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The Housing Market: Have We Finally Hit Bottom?


This is TALK OF THE NATION. I'm Neal Conan in Washington. After five years of plunging prices and spiraling foreclosures, maybe, just maybe, the bubble's stopped bursting. Home prices are beginning to rebound in many parts of the country. Recent reports show fewer foreclosures in several hard-hit states.

There's a very long way to go to get to language like robust and sustained, but many analysts believe we can use the word recovery. Others will wait to hear that from Robert Shiller, the Yale economist who warned of the looming crisis. He'll join us in a moment. But we also want to hear from local experts.

If you work in housing, in construction, real estate, give us a call. Tell us a snapshot of what's happening where you live, 800-989-8255. Email us, talk@npr.org. You can also join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

Later in the program, strikes on The Opinion Page this week, and an argument we need more. But first, the housing market. Robert Shiller is the Arthur M. Okun Professor of Economics at Yale University, with Karl Case he created the Case Shiller Home Price Index and joins us by phone from Yale's campus in New Haven. Nice to have you back on the program.


CONAN: And in the spring you were on the fence as those first reports came in giving three months of generally positive data. Do you think we're coming off the bottom?

SHILLER: Well, we definitely have positive data. The question is how strong is it, and will this fizzle - this rally fizzle or not? And I don't know the answer to that. But I point out that this is the fourth time we've had a rally since the crisis ended. It's coming in the summertime, right? Well, that's the normal time of strength in the market.

So if you look at the data, it doesn't jump out at you that we've reached the turning point. Now, we may have, but I think that seasonality seems to be getting stronger, and that's another contender.

CONAN: So how long do you think you would want to wait before you saw enough numbers to make a decision?

SHILLER: Well, I used to forecast home prices, and I thought a year - once you have a year - this is what I used to think, and whether it's still true, but...


SHILLER: But once you have a year of solid price increases, you are probably off to the races for some years. So yeah, but we're not into it that long yet.

CONAN: And there's other factors, because of all those foreclosures, because of all those mortgages underwater, a lot of people fear that there's a big backlog of housing stock that you're going to have to work through before you can start going again.

SHILLER: Right, there's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell.


SHILLER: And so then it's price increases.

CONAN: And there is - is there a factor of the global economic situation that plays in here?

SHILLER: Absolutely. I think that the world is interconnected more than the trade flows and the financial connections would suggest. We are psychologically connected, too, because now with the modern media, now it's not just television and radio and telephone, now we've got the Internet. We're on it. We're following each other.

We are in synch, and so the pessimism that has surrounded this crisis has caused people to curtail spending. Governments, businesses and households are all in austerity mode, and that doesn't bode so well.

CONAN: And so last week's jobs report, for example, might cause somebody to rethink whether they're going to make a bid on a house?

SHILLER: Yes, I think that's right, although it was a little bit ambiguous. The unemployment rate went down, but it was really because of people dropping out of the labor force and giving up. So they're no longer counted as unemployed.

CONAN: Everybody knows the old cliche: location, location, location. We want to hear from those of you who are in the housing business: real estate, construction, that sort of thing. 800-989-8255. Email is talk@npr.org. And let's start with Mike(ph), and Mike's on the line with us from Detroit.

MIKE: Hi, how are you guys doing?

CONAN: Good, thanks.


MIKE: I'd just let you know that here in Detroit, the metro Detroit area, construction is booming. Listen, we're busier than we were during the run-up to the housing bubble.

CONAN: And what part of the business are you in?

MIKE: We do residential foundations, basements, new construction.

CONAN: And how bad was it?

MIKE: It was very bad. It was bad enough that I don't think there was any work for us for about a year. But I think that's part of the reason why a lot of us are busy now is that many of the companies went out of business. They went bankrupt. There's not as many companies out there doing what we do now.

CONAN: So how - it looks to you like this is going to be sustained?

MIKE: I certainly hope so. I mean, Southeast Michigan, we follow the auto companies, and the auto companies are doing very good right now. And as soon as the auto companies start doing better, we start doing better. There's help wanted signs in front of almost every shop in this area. If you're looking for word, Detroit's the place to find it.

