ASU-RSI: Big picture a little brighter, but shadows persist

Big picture, the Phoenix housing market showed gradual improvement overall through May, but zooming in on the various segments the picture changes, as some are still declining while others are improving — but only slowly. As a result, homeowners hoping that the market is going to perk up quickly are in for more disappointment. "Based on index values from last year and current conditions in the housing market, it is likely that small increases in house prices will continue for only a few months, followed by an extended period of relatively flat prices," according to Karl Guntermann, professor of real estate and author of the ASU-Repeat Sales Index (ASU-RSI).

Big picture, the Phoenix housing market showed gradual improvement overall through May, but zooming in on the various segments the picture changes, as some are still declining while others are improving — but only slowly. As a result, homeowners hoping that the market is going to perk up quickly are in for more disappointment.

"Based on index values from last year and current conditions in the housing market, it is likely that small increases in house prices will continue for only a few months, followed by an extended period of relatively flat prices," according to Karl Guntermann, professor of real estate and author of the ASU-Repeat Sales Index (ASU-RSI).

The March data shows overall prices year over year declining by 2.6 percent in March, but the preliminary data for May reverses the trend with a 2.7 percent increase. That improvement plays out when dividing the market by price. Lower priced homes, which are no longer losing ground in the year over year comparison, appreciated 4.1 percent in March and 12.7 percent in May. Homes in the top bracket are still declining in price, but at a slower rate: 5.8 percent in March and 1.2 percent in May.

A look at market subsets

But analyzing the market based on foreclosure- versus non-foreclosure-related transactions, the numbers for May are weaker than March. Prices on properties that had been previously foreclosed turned positive for the first time in March, increasing by 4.6 percent. Prices in April continued to speed up at 5.3 percent, but the acceleration slowed to 3 percent in May.

"An analysis of the foreclosure market indicates that those prices are also likely to increase slowly for a few months followed by an extended period of relative price stability," Guntermann said. A similar pattern turns up for homes involved in traditional, non-foreclosure related sales. This segment is continuing to slip, with prices declining 13.6 percent in March.

April's preliminary numbers look better, with the decline slowing to 8.2 percent, but in May the drop returned to a near-March level: 13.1 percent. "Non-foreclosure prices are likely to decline for many months before leveling off toward the end of 2010," Guntermann said.

"This will not be good news for those homeowners worried about the equity in their homes or who are waiting for the housing market to recover so they can sell their houses." In the townhouse/condominium sector, prices are still declining at an annual rate of about 20 percent. So far, this sector has lost 48 percent of the mid-2006 peak.

Median prices

Overall, the median price was $132,000 in March and is expected to remain there in May. Since the median hit $130,000 set last September it has hovered within $5,000 of that mark. For foreclosed properties, the median in March was $117,000, a substantial improvement over the $97,000 set in May 2009.

May 2010 is expected to show only slight improvement over March, however, at $120,000. "Prices since October 2009 have been in the range of $115,000 to $120,000 and may well remain in that general range for the foreseeable future unless there is a significant change in the number of houses going into foreclosure or a turnaround in the Phoenix economy," Guntermann said.

Breaking the market down by price, lower-priced homes in May are expected to record a median of $106,000 and higher-priced $275,000. For non-foreclosure houses, the median price increased to $165,000 by May while for foreclosures the median was $120,000. The preliminary median price of townhouse/condo units in May declined to $80,000.

Across the regions of the metropolitan area, price declines slowed in March, and all were in single digits. "If the trend continues, the Central, Northwest and Southwest regions, which have shown dramatic improvement the past few months, could show price increases with the April data," Guntermann said. "In terms of total declines from the 2006 peak, the Southwest is down the most, 58 percent, but even in the Northeast prices have dropped 36 percent. Three regions still show total declines in excess of 50 percent."

Cities included in regions:

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