoid double mortgage payments.

But the couple got caught in the abrupt market swing that has drastically increased the number of houses for sale in metropolitan Phoenix. They've reduced the price twice - it now stands at $449,000 - yet there were no takers. So they resorted to an old home-selling trick that's supposed to bring luck: burying a statue of St. Joseph upside down by the For Sale sign in their yard.

"The four of us, we held hands, and my wife said a prayer to St. Joseph to put us in escrow," Andre Bilyk said. "We were having an open house the next day. You gotta do what you gotta do."

Listings are up and houses are taking more time to sell as buyers regain the upper hand in the Valley's volatile resale market. Six months ago, the Bilyks would have sold their house in a couple of days, if not a few hours.

Now, the house is waiting for a buyer and competing with more new listings every day as suddenly picky shoppers browse the market and haggle more on price.

The number of houses for sale in metro Phoenix has nearly tripled in the past year, based on December data from the Arizona Regional Multiple Listing Service.

Here's why:

Speculative investors are leaving after realizing gains of 40 percent to 50 percent in the past year.
Prices are higher and buyers, including investors, are finally saying no.
Mortgage rates have nudged higher, making housing even more expensive.
Some homeowners who never considered selling couldn't pass up the opportunity to try to cash in at prices that are still near the top of the market.
"It's shifting to a buyers' market," said Bob Rucker, head of the multiple listing service. "We are returning to a more normal market than we have had over the past year or so."
Buyers' market

That's good news for besieged buyers. They don't have to make instant offers at or above full price to snare a house they might not adore. But the pressure is on real estate agents and sellers to get creative or cut prices to make their listings stand out in the growing crowd.

"The buyers are saying, 'Show me 10 more houses.' They know there is a lot of inventory," said Brett Barry, a Realty Executives agent who's listing the Bilyk house.

"If it doesn't pick up, sellers might have to mark down homes more than they expected to get the attention of the few buyers that are out there. The market moved 50 percent in one year. This could be the morning after."

Jay Butler, head of the Arizona Real Estate Center at Arizona State University Polytechnic, noted in a recent study that Valley resale homes have not been so difficult to afford since 1990.

Incomes could hardly keep pace with price increases, and Butler said the situation could get worse.

"People reach a point where they say, 'I can't afford this,' " Butler said. "If prices and rates move up, we're in deep trouble."

Prices to climb

How quickly has the market changed? Bill Ryan, a ReMax agent in the East Valley, said that in June, he couldn't keep two or three active listings. Now, he has 35.

He expects resale prices to climb 3 percent to 5 percent this year, sustainable gains but not enough to keep investors looking for a quick appreciation and a fast sale in the market.

He said the days of the six-month house flip are over.

"Investors have basically gone away," he said. "Prices are so high, they can't make them economically pencil (out). They were about 30 percent of market early in '05. Take away 30 percent of the market and that's a big hit."

The Bilyks say they won't panic and sell out at a bargain-basement price.

They expect the market to perk up, and they won't move to the new house until the old one sells.

"I'm sitting on a lot of equity in this house," Andre Bilyk said. "The house is gonna sell. It's just going to take us a little longer. We're prepared to hold out."

Petrusia Bilyk said, "It's just timing. Life is timing."



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Extreme home selling

By Les Christie, CNNMoney.com staff writer
January 26, 2006: 2:53 PM EST

Everybody wants something for nothing, and as housing markets slows, homebuyers are starting to get just that. Sellers, reluctant to drop home prices, have been finding creative ways to move product.
The trend is especially evident among developers and homebuilders who have to act much more decisively than individual homeowners who have the option of sitting tight. Some recent freebies include trips to Las Vegas, home-entertainment and security packages, furniture store gift certificates, golf club passes for a year -- even swimming pools, according to Greg Paquin of the Gregory Group, a market-research company.

The Gregory Group reports that in Sacramento, Calif., the value of incentives by homebuilders in the fourth quarter averaged $8,965, double the prior quarter. Incentives include price discounts, upgrades, and promotions.

"Builders don't want to hang on to standing houses -- they have to pay their bills, financing, and taxes," said Paquin.

Steve Melman, a spokesman for the National Association of Home Builders (NAHB) reports that sales incentives have become the rule among its membership -- 56 percent feature non-price incentives. Some 16 percent of NAHB members are now offering to absorb financing points, up from 13 percent six months ago, and 33 percent are paying at least some closing costs, up from 27 percent.