CONAN: OK, well, continued good luck, Mike, thanks very much for the report.

MIKE: Well, thank you.

CONAN: And Robert Shiller, there's that local condition.

SHILLER: I grew up in Detroit, by the way. I'm rooting for Detroit. Detroit is rather different from the other cities in that it really didn't participate in the boom. Detroit was troubled over much of the last decade, and it has fallen the most of any of the major cities. So it's down to 71 percent of its 2000 level. That is really bad.

But on the other hand, in the wake of such bad news, that suggests that the turnaround might be due for Detroit because, you know, cities come back. And when it gets so inexpensive to live there, that attracts employers. They want to set up operations where housing is cheap. Detroit is the place.

CONAN: Well, let's go to a place that did experience a big drop in prices as a result of the bubble, and that's Phoenix, Arizona. Mihai Toma started as a builder there. He's since moved into investment and brokerage. He's the head of Toma Partners, a brokerage firm, and joins us now from a studio in Tempe. Nice to have you with us today.

MIHAI TOMA: Great to be with you.

CONAN: And he's at the member station there, KJZZ. Now, you started in construction of luxury homes, but is that coming back in Phoenix?

TOMA: Unfortunately, we haven't quite gotten to the point where luxury is coming back. It's a significantly higher price point in regards to construction. But we have seen luxury home prices start to spike up in the last few months.

CONAN: Spike up by how much?

TOMA: Well, if you look at data in a luxury city like Paradise Valley, you're looking at something - annual appreciation of about 21 percent right now.

CONAN: That is a spike. And what about more modest homes?

TOMA: Well, let me tell you guys a story about a modest home. I had a newlywed couple that wanted to buy a home a couple months ago. A home gets listed. Within a few hours, you have about seven people coming through. Within a couple days, you have about 12 offers. And the data there that we see is in a city like Phoenix, just in the greater Phoenix area, you have annual appreciation 31.7 percent from the same time last year.

So we have seen a significant spike in prices in just the more modest homes in the Phoenix area, as well.

CONAN: We have to emphasize that's after a long, long fall.

TOMA: That's correct, and some of the contributing factors that I've seen is, as Robert was mentioning before, there is a lot of investment money coming into Phoenix right now. Now this is more of a hunch since the data hasn't come out yet, but I believe there's probably about one-third of every home being purchased in the Valley of the Sun right now is being purchased by investors. So that is a huge factor that's contributing to the prices going up as rapidly as they are at the moment.

CONAN: Weren't large purchases of investment homes part of the problem?

TOMA: They absolutely were. Yes, they were, and I've coined sort of a phrase. Investors, I like to refer to them as herd animals. They like to run together, and they also get spooked and can run in the opposite direction just as fast. So we're cautiously optimistic. We hope that they're going to continue to buy, but certainly in the turbulent economic times that we live in right now, anything could send the herd in the opposite direction.

CONAN: If you're modestly confident, why aren't you back in the luxury home construction business?

TOMA: Well, I'm not that confident. I lost quite a bit of money when - I had a luxury construction company, as you mentioned, and we lost quite a bit of money when that went bust, and we just - I'd like to see a couple, probably at least another year or two of strong data before we get back into that market.

CONAN: I can understand your caution, and if you were advising somebody, what would you say right now?

TOMA: Right now, I would say go ahead and buy. Interest rates are so low that it pretty much doesn't matter which price point you buy in. You can hold it and rent it, and if you're just a first-time homebuyer, or you're looking to buy an investment home or a luxury home, I mean again, interest rates being in the three to four percent, it's just hard to see that - even if prices went up - or I'm sorry, even if prices went down 15 or 20 percent, the fact that you can hold a property for such a low dollar amount monthly due to the low rates, it makes very much sense to buy.

CONAN: Robert Shiller, as you look at Phoenix, people are saying after a very, very difficult period, it is bouncing back.

SHILLER: Well, that is confirmed by our own numbers. We have Phoenix up 14 percent in the last year, which is big. That - Phoenix is the city. So we're not talking about America now, we're talking about Phoenix, all right. Every city is different. Phoenix had a huge bubble. It came a little late, sudden but huge, and then it collapsed hugely.

