Fasten your seatbelt for another decline, but 2011 should end better than it begins

Housing prices in the Phoenix-metro area are likely to continue dropping for the next several months, says Karl Guntermann, professor of finance and real estate who compiles the Arizona State University-Repeat Sales Index (ASU-RSI). His assessment comes in the latest report, which showed that prices dropped again in November — and at a quickening rate of 7 percent. But, "with the economy gradually recovering and the foreclosure problem past its peak, the odds are good that the housing market will end 2011 a lot better than it will be beginning it."

Housing prices in the Phoenix-metro area are likely to continue dropping for the next several months, says Karl Guntermann, professor of finance and real estate who compiles the Arizona State University-Repeat Sales Index (ASU-RSI). His assessment comes in the latest report, which showed that prices dropped again in November — and at a quickening rate of 7 percent.

"Markets don’t move smoothly in one direction so perhaps it should not be surprising that another period of price declines has begun," he writes. "To put things in perspective, in November 2008 prices had declined by 32 percent from the prior year and by November 2009 they had declined another 17 percent.

Those declines reflected the depressed condition of the Phoenix housing market and the Great Recession. With the economy gradually recovering and the foreclosure problem past its peak, the odds are good that the housing market will end 2011 a lot better than it will be beginning it."

Elements of the residential decline

Foreclosures, which have for so long been a driving factor in this market, showed "serious deterioration" in November, dropping 11 percent compared to the previous month's -3 percent. Non-foreclosure prices, which showed some improvement in the rate of decline in October, are back to the -9-13 percent range where they have fluctuated since March. The slope has become steeper for lower-priced homes, too, falling 8 percent in November compared to a year ago.

At the opposite end of the market higher-priced homes continued to decline at about the same rate — 6 percent. Townhouses and condominiums, which have been declining at a rate of about 20 percent since March held just about true to pattern in November at -21 percent. The median price for all homes included in the November index dropped to $122,300 — down from $125,000 in October and $124,900 in September.

These prices are still within the range established in June 2009, even though signs are pointing to a softening market. The price for foreclosures hit a new low, however: $106,000, under the range of $110,000 to $120,000 that's held for 12 months. In contrast, the median price on non-foreclosures held steady at $155,000 — same as September — within its established range.

The median for lower-priced homes had also stayed in range until November, when prices fell below $90,000 for the first time in a year. Prices in the high end stayed similar to prices for the past year, but townhouse/condominiums came in with a median price below $70,000 for the fourth month in a row.

Quarterly Commercial RSI

In the third quarterly report on the commercial real estate market, Guntermann finds that prices in this sector bottomed out in 2009, Q4 but by third quarter 2010 stabilized about where they were before the expansion. According to Guntermann, commercial prices peaked at an annual rate of 28 percent in third quarter 2006.

"The rapid increase in prices was not that unusual since there were several peaks in the commercial market at around 20 percent during the 1990s," he explained, contrasted with residential prices, which typically change by single-digit rates over any twelve month period.

"What is unprecedented is the decline in commercial prices that occurred during 2009 and 2010. By the end of 2009 the annual decline reached 40 percent, far more rapid than the 25 percent decline in 1990 during the Resolution Trust Corporation (RTC) era," he writes. "As of 2010, Q3 prices have rebounded to essentially no change from 2009, Q3. The decline was dramatic but lasted a relatively short five quarters in contrast to the residential market where the decline lasted almost 40 months."