Real-estate advice for Valley

Metro Phoenix's real-estate recovery is further off than expected.

Top analysts and economists at Urban Land Arizona's annual conference Thursday said that the Valley's real-estate market will continue to slow this year and in 2010. A significant increase in home prices and sales likely won't happen until 2012.

Here's why a recovery will take longer than a year or two: The foreclosure problem won't go away this year and will continue to push down home values. And the Valley's dependence on the three industries that led the nation into recession - construction, housing and financial services - will make any recovery more difficult.
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"Growth locally (in Phoenix) really was related to the housing boom. When the rug was pulled out from under housing, the rug was pulled out from under Phoenix's economy," said economist Arthur Margon of New York-based Rosen Consulting.

He predicts Valley home prices will climb 1 percent in 2011 and perhaps 2 percent in 2012.

"If you can slug it out for a few years, all those frowns out there will go away," Margon told the crowd.

The focus of this year's Urban Land Arizona conference seemed to be how to hold on until the market recovers and when that might occur.

The event has become a must-attend for people involved in Arizona real estate because of the expert speakers and their startling projections. Last year, attendees were stunned when analysts predicted that home prices would fall 30 to 35 percent from their late 2005 to early 2006 peak and that any recovery was years away. So far, home prices are more than 40 percent off the peak.

Here are other projections from Thursday's conference on key Valley real-estate indicators:

Foreclosures

As long as foreclosure rates climb, recovery of the Valley's housing market will be delayed.

"Another tsunami of foreclosures is expected," said Wall Street housing analyst Ivy Zelman, one of the few analysts who early on warned of a dangerous housing bubble in the U.S.

Zelman said lenders need to find more ways to help struggling homeowners find lasting solutions to reduce the projected 5 million to 8 million more U.S. foreclosures expected by 2011.

Of the tens of thousands of troubled U.S. mortgages that lenders worked on with homeowners to forestall foreclosure in 2008, about 58 percent are back in foreclosure. Valley foreclosures topped 40,000 in 2008.

"It's good news foreclosure homes in the Valley are being purchased," said John Graham, chairman of Sunbelt Holdings, developer of several big Valley communities. "In many cases, it's people (first-time buyers) who are able to afford the homes because of lower prices and interest rates."

But he said investors also are buying foreclosure homes, which could be a problem if they all try to sell as the market starts to recover. It could create a mini supply bubble.

Home sales

Valley home sales have slowed to almost one-third of the levels of the boom of 2005 and are bound to slow more.

Valley home building has fallen to 1992 levels, a fraction of what it was during the boom. But all the analysts agreed this is a good thing.

"The last thing Phoenix needs now is more new homes," said Gadi Kaufmann, a national analyst with Washington, D.C.-based real-estate consulting firm Robert Charles Lesser and Co. Zelman said only 2,000 new homes should go up in metro Phoenix this year. Fewer than 18,000 new homes were built in metro Phoenix last year.

"Banks are telling builders to stop construction for a while," said Tim Sullivan, a national housing analyst with Sullivan Group Real Estate Advisors of San Diego.

Jobs, population

One of the more startling statistics was how much Phoenix's job growth had slowed.

Phoenix ranked above only Detroit for job creation on a list of the nation's top 25 metro areas, Rosen Consulting said.

"Phoenix has been in the top five for job growth from before there was even a list," Margon said. "This is strange."

He said the low ranking is due to Phoenix's dependence on industries that are "ground zero" for the recession.

"But the outlook for Phoenix job growth is phenomenal," Margon said. "We don't think Phoenix will crawl back up the list. It will leap back up."

Phoenix's key industries will get help from anticipated federal spending on infrastructure projects and the housing bailout.

"Stimulus in metro Phoenix has to be focused on jobs," Zelman said. "The whole downturn could be summed up in one word: confidence. People are afraid."

The national unemployment rate is expected to climb to 8.5 percent before the economy recovers, Rosen said. The national rate jumped to 7.2 percent last month, while Arizona's rose to 6.3 percent.

"We have to create more jobs," Kaufmann said. "Jobs are the biggest engine behind population growth and housing."

Posted in: Real-estate advice for Valley