ASU-RSI: Battered Phoenix housing market enters the winter doldrums

At first glance, the drop in year-over-year Phoenix housing prices recorded in the October Arizona State University-Repeat Sales Index (ASU-RSI) could appear to be unmitigated bad news: this means prices compared to a year ago dropped for the third consecutive month. In fact, the rate of decline accelerated slightly to 6 percent. However, as ASU-RSI author and real estate Professor Karl Guntermann points out, October marked the beginning of what is typically the slowest time of the year for sales. And other economic factors may help to mitigate the drop going into 2011.

Editor's note: The October Arizona State University-Repeat Sales Index (ASU-RSI) has been dedicated to the memory of Phoenix real estate executive Robert McCord.

"It was at his urging that the W. P. Carey School of Business undertook the development of a repeat sales index to provide more accurate house price information to real estate professionals," explained Karl Guntermann, professor of real estate and author of the ASU-RSI. "A quarterly commercial index has recently been added to the monthly residential reports," Guntermann said.

At first glance, the drop in year-over-year Phoenix housing prices recorded in the October Arizona State University-Repeat Sales Index (ASU-RSI) could appear to be unmitigated bad news: this means prices compared to a year ago dropped for the third consecutive month. In fact, the rate of decline accelerated slightly to 6 percent.

However, as ASU-RSI author and real estate Professor Karl Guntermann points out, October marked the beginning of what is typically the slowest time of the year for sales. Because of this, Guntermann projects that year-over-year declines will likely continue for the next several months.

Mitigating the drop are other economic factors.

"The recent improvement in Phoenix employment is an important step in getting the housing market back to some semblance of normal conditions but the process will continue through 2011 and beyond," Guntermann wrote in his October report. "The flow of foreclosures into the market is not likely to end soon so the added demand associated with job creation and the eventual increase in people moving to the Phoenix area may minimize the downward pressure on house prices going into 2011."

He added that investors continue to be interested, drawn by the 1999-2000 prices and buoyed by confidence in the long-term potential of the Phoenix market. "Since it is impossible to predict the bottom in any market, the improving economic situation may be enough to motivate more buyers to take the plunge," Guntermann wrote.

Comparing October prices month-over-month, the October overall median price of $125,000 remains within the $122,000-$135,000 range where prices have fluctuated since June 2009. Guntermann points out that this price fluctuation is a characteristic of an unstable market.

A look at the market segments

When viewed from the perspective of foreclosures, year-over-year prices declined for the third month in a row, but not as rapidly as in September. Prices on foreclosed properties fell 3 percent in October — less than September's 5 percent decline. Prices on non-foreclosed properties — which have been dropping at an annual rate of 9-13 percent since March — displayed the same pattern of easing.

October's rate was outside the range, at 6 percent compared to 2009. About the non-foreclosure sector, Guntermann writes: "While there have been fluctuations in the rate of non-foreclosure price declines over the past twelve months, the trend clearly is in the right direction.

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. If the present trend continues, non-foreclosure prices should turn positive by mid-2011. Compared month-over month, median prices on foreclosed homes are expected to come in at $118,000 in October — up from $110,000 in August.

The range of fluctuation in foreclosed prices has been $110,000-$120,000 so October is in range. Prices for homes that were not in foreclosure came in at $148,000 — down from $155,000 in August. The October price is below the range, however. The ASU-RSI also looks at the market in terms of lower- versus higher-priced homes.

Lower-priced homes declined for a second month — 5 percent in October, a faster pace than September's 2 percent. The high-end homes also declined faster in October than September — 6 percent versus 5 percent. This continues the recent trend in the higher-priced category for slow but steady price drops. In contrast, the townhouse/condominium sector continued its much steeper decline, with the year-over-year drop hitting 20 percent for another month."

Regions and cities

Repeating a pattern shown in the July data, regional price changes in August (the latest available numbers) were weaker than in July — "meaning that increases were a little smaller while declines were a little larger," Guntermann explained. "The Southwest is the only region with an increase in prices from August 2009 to August 2010 while the July increase in the Central region (Phoenix) turned into a small decline in August," he writes in his report.

"The Northeast region continues to show the largest decline (6 percent). In terms of total declines from the 2006 peak, the three hardest hit regions are still in excess of 50 percent with the Southeast region down almost 48 percent. Even in the Northeast, prices have now dropped almost 38 percent."

The report adds that the only cities with appreciation from August 2009 to 2010 were Goodyear, Avondale and Surprise — and only Surprise showed a higher rate of appreciation with the new August data. Remaining cities had declines in August with the decline in Sun City/Sun City West reaching almost 12 percent. "Total declines from the peak are still very large in all cities, ranging from 37 percent in Scottsdale/Paradise Valley to almost 65 percent in Avondale," Guntermann wrote.

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