But it's the non-price incentives that attract the public's fancy and 40 percent of the builder's NAHB surveyed are offering optional items at no extra charge to help close deals. A year ago, only 28 percent were doing it.

Bamboo? A standard option?

The offers can be anything from hardwood floors to upgraded lighting, but the most popular incentives seem to revolve around the kitchen, according to Melman. Granite countertops, commercial quality appliances, and wine storage all appeal to buyers. A relatively new option, bamboo floors, has recently emerged as a deal maker.

The giveaway trend is not confined to new-home builders. Ron Phipps, a Providence, Rhode Island broker appeared on the CNN show, Open House, with Gerri Willis in November. He was giving away a Lexus (for two years) with the sale of an existing home. "My goal is to differentiate the property and draw attention to it," said Phipps.

He tries to tie the promotion to some aspect of the property. If the yard is beautiful but requires a lot of care, he'll offer free landscaping for a year or two. If a bathroom is dated, he'll throw in a renovation allowance.

One of his favorite freebies wasn't even aimed at buyers; it went to those merely shopping. Anyone who came to look at one house received 30 days of free groceries. He also targets other real-estate agents. One house came with a trip to Europe for the agent who provided the ultimate buyer. Phipps says he heard of a Florida real-estate broker who was giving away jewelry.

One builder, Georgia-based Forrest Homes, is giving away a two-year lease on a Volkswagen Beetle with a home purchase. That's right, these houses come with their own Bugs. Pulte Homes, a Michigan-based homebuilder, is paying the heating bills for six months to anyone who buys a home in one of its Maryland developments. Pulte also will throw in a free-gas fireplace, hardwood floors, upgraded cabinets, and a washer/dryer -- and a 42" plasma TV.

Apparently, though, the deal may sound better than it actually is -- a Pulte spokesman, Jim Zeumer, was quoted in the Wall Street Journal saying that all but the plasma TV were already standard in the houses.

The incentive ideas keep, shall we say, flowing. The NAHB's Melman recently attended a show where many homebuilders showcased their free upgrades. The incentive item that caused the biggest, well, splash, was an upgraded Kohler bathroom that included a toilet that had number-one and number-two buttons. "It saves on water bills," he says.



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Housing 'fix, flip' crowd fired up

Wannabes eager for quick bucks

By Betty Beard - The Arizona Republic, Feb. 21, 2006

The housing market may have cooled but not the enthusiasm for investing in Phoenix area real estate.

About 1,000 investors and would-be investors spent the weekend at Phoenix Civic Plaza learning how to find cheap properties and then "fix and flip" them.

They came with different backgrounds and bank accounts, but all seemed eager to find out more about what is considered one of the best ways to find strong returns on investment: Put your money and sweat equity into real estate.

A year of historic gains may be behind investors in the Phoenix area, but that didn't deter the crowds at the Real Estate Investors and Landlords Conference & Expo, where they heard tantalizing tales from investors who picked up distressed properties cheap, fixed them and resold them for solid profits.

The fact that housing prices have stabilized or even fallen in some areas and the number of homes for sale has risen significantly in the past few months didn't seem to cool interest.

"It does affect the short term. I think the heat is going to come out of the market a little bit for not long and not much," said Phoenix investor Dolf de Roos as he signed more than 100 copies of his new book 52 Homes in 52 Weeks about his success investing in the Las Vegas housing market. He was the featured speaker Saturday night at the event, sponsored by the Arizona Real Estate Investors Association.

He said that even if housing prices come down by 5 or 10 percent, investors still came out ahead because the prices had grown by about 40 percent last year in the Phoenix area.

"If it was the stock market, that would be a minor correction," he said. "So what's the big brouhaha? In five years, it'll be way ahead of where it is now. I am not worried about it, not with 100 houses being built and filled every day."

De Roos, who is primarily a commercial investor, said the Phoenix area remains good for real estate investing because it is growing and has several major employers.

Investors have been blamed for, or credited with, causing the huge run-up in housing prices over the past year. But Alan Langston, executive director of the Arizona Real Estate Investors Association, said it wasn't investors who did that but short-term speculators.

True investors make their money over the long term, while speculators like to hold property for several months or a year, he said. Many have moved on to other states, such as Florida and Texas, he said.