I guess these herd animals that our caller talked about were very much in force in Phoenix. So Phoenix is so different from Detroit. This was a bubble and a burst, and I think that the people who made this bubble are still lurking, and there's something in the culture.

It's not really herd behavior in the sense of lemmings or cattle. It's human behavior, and it's something that we need sociologists to understand. People get each other excited about investment opportunities. And, you know, from what I hear that is sort of happening in Phoenix, maybe in a few other places, not nationwide but happening there.

CONAN: And do you understand, Mihai Toma, the psychology of these buyers?

TOMA: I absolutely do. We've seen quite - I mean, word spreads, and for a number of years, people have been making money in Phoenix, some from just buying properties, holding them and renting them and making the cash flow off of them. Others, the investors that are a little more sophisticated, have been very successful in buying and flipping homes and making good return.

And over time, that just spreads throughout the country, and recently we've sort of been able to reap a lot of the fruit of that word as it's put out by other investors that have made money, and we've seen investors coming in droves from Canada, Chicago.

More recently we've seen a lot of super-investment funds, and by that I mean companies that have tens of millions of dollars buying 100, 200, 300 homes and approaching investors that have put together packages over three, four years of - just the other day I was talking to one investor who had 21 homes, and in that case they're offering to buy all 21 at the same time.

So now we're seeing not only individual investors coming down but also these investment funds that are just buying droves of homes...

SHILLER: Can I add?

CONAN: Well, if you can do it in 10 seconds.

SHILLER: He's right, but you also - maybe not for the long run. Maybe get out before too long.

CONAN: OK, Mihai Toma, thank you very much for joining us today. You're listening to TALK OF THE NATION from NPR News.


CONAN: This is TALK OF THE NATION. I'm Neal Conan. One indicator the housing market's on an upswing: the recent rise in the sales of pickup trucks. When the housing market collapsed, and many construction jobs vanished, sales of pickups followed. Some analysts connected the two, so when pickup sales jumped last month, many saw that as good news for housing.

We're talking with Robert Shiller, economist and professor at Yale University, co-creator of the Case-Shiller Home Price Index. His most recent book: "Finance and the Good Society." If you work in housing, in construction, real estate, call and give us a snapshot of what's happening where you live, 800-989-8255. Email talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

We'll go next to Amos, and Amos calling from Grand Rapids.

AMOS: Hello.


AMOS: I just wanted to let you know that, yeah, there is, I think, an uptick. But we have a long road ahead of us. I mean, the drop was so sudden and steep and...

SHILLER: (Unintelligible) yeah. It might be...

AMOS: Go ahead.

CONAN: Go ahead, I'm sorry.

AMOS: The multi - a lot of the numbers that I've seen on the uptick in residential construction has been due to multi-family construction, apartments, and I would assume that that's from people losing their homes in foreclosure. We're also seeing, you know, construction of a lot of assisted living set-ups for the changing demographic.

CONAN: And what part of the business are you in, Amos, again?

AMOS: I'm a - I work for a brick manufacturer.

CONAN: And how have - obviously sales of bricks would track the change in construction.

AMOS: Yes, and we've seen - we have seen an uptick from a couple years ago, but I would hazard a guess that 70 percent of our capacity continues to be offline.

CONAN: I wonder, Robert Shiller - multi-family housing, assisted living facilities.

SHILLER: Yes, multi - well, multi-families would be renters, investment properties for renters, and that is growing rapidly. Over the last five years we've seen an increase in rentals that exceeds the decrease in homeowners. So there's a shift. And we did a questionnaire survey, my colleague Karl Case and I, asking people in this country just last June, do you think that there's a trend toward renting. And most people said yes.

So I think that home ownership is still the American dream, but less so, and part of the reason that it's hard to be too optimistic about home prices is that most single-family detached homes are not so easily converted to rentals. We've got lots of those homes. There's a big supply already, and demand for them is showing signs of faltering.

CONAN: And Amos, how long is it going to be before you would see things turning around decisively?

