ASU-RSI: Beginning of the end of price plunge?

Sales data from March indicate that a trend change in housing prices might be underway in the beleaguered Phoenix metro market. According to the ASU-RSI (Arizona State University-Repeat Sales Index), prices in the metro area declined at the same rate in March 2008 — 37 percent — as they did in February, suggesting that the 25-month swoon may be easing.

Sales data from March indicate that a trend change in housing prices might be underway in the beleaguered Phoenix metro market. According to the ASU-RSI (Arizona State University-Repeat Sales Index), prices in the metro area declined at the same rate in March 2008 — 37 percent — as they did in February, suggesting that the 25-month swoon is easing.

Karl Guntermann, the W. P. Carey finance professor who compiles the ASU-RSI with research associate Adam Nowak, had stated a month ago that preliminary figures were pointing to a flattening of the rate of decline. Guntermann's projection turned out to be true. This month, the data is pointing to price declines of 35 percent in April and 33 percent in May.

If these projections turn out to be accurate as well, then prices are falling at a declining rate. The rate of decline is calculated by comparing prices to the same month a year ago. So, is this the much-desired turn around? "Turning can be defined in several ways and one would be a slowing in the rate of decline. Another would be prices themselves bottoming out," Guntermann explained.

"Builders would look at a turn as housing permits starting to increase, etc." The decline in Phoenix prices is less negative than it was, but Guntermann was cautious about saying that these numbers signal that the market is "heading up." Saying so might lead to a misconception that prices are in positive territory, he added.

The run-up in Phoenix real estate prices which began in January 2004 peaked at 44 percent annual appreciation rate in September 2005. House prices increased 76 percent from January 2004 to July 2006. As of March, the total price decline was 47 percent, putting prices at March 1999 levels.

Guntermann reports that the median price in March, based on the sales reflected in the index, was $119,000 — down from $121,000 in February. Preliminary data points to a median price of $117,500 in April and $115,00 in May, comparable to median prices from November and October 1998.

The slowing rate of decline means that even though house prices are continuing to drop, they are dropping by smaller amounts than in past months. The large number of foreclosures still flushing through the market will continue to affect median prices going forward, Guntermann said. "Because these foreclosed properties are being sold at distressed price levels, the median price is unlikely to increase in the near future," he said.

Regional, city trends

The index shows that the slowing rate of decline played out in all five metro area regions* in March, with little change from the numbers reported for February. Central and Southeast continue to be hardest hit in the monthly year-over-year declines, with Central falling 44.1 percent and Southwest 42.7 percent. At the other end of the spectrum, prices in the Northeast fell by 24.7 percent in March — a slight improvement (0.2 percent) over February.

In the Southeast, prices dipped 30.5 percent, and in the Northwest the drop was 37.9. Comparing current prices by region to the 2006 peaks, the Southwest is down the most at 58 percent, and Central and Northwest over 50 percent. Even the Northeast region has dropped 30.3 percent from the peak. City-by-city breakdown:

• Chandler — The annual rate of decline in March was 28.1 percent, 4 percent greater than February. Since the 2006 peak, prices in Chandler have dropped 39.1 percent.
• Glendale — Compared to March 2008, prices dropped 40.1 percent in March 2009, a 5 percent increase from February. Glendale's total drop in prices since the peak is 52.8 percent.
• Mesa — The year-over year comparison for March shows prices in Mesa dropped 35.2 percent, or 4.9 percent more than the February decline. Overall, Mesa's prices have dropped 47 percent from the peak.
• Peoria — The March 2009 prices dropped 35.8 percent compared to March 2008, an increase of 4.2 percent compared to February. Since the peak, Peoria's prices have dropped 51.7 percent.
• Scottsdale/Paradise Valley — A bright spot in the report, March 2009 prices were 23.7 percent lower that March a year ago, an improvement of 0.4 percent compared to the February 2009/February 2008 decline. The overall drop for these high end cities was 29.2 percent down from the peak.
• Sun City/Sun City West — Prices dropped 19.5 percent in March compared to March a year ago — 1.2 percent more than in February. The Cities were logging a decline of 34.7 percent compared the peak.
• Tempe — Prices in Tempe fell 17.5 percent in March compared to March 2008, a 5 percent increase over February. The total dip from the peak was 31 percent.

*Cities included in the regions:

• Northeast — Carefree, Cave Creek, Fountain Hills, Paradise Valley, Scottsdale
• Northwest — El Mirage, Glendale, Peoria, Sun City, Sun City West, Surprise, Youngtown
• Central — Phoenix
• Southeast — Apache Junction, Chandler, Gilbert, Higley, Mesa, Queen Creek, Sun Lakes, Tempe
• Southwest — Avondale, Buckeye, Goodyear, Litchfield Park