Investors like to buy properties that have tenants and steady rent checks, such as apartments and shopping centers. David Lindahl, a Boston-based investor, said he has earned a lot of money owning apartment complexes.

Dealing with tenants was a hassle at first, but then he learned to hire good management companies. He said tenants expect you to raise rents every year. Don't disappoint them; raise that rent, he advised.

The conference's expo showed that many businesses have sprung up to support investors. There are companies that offer classes, sell distressed or foreclosed properties wholesale and help with renovations, tax shelters, insurance and financing.

The conference lured amateurs eager to make money, including some who have not owned a home, such as Steve Reppe, 23, a University of Arizona student. He saved about $15,000 while in Afghanistan and Iraq with the Army and wants to invest it.

"I used to work really hard when I was in the Army for not much money," he said. "Why not work less hard for more money?"

Ekaterina Glover, 23, a Phoenix resident, said she has been reading books about real estate investing and realized that many mentioned Phoenix. She dreams of getting rich in real estate. "I do not have a stable job history or a credit history," she said. "But if you're enthusiastic and happy to learn, you can make it."

Valerie Walters, 48, a human-resources manager at a Phoenix bookstore, wants to invest and has been studying up on it for years. "I am tired of reading and ready to get my feet wet," she said.

LeBertha Umbreit, a former Realtor who has been a Phoenix lawyer for two years, has learned from representing people in real estate transactions that there is a lot of money to make in real estate. "Real estate is still the best investment around," she said "You can get into real estate investing with virtually no money."




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Land bills stir lawsuit fears

By Robbie Sherwood - The Arizona Republic, Feb. 21, 2006

Lawmakers are out to stop city governments from forcing private-property owners to sell their land so the governments can hand it over to developers in the name of economic progress. And they are in a hurry, poised to put the fast-tracked measure on the November ballot as early as this week.
Backed by Republican legislative leaders and written by public-interest lawyers who have won high-profile property rights cases, the twin House and Senate measures would ask voters to rein in abuses by city governments that use the redevelopment practice known as eminent domain. There are more than a dozen bills moving through the Legislature to reform eminent domain, but the referendum incorporates many of the same ideas, including making cities pay owners more than fair market value for their properties.

But Valley mayors such as Phoenix's Phil Gordon and Tempe's Hugh Hallman are raising red flags. They say one portion of the recently introduced measure goes far beyond eminent-domain cases and would spark lawsuits against cities for any zoning decisions that might affect property values. The mayors and the Arizona League of Cities and Towns hope to negotiate changes to the measure before it goes for a floor vote in the House and Senate.

"It's a litigation bonanza, and it will stop business," Gordon said of the twin House and Senate measures.

Gordon and Hallman warned that if voters pass the measure, it will open city councils to lawsuits not just for eminent-domain cases but for any zoning decision that affects a person's property, with taxpayers compensating for the loss. Not only that, taxpayers would be on the hook if a council didn't take an action that could have improved a person's property value.

So, if a resident wants to turn his house into a gas station and City Hall says no, he can sue and get compensated for the value of the lost hypothetical business, Gordon said. Or, if City Hall does allow the pumps to flow, then his neighbors can sue and get paid for their declining property values.

Hallman, an attorney, supports many of the proposed reforms but said the city zoning process will end if the measure becomes law.

"Do we really want to allow topless bars next to schools and churches?" Hallman said. "Because all it takes is a smart lawyer and a good economist, and any zoning change can be subject to a lawsuit over diminution of value."

The referendum's authors said critics are misreading the measure and over-reacting.

Tim Keller, executive director of the Arizona Institute for Justice, a public-interest law firm that has handled several cases, drafted the measure. Keller said the only property owners who would be eligible to sue under the new law are those directly being rezoned.

"They're totally wrong on that," Keller said of Gordon's and Hallman's criticisms. "The change has to happen on your property in order for there to be a cause of action."

Keller added, "Take the recent Trump Towers case in the Biltmore area. The city changed zoning to allow the towers to be built (before undoing the decision). All the surrounding landowners said it would affect their property values. But this measure wouldn't apply to them because the zoning change didn't affect their properties."

But Phoenix lobbyist Karen Peters said there is nothing in the bill's language that limits lawsuits to only those property owners who are the subject of a zoning change. If neighboring owners lose property value, they can sue City Hall, too.

One of the measure's most powerful sponsors, Senate Majority Leader Tim Bee, said he and other top Republican lawmakers will meet with city leaders to address their concerns. But Bee said he remains committed to helping property owners who lose the value of their homes due to city actions.

