ASU-RSI: Phoenix residential real estate market is flat ... and will be for the coming year

Home prices in Phoenix have been on a welcome upswing for several months, but preliminary data for July shows no change from last July, according the W. P. Carey School's Karl Guntermann, who calculates the ASU-Repeat Sales Index (ASU-RSI). Prices are likely to remain flat for the next year unless market conditions change significantly. Other real estate watchers are warning that markets are about to dip, but Guntermann does not think the market is starting to slide again. The methodology that results in the ASU-RSI, he explains, produces a more accurate — and this time, more optimistic — picture.

Home prices in Phoenix have been on a welcome upswing for several months, but preliminary data for July shows no change from last July, according the W. P. Carey School's Karl Guntermann, who calculates the ASU-Repeat Sales Index (ASU-RSI). Prices are likely to remain flat for the next year unless market conditions change significantly.

Other real estate watchers are warning that markets are about to dip, but Guntermann does not think the market is starting to slide again. The methodology that results in the ASU-RSI, he explains, produces a more accurate — and this time, more optimistic — picture.

"While the improvement seen over the past 18 months isn’t likely to continue, there also is no evidence that house prices will resume a downward trend, contrary to some published reports," Guntermann writes. "The advantage of a repeat sales index is that the same houses are paired as they resell, holding house quality essentially constant. In contrast, other methods for measuring price changes involve a different mix of houses in terms of size or age, etc. each period, making those calculations less reliable."

The most current data from the ASU-RSI shows that prices overall improved in May by 2.6 percent compared to May '09, a greater rate of climb than April, which was 0.8 percent up. But preliminary data for the July year-over-year comparison shows no appreciation, Guntermann said. "Based on index values from last year and current conditions in the housing market, it is likely that house prices throughout the metro area will remain essentially flat for the next twelve months," he said.

Guntermann reports that the overall median price for sales that were included in the May index was $132,000 and the preliminary figure for July is $129,900. Median prices have been fairly stable for the almost a year except for dips last January and February, typically slow times of the year for housing, he added.

Market Segments

Lower- and higher-priced homes continue to move in different directions, but like the market as a whole, the slope is less steep. In recent months lower-priced homes had been climbing, but the preliminary increase for July was 8 percent, lower than the 13 percent increase in May and 11 percent in June.

"It appears that this segment of the housing market, which was hard hit during the downturn, will see price increases throughout the rest of 2010 but at gradually slower rates," Guntermann said. "Unless economic and housing market conditions change dramatically, prices are likely to be relatively stable going into 2011." The high end of the market also continues on its trend line — a declining trend — but more gradually: The May decline was 1 percent compared to 3 percent in April.

"The data indicate that the higher priced segment of the market is likely to show small declines on an annual basis through the rest of 2010 with prices flat for the first part of 2011," Guntermann said. Median prices for the lower and higher priced houses in were $98,000 and $275,000 respectively last July. When the market is divided between foreclosed and non-foreclosed properties, prices are also moving in opposite directions.

According to Guntermann, foreclosure prices have increased at an annual rate in the 3-5 percent range since March. Prices for homes that have not been foreclosed, however, have been falling, but the decline in July is expected to be unchanged from June at -11 percent. "This pattern is likely to continue into 2011 for both segments of the market unless there is a dramatic change in housing market conditions," Guntermann said.

The median price for foreclosed houses in May was $119,900, up substantially from a low of $97,000 last May. Guntermann expects the preliminary median for July to be virtually the same 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," he said.

New Indices

For the first time, the cities of Goodyear, Avondale and Surprise are being included in the ASU-RSI, bringing the total number of cities for which indices are calculated to eleven. Guntermann said that limited historical data has prevented these three cities from being included in the monthly reports, but the methodology used to calculate each index has been modified resulting in a large enough sample of sale pairs each month so that a reliable index can be calculated.

"Very simply," Guntermann said, "If a sale in one of those cities cannot be paired with a prior sale of the same house, the sale is paired with the prior sale of a house that is the same model and in the same subdivision." Guntermann said the model pairing methodology was applied to the existing cities in the report, and the index values correlated almost perfectly with those calculated from the traditional sale pair methodology.

However, he warned "even with the modified pairing technique, fewer pairs are available to calculate the monthly index so the indices for Goodyear, Avondale and Surprise are somewhat more volatile than those for the other eight cities." It turns out that the only cities with appreciation from May 2009 to 2010 are those in the Northwest and Southwest regions, including the three new cities.

Prices in the Southeast region are down across the board with the largest decline in Tempe at 9.3 percent, the same as in April. Based on index values for the past year, it is likely that Glendale, Peoria and Mesa will have relatively stable prices at least into early 2011. Slight price appreciation is likely to continue in Goodyear, Avondale and Surprise into next year with small price declines likely for the remaining cities.

Cities included in 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