Phoenix housing market lacks supply of homebuyers

Few homes are selling. Prices keep dropping.

In the metro Phoenix housing market, it's all a simple matter of supply and demand: too many homes for sale and not enough buyers.

Of the people who are buying homes, more than a third are investors, snapping up mostly foreclosure homes at bargain prices and turning them into rentals. The number of houses on the market remains high, partly because many traditional homebuyers just aren't buying.

Some of them want to buy - but can't.

Mortgage requirements are tighter now than they have been in a generation, and many people who would like to get into the market can't qualify.

Some of them can buy - but won't.

Many renters today see friends and relatives burned by the housing collapse who now owe more than their homes are worth.

They're reluctant to get in because they think home values will keep falling. Many young professionals say that they find such great bargains in rental homes, buying doesn't make financial sense.

This lack of traditional buyers shows in the latest market data.

Home prices in the region fell 5 percent in August, as did the number of home sales. It was the second consecutive month of declines.

As long as these two groups can't and won't buy homes, the housing market's recovery is likely to be delayed.

"There are a lot of potential buyers sitting on the sidelines," said Dominic Scappaticci, president of Phoenix-based Realty Executives.

"Some would buy tomorrow if they could, and others just don't feel the same way about homeownership as their parents or even the generation before them did."

Can't buy
Despite nearly record-low interest rates, lending guidelines for many borrowers are tougher than they've been in 20 years. Gone are the mortgages from the boom years that allowed people to purchase homes with little to no down payment or documentation of their incomes.

This is affecting all types of homebuyers. Except for first-time buyers who qualify for Federal Housing Administration loans that require as little as 3.5 percent down, many borrowers must now come up with at least 10 percent down payments and prove their income over multiple years.

"Lender-underwriting guidelines are typically now etched in stone, with few exceptions granted," said Jay Luber, president of Phoenix-based Galaxy Lending Group.

Requirements that borrowers prove their income now make it hard for self-employed homebuyers to take out mortgages, he said, even if they have savings and a nearly perfect credit score.

Kathy Howe would like to buy a Phoenix home, preferably one of the bargain-priced foreclosure houses being sold by lenders.

But she has been turned down three times for a mortgage because she is a self-employed business consultant.

"I pay all my bills on time. I have savings, and I have a solid income," said Howe, who is renting an apartment in Mesa while trying to buy her first home. "I don't have a foreclosure or any big black mark on my credit record. Banks used to love people like me."

There are thousands of other potential homebuyers in metro Phoenix who can't buy because they have lost a home in the housing crash. Lenders typically won't approve a mortgage for people with a recent foreclosure or short sale on their credit records. Foreclosures can stay on the record for five to seven years. Short sales, in which a bank allows owners to sell homes for less than they owe, typically remain on credit records for at least two years.

Joe Clayton lost his job as a lighting designer two years ago. He and his wife, Vicky, lost their home to foreclosure and are now renting in Phoenix with the hope of eventually buying the house from their landlord through a lease-to-own deal.

"We can't qualify for any type of mortgage now, and we don't want to move again," Joe said.

The couple have started a tropical-fish business and had to find a landlord who would allow them to house their thousands of fish.

"Many people have bad credit now and have no choice but renting," said Julie Bieganski, a real-estate agent and investor who is the Claytons' landlord.

Won't buy
A growing number of people have good credit records and can afford to buy but are opting not to become homeowners.

This group includes many young professionals who want to be able to move quickly for jobs and don't want the obligations of homeownership. But there are also people who sold homes before the real-estate crash and aren't willing to buy again until they are sure home prices have stopped falling.

Many of these renters have seen family and friends watch their home values plummet and then have to deal with foreclosures and short sales.

They also see plenty of affordable, renovated rental homes to choose from.

"The lower prices homes are selling for actually made me think about buying a home in Phoenix," said Justin Byrem, who is in his 20s and renting a home with a renovated kitchen and guesthouse in a historic neighborhood in central Phoenix. "But I want to move to California in a year or so, and this house is great for entertaining."

He said most of his friends are renting and don't plan to buy in the near future.

"Due to the uncertainty of the market, more people are less eager to buy and tie an albatross around their lives, instead opting to rent," said Margie O'Campo de Castillo, president of Arizona Dream Realty. "How homeownership is viewed has changed."

Metro Phoenix's homeownership rate, the percentage of owner-occupied homes, has dropped from a record 71 percent in 2006 to below 67 percent now. The Valley's homeownership rate hovered around 65 percent for most of the 1990s, a stable period for housing.

Some housing analysts say the lack of younger buyers may actually be a good thing.

The idea of homeownership has to return to a more traditional view, they say, something to be undertaken only by people on good financial footing who plan to live in their homes for the long term.

"I felt one of the biggest mistakes during the up market was all the 20-somethings buying homes," said Jay Butler, director of realty studies at Arizona State University.

"Many from that group of buyers were burned by the market with loans they couldn't ultimately afford as prices declined," Butler added.

by Catherine Reagor The Arizona Republic September 9, 2010

Phoenix housing market lacks supply of homebuyers