"What I'm trying to address is a situation where government lowers the value of a person's property by a zoning ordinance," said Bee, R-Tucson. "If that decision takes away the value, then the property owners should be compensated for that."

Bee defended moving both versions of the measure at the same time, speeding the process, because eminent-domain reform is considered one of the top GOP issues of the legislative session.

Property rights is also a hot issue with voters. Legislatures nationwide are pushing bills to slow use of eminent domain. The Institute for Justice won a high-profile case in Mesa three years ago when it stopped city officials from trying to seize Bailey's Brake Shop to make way for a hardware store.

But the so-called regulatory takings aspect of the bill, where zoning decisions can spark lawsuits if property values drop, is modeled after Oregon's Measure 37, which voters approved in 2004.

That controversial new law has been tied up in the state's Supreme Court since a judge ruled it unconstitutional last year.

Ken Strobeck, recently appointed executive director of the Arizona League of Cities and Towns, urged lawmakers to steer clear of a Measure 37 copycat.

"Regulatory taking is a can of worms that will never be resolved," Strobeck said. "It's a whole new dimension that should not be included in this bill."





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Cooling housing market means sizzling bargains

builders to buyers: let's make a deal

By Catherine Reagor and Glen Creno - The Arizona Republic
Feb. 18, 2006

Buy a new Valley home and don't make a mortgage payment for a year. Save $50,000 on a half-million-dollar house in the East Valley if you buy today. Purchase a home in the West Valley now and get a free swimming pool.

Like car dealers trying to clear their lots of unpopular models, home builders are offering all types of deals on houses that are nearly done or those finished and standing empty across metropolitan Phoenix.

These kinds of deals were unheard of last summer, when people camped out overnight for the chance to get into a lottery to buy in a new subdivision. Builders rationed lots and jacked up prices as they tried to both regulate and cash in on the rabid demand of a market fueled in part by investor speculation.

Now the frenzy is gone, and home builders are trying to entice buyers with freebies and price cuts in "let's make a deal" sales pitches. It is another clear sign that the Valley's home-building market is slowing from the pace that made it No. 1 in the country just last year.

It is not just home building cooling off in the Valley. The number of existing homes for sale has shot up from a year ago. Home prices are flat or down slightly in most areas. And in January, used-home sales were half of what they were in August, a record month.

"Most of the investors are gone, and traffic is down in home builders' sales trailers," said Jay Butler, director of the Arizona Real Estate Center at Arizona State University Polytechnic. "Just look at all the ads. Builders are trying to move homes fast."

Builders nationwide regularly construct a few spec homes for buyers who need a house quickly. But several Valley builders have more spec homes now because even as the market slowed late last year, they continued to speculate that demand would be high, so they kept putting up houses.

There are about 2,800 more empty new homes Valley-wide than a year ago, according to Metrostudy, a real estate consulting firm.

"It's been years since we have seen any unsold inventory like this in Phoenix's new-home market," said John Burns, a national real estate consultant. "Too many builders went too far out and built houses that were too expensive."

Too many empty spec homes could hurt builders' profits and pull down all home prices throughout the Valley as other sellers adjust their prices to remain competitive.

Phoenix's new-home market runs on a formula where builders move farther out, stretching the city's fringes, where cheap land and low city fees keep prices in check. But builders now are pushing the threshold of how much buyers will pay and how far they will commute.

The result? Empty houses and killer deals.

"There's no question the overall marketplace has changed," said analyst RL Brown, publisher of the Phoenix Housing Market Letter. "The consumer is saying, 'Excuse me. The prices are too high.' "

Some houses are empty because most of the investors, who snatched up three or four new homes at time a year ago, have moved on or see the market slowing and are willing to walk away from deposits. Others are empty because buyers who signed deals that were contingent on them selling other houses are unable to sell now that the market has slowed.

Metrostudy estimates the current supply of spec homes will be sold within two months. The supply of unsold homes nationally would take five months to sell.

Brown thinks most builders won't moan about buyers who walk away from deals since they can resell the houses at the prices that are much higher than when the original buyer signed the contract.

"The builders would consider it a windfall," Brown said.

Builders can cut prices by thousands of dollars on spec homes and still make a profit. A company that upped the price of a model by $150,000 in 2005, can sell it for $50,000 less pretty easily, Burns said.