AMOS: Well, I think personally, 2014 would be the earliest, and it may even bleed into 2015. I mean, I'm - I'll be in Chicago this week, and Chicago is reminding me of where Detroit was two years ago. It's really tough in that market.

CONAN: All right, Amos, thanks very much for the call, appreciate it.

AMOS: Thank you.

CONAN: Here's an email we have from Ken in Lake Winnebago, Missouri: In the suburbs of Kansas City, we are hurting quite badly. My home currently appraises for less than what I paid 15 years ago. Of the 500 homes in my suburb, 30-plus have been foreclosed. That's dragged all our values down. When a home that sold for 899,000 in 2005 sells on the courthouse steps for 196,000, we all suffer.

I paid 149,000 15 years ago. It appraised at $402,000 in 2007; today $143,000. And boy, that's how people get into trouble with their mortgages, Robert Shiller.

SHILLER: Yes. Kansas City, I think, was the scene of a big boom in the mid-19th century. It moves around. I guess they're not booming right now in Kansas City. Yeah, this also shows that the old adage that real estate - you said location, location, location, that they're all different. That's true, but it's less so now. So Kansas City is suffering much like all the other - it has been suffering.

I wouldn't be surprised if they're picking up now with the latest data, but it has been a national thing; in fact an international collapse in home prices, which is another reason to be wary of early forecasts of its end.

CONAN: I know Ireland, they had a big bubble and a big burst. Where else?

SHILLER: Well, you know what's the most interesting thing to me that's going on: Northern Europe is going through a huge boom. Norway is the epicenter of it. I was there giving a talk, and I said to them, you know, I feel - this is deja vu for me. This feels like America. I could sense their excitement.

But you know, there's always a story behind each boom. The story in Norway is we've been saved from all the European Union travails. We never joined the EU. We don't have the euro. And so, you know, we're a success story, and everyone's wanting to buy here.

So that's a story, and I guess they believe it, and the psychology of a boom helps you to believe such things.

CONAN: Have they been to Spain?

SHILLER: I'm going there next - later this month. I'm trying to prepare for that. They're in trouble. They had a huge real estate boom, and they're not recovering. With an unemployment rate for youth of over 50 percent, something is not going well in Spain.

CONAN: Ashley Derrick is a residential realtor in the Atlanta area. She joins us by smartphone from that city. Nice to have you with us today.

ASHLEY DERRICK: Thanks so much, Neal, I appreciate it.

CONAN: And recently numbers show housing prices dropping still in Atlanta. Is that what you're seeing?

DERRICK: Yes, it's not a black-and-white issue, though, in Atlanta. Just as Mr. Shiller said that every city was different, I do believe that every neighborhood in Atlanta is different. We are still having some price drops in the metro Atlanta area, but in neighborhoods and in a lot of in-town neighborhoods, the prices have actually increased a bit.

Atlanta's made up of - metro Atlanta, at least, is made up, depending on who you talk to, between 14 and 28 counties, and so that's a lot of counties to talk about when you're talking about the Atlanta area.

CONAN: And do you know why it would be different in town or out of town?

DERRICK: Well, really just depends on a lot of these true-and-tried neighborhoods. You certainly have excellent school districts in some and others not-so-excellent school districts. But what I find and what our brokerage finds, and in town(ph), is that a lot of these neighborhoods still, you know, are just having a great time with selling.

I've got a lot of first-time buyers and a lot of buyers wanting to move up even from smaller homes, and we're doing, we're doing quite well in that. We've even had a number of times lately where if we list a home in town neighborhoods that do have these excellent school districts that I'm talking about, a lot of these smaller neighborhoods, they - we've got multiple being put on them.

CONAN: So what's the most important factor for buyers?

DERRICK: Well, I think certainly the most important factors for buyers always will be price and location. As Mr. Shiller and everyone else has said: location, location, location. And a lot of things that we're seeing now certainly just deal with both of those. But I don't have buyers coming in looking for the best location, and if they're really working with a realtor who certainly knows the area well, they're not asking to put a $50,000 less, you know, deal on the table when it's a well-priced home.

CONAN: And there are lots of places out of town that are sort of planned communities: big developments, all the houses look the same. And then they had some problems. A lot of them weren't finished. A lot of them had foreclosures. How are they doing?

