ASU-RSI: End of the slide is in sight

The latest ASU-Repeat Sales Index suggests that the end of the slide for the beleaguered Phoenix metro real estate market may be in sight, but how close it looks depends on how you parse the numbers. Overall, house prices slipped 17 percent in November — the last month for which complete data is available — but the year-over-year decline in November for lower-priced homes was 23 percent, compared to 15 percent for expensive properties. Lower-priced homes have been dropping at a faster rate than the higher-priced homes, but the preliminary estimate for January is a swap: the low end of the market appears to have fallen 8 percent, compared to a 10 percent drop at the high end. Across the metro area, prices in many cities should turn around later this spring, but for others the upswing won't occur until much later in the year.

The latest ASU-Repeat Sales Index suggests that the end of the slide for the beleaguered Phoenix metro real estate market may be in sight, but how close it looks depends on how you parse the numbers. Overall, house prices slipped 17 percent in November — the last month for which complete data is available — compared to 20 percent in October and 23 percent in September.

Preliminary estimates for December and January have prices declining by progressively slower rates — 13 and 9 percent respectively. "The slowdown in the rate of decline has been accelerating for several months, and if the present trend continues, prices will level off later this spring," said Karl Guntermann, professor of real estate and creator of the ASU-RSI.

Comparing November to October, the median price in the market overall was $135,000 — up from $131,000 in October. Projections call for $132,500 in December and $125,000 in January. Guntermann commented that the dip is probably seasonal. When the overall market is segmented into price categories, the picture shifts a bit.

The year-over-year decline in November for lower-priced homes was 23 percent, compared to 15 percent for expensive properties. Lower-priced homes have been dropping at a faster rate than the higher-priced homes, but the preliminary estimate for January is a swap: the low end of the market appears to have fallen 8 percent, compared to a 10 percent drop at the high end.

Foreclosures vs. traditional sales

The ASU-RSI also parses the market between foreclosures (including the resale of houses that had been foreclosed upon) and traditional sales. The comparison between November 2009 and November 2008 shows that prices on foreclosed properties fell 9 percent; however, the preliminary data for December and January show the decline tapering to 5 and then 2 percent.

The decline in foreclosed house prices peaked at 32 percent in October 2008 and gradually slowed through September 2009, when the dramatic drop began. The median price for foreclosed homes was $120,000 in November — up 25 percent from the bottom of the trough in May. The December and January medians are expected to be $120,00 and $115,000.

Although January's slippage could be a seasonal phenomenon, Guntermann added that prices may be more volatile because lenders control how fast these properties come on the market. "If the preliminary numbers hold up, the foreclosure segment of the housing market may be very close to the bottom, at least in terms of price declines," Guntermann writes. Prices for non-foreclosed houses are a different story.

They have been dropping at a relatively steady 20 percent, year over year, since October 2008, and only in this month's preliminary numbers does the pattern seem to change. In November, prices dipped 21 percent, but by January the decline should have slowed to about 17 percent. The median price for non-foreclosed properties was $165,000 in November, and is expected to continue the trend in December and January at $160,000 and $155,000 respectively.

Guntermann observed that the improvements in the foreclosure market are offset by the weakness in the traditional. "The decline in foreclosure house prices was driven primarily by mortgage-related issues but the continuing decline of non-foreclosure prices has more to do with weak economic conditions, especially in the Phoenix area, and the difficulty buyers face in qualifying for mortgage loans," Guntermann writes.

The townhouse/condo sector also continues to decline: 28 percent in November compared to 31 percent in October. The following two months are expected to come in below 30 percent. The median price is still falling, too: $89,000 in November followed by $84,600 in December and $80,000 in January.

Regions, cities

Phoenix metro's regions followed the trend: price declines slowing. Compared to the 2006 peak, the Southwest is down the most, at 59 percent, but even in the strongest region, the Northeast, prices fell 35 percent. The Northeast, in fact, does not yet appear to have hit bottom. The other four regions could turn positive this spring, Guntermann remarked, but the Northeast may not change until much later this year.

In all of the cities except Glendale and Mesa, the rate of decline is now less than 20 percent. Since the peak, prices in Glendale, Peoria and Mesa have fallen over 50 percent. Prices in most cities are expected to stop declining later this spring, but "at this time there is no way to estimate when the decline will end for Scottsdale, Paradise Valley, Sun City and Sun City West."

The Method

Guntermann, who launched the ASU-RSI in November 2007, explains that the use of repeat sales is the most reliable way to estimate price changes in the housing market because the repeat sales approach eliminates the need to deal with the many issues associated with the heterogeneous nature of housing.

The ASU-RSI is very similar to the national S&P/Case-Shiller Index, although the method used to cleanse the data is slightly different. Like the S&P/Case-Shiller index, the data used in the ASU–RSI also begins with January 1989 data, and beginning in January 1990 the percent change from the same month in the previous year is reported.

Guntermann explained that indices developed using regression analysis also provide estimates of price changes over time, but attempt to control for differences in house characteristics, location, demographics and market conditions, etc. within the model. "Regression analysis can and does produce meaningful estimates of price changes but the results are not as reliable as those produced using repeat sales data," he writes.

"An even less rigorous approach would be to simply average sale prices by zip code or some other geographic area where the mix of housing sizes and ages, etc. would be different each month. The percent changes based on medians or averages would reflect not only price changes but also differences in the sizes, ages and other characteristics of the houses sold each month."