ASU realty professor offers parting thoughts

Jim McLeod July 18, 2011

Jay Butler has been tracking metro Phoenix’s real-estate market for 40 years. The Arizona State University professor has seen four booms and busts and expects that, no matter what he does, there will be even more.

So, he’s retiring.

Butler, 65, has seen massive new developments reshape metro Phoenix, record high and low interest rates and home prices, land fraud and other scams, as well as many happy homeowners during the past four decades.

His long-running research as director of the school’s real-estate studies program made him the pre-eminent voice on the real-estate industry.

Because he wasn’t paid by homebuilders or real-estate agents, he was free to say what he thought, and his unwavering honesty and outspoken opinions gained him harsh critics.

But Butler has been right with his forecasts much more often then he has been wrong.

His last day as a teacher at the school’s Polytechnic campus in Mesa was Monday.

Last week, Butler talked to The Arizona Republic about the highs and lows of the real-estate market and his career.

What is the most memorable time in the real-estate market for you?

“The trough we are in now. Some people say it’s the death of homeownership, but I remember in the 1980s when people said the nation’s children would never be able to afford a home. They did, and so will the next generation.”

What are some of the most significant issues facing homeownership for the next generation?

“Governmental changes. If Congress does away with the (mortgage-interest) tax deduction and requires 2 percent down payments for buyers, housing will suffer even more. Americans like their own parcel of dirt to live on, even though the parcels are getting a lot smaller.”

Whom do you blame for this crash?

“I blame everyone. Homebuyers bought houses they couldn’t afford, counting on appreciation that wasn’t going to come. It was a ridiculous time for buyers. Lenders deserve the blame down the line for making the loans.”

Was it all about greed?

“I am not sure if it was all greed. Everyone just wanted their share. But homeowners were the least protected. Big banks and mortgage firms were protected, and none of them jumped in and said, ‘Hey, let’s help the homeowners and reduce their principal.’ The system failed many homeowners. But there were also homeowners who should have never been able to buy. Too many people didn’t know what they were doing and certainly didn’t have the resources.”

Who was hurt the most?

“Those homeowners who stretched too far but really did nothing wrong. They took out second mortgages that were being pushed by lenders. They paid their bills. But then, foreclosures took over their neighborhoods and sunk their home values.”

Whom do you not feel sorry for during this crash?

“Almost anyone who hears about a foreclosure in north Scottsdale or Paradise Valley thinks, ‘Yeah, so what.’ ”

Are you underwater on your mortgage?

“We bought a house on Sesame Street in Tempe in 1972. We paid $37,000 and have paid off that mortgage. We took out a small second mortgage to pay for some improvements and other things. So, who knows, maybe we are underwater.”

What was one of your difficult real-estate forecasts?

“In the 1980s, a real-estate reporter called me to ask about a project Charles Keating was building in Avondale. The reporter said Keating called the area the fastest-growing part of the Valley. I said sure, if you go from four to eight homebuilding permits, that’s fast. The next day, I received an unpleasant call from Keating’s second in command. But I didn’t take back what I said.”

Metro Phoenix has had some interesting characters in real estate. Who were they?

“There have been too many to name. There was the guy in the 1980s who got out of prison in Colorado, got a loan from Western Savings and convinced investors he was going to build two shopping centers in Phoenix for a big profit. There was Ned Warren and his land-fraud schemes that caught a lot of people. A homebuilder in the 1970s got in trouble because several of its salespeople were buying homes and then reselling them to customers for more. Arizona has had some interesting characters.”

When did you get a bad feeling about the real-estate boom of 2004-06?

“In 2003, when I started getting telephone calls from people in Santa Barbara and Atlanta talking about these deals being offered them to buy new homes and then flip them for fast profits. I kept getting more and more of those calls in 2004.”

What was the deal with the lotteries or people lining up, or even camping out, to buy homes in certain communities during Phoenix’s boom times?

“A lot of those events were faked. I have a picture of a couple I knew who were paid to stand in line. Builders wanted people lining up so when the media got there with cameras, the hype would start.”

Did you think the market would crash as badly as it did?

“No one did. Many thought the appreciation run would end with a whimper. People were saying the market would decline slightly around 2013. Many people didn’t know what Wall Street was doing, even though it had done the same shenanigans before. It was like liar’s poker.”

When do you think the housing market will recover?

“There are doomsayers out there who think the world is going to come to an end, and so is real estate. I think we will be in much better shape by 2015.”

What will keep people buying homes?

“People buy homes because they are comfortable with their jobs. No one talks about careers anymore. But the problem is jobs are mobile and homes are not. People say the American dream has been hammered, but it’s not dead.”

When did it become clear that Arizona’s population wasn’t growing as fast as projected, and why didn’t more people try to bring it to people’s attention?

“During the boom, you could drive neighborhoods and see more and more empty houses. But anyone who raised the red flag about it would have 200 calls from land brokers and homebuilders screaming at them. It’s tough to be a naysayer and tell the real-estate industry what they don’t want to hear.”

Will Phoenix continue to be too dependent on growth and housing?

“There are two strategies going on. You have the (Arizona) Commerce Authority trying to find more jobs for the region. Then, you have the group who just wants to muddle through because they believe the 11th Commandment is that Phoenix has to and will grow no matter what.”

What about the homeowners who have done everything right? Paid their mortgages, not overextended themselves and done everything possible to keep working?

“Those are the households sitting in the middle of friendly fire. They are feeling the collateral damage. That’s the majority of metro Phoenix homeowners now.”

Has the real-estate industry learned from this crash?

“Not really. Everyone still believes their projects are different and better. It’s like musical chairs. We’ll go through this all over again.”

How much do you blame the lenders?

“A lot. They could have done a lot more loan modifications and approved many more short sales.”

Your frank comments and evaluations have drawn some harsh criticism. Does it bother you?

“No, not at all. I don’t read the comments. Real estate is a behavioral thing, not a numbers game. People think I am unfriendly because I don’t talk much at events, but that’s because I like to listen to other people’s experiences, understand and learn about the real-estate market from them.”

Have you gotten in a heated argument with someone who disagrees with your analysis?

“No, never. Lots of people who disagree with me give me good ideas. I have to be open-minded. I listen to analysts who have their minds made up, and that concerns me.”

Do you discuss real estate with your friends?

“I have a lot of acquaintances but not many friends. Maybe I am not a nice guy. Once, they put a sign up on my office door naming the 30 people who had left the department. I didn’t fire them. They just chose to go.”

Do you have any regrets?

“For about a year, I regretted not taking a higher-paying job at another university. But then, the guy they did hire got laid off, so I felt pretty good about my decision.”

What has it been like teaching real estate at ASU for 40 years?

“I have enjoyed it. There have been ups and downs and administrators who may not have wanted me around. But I am retiring now because the package is good, and I have seen it all in the market already. I will continue to work on projects with various groups. I am not planning on going away.”

What are your initial plans for your retirement?

“A smart colleague once told me after you leave a long-term job, don’t make any big decisions for six months because you will probably make the wrong one. So, I have some time to think.”

Extract of the Arizona Republic

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