DERRICK: Well, they're not doing so well, unfortunately, and I think that's a lot of times what we get with this metro Atlanta area and that we are not moving up as much as, let's say, Phoenix has in the index. And I think a lot of that is because of these planned communities, these planned neighborhoods out in the suburbs of Atlanta, and not all of these suburbs, but we're talking about even 40 minutes to an hour away from in-town Atlanta, from where people actually work in the business district.

And these neighborhoods were started, a lot of trees cut down, unfortunately, two or three houses built on numbers of acres, and then they just stopped. And they have not started back in these areas, and they are certainly foreclosed upon, and certainly the entire development is being sold off to other developers at this point.

CONAN: And I wonder, that interconnectedness that Robert Shiller was telling us about, do you have buyers or people you talk to say, wait a minute, I'm really worried about the euro crisis, or you know, Chinese economic numbers haven't been so good lately?

DERRICK: I must admit I personally do not have many buyers that talk a lot about that. Certainly I think politics does play a role in this at the moment with the election coming up, but I don't have the world economics coming into place a lot of times when I'm dealing with a couple in the city of Atlanta trying to buy a home.

CONAN: Well, Ashley Derrick, good luck to you, thanks very much for your time today.

DERRICK: I really appreciate you having me.

CONAN: Ashley Derrick, a realtor in metropolitan Atlanta, she joined us by smartphone from there. And Robert Shiller, I wanted to get back to those developments that she talked about. That's of course not just a problem in and around Atlanta.

SHILLER: No, but Atlanta is - you know, of our 20 cities that we feature, it is the worst performing over the last year. And that's the fundamental problem. The unemployment rate in Atlanta, I think it's 9.3 percent in July, which puts it as one of the - not Atlanta, for Georgia, puts it as one of the most troubled states in the union.

So I think Atlanta is a great city, and it has a diversified economy, and it ought to be doing better. I'm not sure what it is. The city has to maybe reinvent itself, in other words get more incentives for industries to locate there to create jobs. I don't know exactly what's wrong, but Atlanta has not been doing as well as Phoenix or other cities. And it hasn't - it didn't have the bubble that we saw in Phoenix. It's a totally different psychology. People in Phoenix are - have been excited, and they remember that. And they think that, well, Arizona is this destination for retirees, beautiful weather. Somehow, the same feeling of success is not there in Atlanta, and they have to get that back.

CONAN: What's going to happen to those developments where they built - they've got a lot of acreage, built three houses and stopped?

SHILLER: Well, the - you see, their prices are down. You know, Atlanta is a low-price city. Prices have - are actually down since 2000, which is unusual. So that, you know, the city ought to be able to encourage. There are these beautiful homes that you can buy cheap. That's a reason to locate there. And eventually, that's the kind of process that restores equilibrium. So Atlanta is a, you know, it might be a good place to invest. It might be better than - Phoenix might be good in the short run because prices are going up there rapidly. Atlanta might be good in the longer run.

CONAN: Here's some postcards we've gotten by email. This from Michael in Charlotte: Builders are building on existing lots. A little bit of new subdivision work is being seen. Most construction work dealing with housing is in the multi-family housing market. I'm a landscape architect which worked at firms whose bread and butter was subdivision work. This from Jim in Louisville: I became a home inspector five years ago. I had a full-time job and did evening and weekend inspections.

The Louisville market was hit hard at first, but it steadily improved. I'm now so busy I'm quitting my day job next spring. And this from Erica in Pine Island in Florida: Hello, TOTN. In my small corner of the Florida housing market, sales are up 8 percent. Prices are up 11 percent comparing 2012 with 2011. But some buyers are still on the fence. It's hard to convince them prices are still not falling even if you give them the statistics to the contrary. She says she listens every day. That's very nice of her. Even if the statistics, if you show them, the psychology, I guess, at least there in Florida, it's still I don't believe it.

