ASU-RSI: Continuing weakness in Phoenix real estate market

Price declines hit the Phoenix resale market for a second month in a row in September, with the drop accelerating to 4 percent, according to the latest ASU-Repeat Sales Report (ASU-RSI), released this week by the W. P. Carey School of Business. Report author, real estate Professor Karl Gunterman, said that the volatility in the market makes it difficult to be sure just yet, but another month of accelerated decline could mean that a new downward trend is developing.

Price declines hit the Phoenix resale market for a second month in a row in September, with the drop accelerating to 4 percent, according to the latest ASU-Repeat Sales Report (ASU-RSI), released this week by the W. P. Carey School of Business. Report author, real estate Professor Karl Gunterman, said that the volatility in the market makes it difficult to be sure just yet, but another month of accelerated decline could mean that a new downward trend is developing.

"The ASU-RSI has been relatively stable for over a year and recent changes in the index that are leading to the declines are still relatively small," Guntermann wrote in his report. "Continuing weakness in the Phoenix economy, however, the flow of foreclosures into the market and the seasonal slowdown that occurs in housing toward the end of the year are reasons to be pessimistic about house prices."

"Positives are the strong presence of investors who are showing confidence in the long-term potential of the Phoenix area and the major price declines that have already occurred, which has dropped prices back to levels not seen since the end of 2001," he continued. "It could be argued that the price adjustments that have already occurred and improved housing affordability make large future price declines less likely.

Prices year-over-year

Prices for foreclosures declined for a second consecutive month in September. The 6 percent drop year-over-year in September doubled the rate of decline in August. "Foreclosures have been one of the stronger segments of the market for many months but the continued softening in prices means there is insufficient demand to absorb the foreclosures that continue to enter the market," Guntermann wrote.

In September prices for non-foreclosed properties fell at 9 percent year-over-year, level with the August decline. Since this sector has been declining at a rate of 9-13 percent since March, the September number may be an indication of what passes for stability in this market.

"This is the segment of the market that is of interest to most homeowners, whether they are waiting to sell or simply interested in knowing when their equity will stop shrinking," Guntermann commented. "Unfortunately, the data doesn’t provide a basis for much optimism at this time." Segmenting the overall market by price, September saw a small, 2 percent decline in the price for homes at the lower end of the market.

Guntermann explained that since many of these homes are foreclosures it is not surprising that this sector exhibiting a similar trend to the foreclosure sector. Higher priced houses also continued their trend of single digit declines (5 percent), as did the townhouse/condo sector, although at the much higher rate of about 20 percent.

Median price

The overall median price in September was $124,900 — down from $129,900 in July. Guntermann notes that the median price has fluctuated between $122,000 and $135,000 since June 2009, "reflecting the instability that characterizes the current market." He noted that despite signs that the market is softening, median prices are still within range. By sector, median prices in September were:

• For foreclosed houses, the median price is projected at $110,000 — the same as August 2010 and September 2009 but down from $120,000 in July.
• For non-foreclosed houses, the median in September was $155,000 compared to $149,000 in July. With the exception of July, median prices have fallen in a range of $155,000 to $165,000 for the past year.
• In the lower and upper segments of the market median prices have also fluctuated for the past year rather than showing a clear trend in any direction for more than a couple of months, Guntermann said: "This kind of volatility in the underlying price data is one reason why it is difficult to decide whether annual changes in the RSI reflect short-term fluctuations or are the start of longer-term trends."
• Townhouse/condo prices appear to be on a downward trend, with the preliminary median price of townhouse/condo units in September coming in at to $62,000.

Regions and cities

Guntermann said that regional price changes in July were weaker than in June, "meaning that increases were a little smaller while declines were a little larger." The Central and Southwest regions have had the largest increases in recent months but the July increases were more modest, Guntermann wrote.

The June increase in the Northwest region turned into a small decline in July. The Northeast region continues to show the largest decline (5.4 percent) but the July decline is only marginally worse than in June. "In terms of total declines from the 2006 peak, the three hardest hit regions are still in excess of 50 percent, with the Southwest down the most, 57 percent," Guntermann wrote. "Even in the Northeast, prices have now dropped by 37 percent."

The three cities that were added to the RSI in recent months are the only ones showing appreciation from July 2009 to 2010: Goodyear, Avondale and Surprise. Glendale and Mesa, which had small increases with the June data, now have small declines on an annual basis, Guntermann wrote.

"The remaining cities had declines in June and those losses are slightly larger in July with the decline in Sun City/Sun City West exceeding 10 percent and being close to a 10 percent decline in Tempe," he explained. "Total declines from the peak are still very large in all cities, ranging from 36 percent in Scottsdale/Paradise Valley to over 64 percent in Avondale."

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