But for many builders, it is not just about turning a profit. After a year of record sales figures, there is pressure to improve - especially for the public companies. For them, just keeping pace with what they did last year is not enough.

"It's all about numbers," said Doug Fulton, president of Fulton Homes Sales Corp. "They have to keep the building profit machine moving. But division presidents have a hard act to follow after. We were all fishing with dynamite last year."

Fulton sees a market for spec homes because other builders are dumping their spec inventory and will be reluctant to build as they wait to see how much the market slows. He thinks there will still be demand from buyers who want to move in quickly. His company recently started about 300 spec homes.

"I couldn't be in a better position to take this risk," he said.

Builders trying to move these homes are offering deals now, but the bargains may not last.

Meritage Homes, which had a 48-hour sale in two East Valley subdivisions last weekend, typically starts building about 10 percent of its homes without a buyer, Chief Financial Officer Larry Seay said.

Promotions, he said, are a "rifle shot rather than a shotgun approach" to unloading slow-moving inventory.

"The market is not as hot as it was," Seay said. "It's transitioning from white-hot to something that is a little more normal. That doesn't mean the market is bad."




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Housing in Phoenix barely nabs top market

Cooling prices up 48.9% in '05

By Catherine Reagor - The Arizona Republic
Feb. 16, 2006

Metropolitan Phoenix's housing market is cooling, but it still managed - barely - to snag the title of the nation's hot spot for home price gains in 2005.

But judging by what has happened to the previous two titleholders, that could be more of a bother than a blessing.

Las Vegas, which grabbed the 2004 title with housing-price gains of almost 50 percent, last year saw the price of existing homes grow by only 12 percent, according to figures released Wednesday by the National Association of Realtors. And San Diego, winner of the 2003 title with price gains of more than 30 percent, had increases last year of just under 7 percent.

In the Valley, 2005 housing prices soared 48.9 percent above 2004 levels, according to the Realtors' report. But that growth was fueled by record increases in the first half of the year. By the end of the fourth quarter, prices had risen less than 1 percent - that's $400 - from where they were at the end of the third quarter.

The report is just the latest sign of a slowdown in what had been a sizzling market, where houses could sell in a day for thousands of dollars above the asking price, often to an investor who had never seen the property.

"There are sellers who think the frenzy from last year is still going on, and they can inflate their prices," said Margie O'Campo de Castillo, past president of the Phoenix chapter of the Hispanic Association of Real Estate Professionals and head of Arizona Dream Realty. "But they aren't getting the offers they want, and their homes are sitting on the market."

The scene is much the same across the country, particularly in areas where large price increases were fueled by heavy investor activity.

The investor buying-spree started in Southern California, particularly in San Diego, in 2002. After prices skyrocketed in those areas, many of the same speculative buyers cashed out and flocked to Las Vegas. By early 2005, investors had found metropolitan Phoenix.

They also have found Florida, which had four of the nation's top housing markets last year. The Cape Coral/Ft. Myers area was right behind the Valley, with a 48 percent increase in home prices. Tampa tied with Tucson for the No. 5 slot.

But several of the Sunshine State's top markets also are seeing a tapering of prices. Orlando, like Phoenix, saw prices rise less than 1 percent in the fourth quarter.

David Lereah, chief economist for the National Association of Realtors, said the dip nationally is an early sign of a market adjustment. Housing analysts say the adjustment will be bigger and more painful on the coasts, where home prices are much higher.

The New Orleans area, ravaged by Hurricane Katrina, surprised many by posting a 29 percent jump in home prices.

Investors betting on the area's recovery, largely funded by the federal government, are behind some of the Louisiana city's recent housing appreciation.

In the Valley, the median price of an existing Valley home fell last month to $257,000 from $260,000 in December. And 5,260 existing Valley homes changed hands in January, compared with a record high of 10,700 in August, according to the Arizona Real Estate Center at Arizona State University Polytechnic. The pace of sales has slowly been tapering off since fall. There were 6,480 resales in December.

As early as September, home prices had begun to surpass appraisals, and investors began to sell in droves.

Jay Butler, director of the Real Estate Center, said it's still unclear how big of an overall impact investors had on the Valley's housing market and how much their departure will hurt it.

He estimates speculators inflated metropolitan Phoenix home prices by as much as 25 percent in 2005.

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Casey Ross
Century 21
623-326-4132
caseyross@cox.net