SHILLER: I don't know that the statistics are getting strong, reason to think prices will go up much longer. This is the seasonal. And if you just plot the data, especially if you do inflation-corrected data, it looks like we're still on a slow decline with seasonal wobbles. So the customers are right to be wary. We might - we, you know, this could be a turning point, but there's so many worries on the horizon with the Europe crisis, with the fiscal cliff, with China slowing down. The world economy is slowing down. We've been getting bad news in just recent weeks about the world economy. So it's not a slam-dunk that this is the time to think prices are going to go up.

Robert Shiller, co-creator of the Case-Shiller Home Price Index and an economy professor at Yale. You're listening to TALK OF THE NATION from NPR News. And let's go to Bill, and Bill is from Florida as well, calling us from Orlando.

BILL: How are you today?

CONAN: Good. Thanks.

BILL: Interesting, the last caller talks about the subdivisions. I just purchased a couple of those over the last eight months. And at the same time, Dr. Shiller would like this. At the same time, the home offices of the National Home Builders are saying sell this, sell that. They're then starting to rebuild their lot positions in this market. So I think we've hit the bottom of - our tax bills just came out. Those were based on January 1 levels. I've seen probably a 10 percent appreciation around the community, affirming the market in general, far fewer homes on the market, far fewer for-sale signs. I think people feel a little more optimistic. New homes are starting to be built but I think more prudently so. All in all, affirming tone around Orlando, Orange County.

CONAN: And what about the argument or the observation by Roberts Shiller that this may well be seasonal?

BILL: Well, I think that the numbers have been adjusted for seasonality. Again, I've been doing for 40 years. I saw it coming in '07 when any fool could get a mortgage. And I do see a firming tone all in all, all of the statistical factors being factored in, a very affirming market, not one that's going to take off like a rocket, but I think people have sobered up. Lenders are a lot better about lending. And so I do see things well off the bottom from the beginning of this year.

CONAN: Robert Shiller, you see a sober but a recognizable bounce in Orlando?

SHILLER: I think the thing for investors to remember is nobody knows. You know, these booms can come. They're like tsunamis. They come for a while, and then they disappear. Florida had a huge land boom in the 1920s, and then it peaked in 1926. It collapsed. Everybody was burned by it. It didn't come back to another major boom until the 1970s. You can go half a century before it comes back. But I'm not saying we will. I'm just saying it's really hard to tell. And there are - there is the possibility of a collapse again.

We've seen it four times, I said, since the crisis began. So it's, you know, investors might go in, especially in low-priced areas. If you can get an underpriced property, low ball and get something low priced, I'm not, you know, I think it is true. Interest rates are low. This might be a good idea. It's just not a slam-dunk. It's not easy to be rich, right?


SHILLER: You've got to think carefully, and you've got to be ready to get out if necessary.

CONAN: Bill, thanks very much for the phone call. Appreciate it.

BILL: Right.

CONAN: And I just wanted to ask you again, is there a lot of pent-up demand? If job creation picks up, if all those kids who are living in their parents' basements decide to move out and - is that what you're waiting to see?

SHILLER: Well, I think that the demographics have improved a little bit, so it's true that with the early years of this crisis, kids weren't moving out of their home as much. So, they weren't - the demand for a new household, new homes was declining. And now it has started to pick up. So, yeah, there are things that - and, you know, incidentally, Dale from Orlando mentioned the NAHB, the National Association of Home Builders. They haven't been doing surveys of homebuyer attitudes, and they find that their index, housing market index has shown sharp increases lately. It's just a question of will it continue? I don't think how anybody knows.

CONAN: Well, if anybody knows or doesn't know, it's probably you, Robert Shiller, thank you.

SHILLER: Well, I just wanted have some humility here. You know, people give strong overconfident forecasts. One just has to go down with eyes open, thinking, real estate investing, it could be a good thing to do. Even right now, this could be a good time. But it's not necessarily going to work.

CONAN: Robert Shiller, the Arthur M. Okun professor of economics at Yale, co-creator of the Case-Shiller Home Price Index, the standard measure for the state of U.S. residential market. He joined us today from Yale. Thanks, again, for your time.

SHILLER: My pleasure, Neal.

CONAN: The opinion page coming up at an argument that we need more strikes. Stay with us. It's the TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.