ASU-RSI up: Phoenix housing market appears to be stabilizing

June 01, 2010

The Phoenix housing market appears to be stabilizing as preliminary data for April shows a 1 percent year-over-year price increase for the first time in almost three years, according to the ASU-RSI (Repeat Sales Index).

Karl Guntermann, the W. P. Carey professor of real estate who prepares the ASU-RSI, said "while increases in house prices are occurring only in certain portions of the market, steady improvement continues in the rest of the market with the exception of the townhouse/condo segment." The increase in prices occurred in the lower cost and foreclosure segments.

The latest data shows that prices overall fell by 7 percent in February, an improvement over the 9 percent drop in January and 13 percent in December. Preliminary estimates for March and April show the upward trend continuing, with March prices declining 3 percent leading up to the 1 percent increase in April. The overall median price for the February index was $127,000, but the preliminary figure for April is $135,000 -- almost back to the December 2008 level. The total decline from the top of the bubble in is now 48 percent.

"Prices may continue to increase very slowly for the next few months but price stability rather than increases is likely for the rest of the year," Guntermann added.

Market segments: top performers

The lower-priced and foreclosed segments produced the results that are making the overall market numbers look encouraging.

Prices for lower-priced homes declined just 4 percent year-over-year in February -- less than the market average of 7 percent, but turned positive by 9 percent in April. The price drop in this segment from the market high is 57 percent, however, compared to that overall average of 48 percent.

Foreclosures also performed above the market average. Prices for foreclosed houses fell 1 percent year-over-year in February, but April prices are expected to rise by 6 percent in April following an anticipated 5 percent increase in March. The median price for foreclosed houses in February was $115,000 -- up substantially from a low of $97,000 last May. The preliminary median in April, however, is up only slightly from February. 

"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.

The price turnaround in foreclosures reflects how low this segment fell, Guntermann said, and the increase in demand from first-time buyers and investors. "However, unless the Phoenix economy improves substantially, a few more months of price increases for foreclosures are likely to be followed by relatively stable prices for the rest of 2010."

Market segments: lagging behind

Sellers of higher-priced homes had not been seeing any significant slowdown in the drop in prices over the last several months, but the decline is expected to slow to 3 percent in April. The drop in prices for these luxury properties from the market's peak is now 40 percent (compared to the overall 48 percent).

"For homeowners with higher priced houses, achieving price stability would be an important milestone after years of price declines," Guntermann said.

Similarly, non-foreclosed homes continue to drop in price. This market segment fell 18 percent in February and preliminary numbers show a 13 percent drop in March and 8 percent in April. The median price, however, is expected to improve, from $155,000 in February to $160,500 in April.

"While the foreclosure segment of the market was turning around, non-foreclosure house prices had been declining at approximately a 20 percent annual rate from October 2008 through November 2009 -- however, it appears that price declines finally are slowing," Guntermann wrote. "The data indicate that price changes in the non-foreclosure segment of the market appear to follow the foreclosure market by about six months. If this pattern continues, it will be later this summer before non-foreclosure prices turn positive. For those homeowners not facing the threat of foreclosure, this will be welcome news."

Townhouses and condominiums

The best that can be said about this segment, according to Guntermann, is that price declines finally appear to be slowing.

Prices year-over-year slowed slightly to 26 percent in February, he reported, compared to 28 percent in December. Preliminary estimates show rates of decline for the next two months at 19 percent. The median price of townhouse/condo units was $86,400 in February with forecasted medians the next two months of $83,500 and $81,000.  

"It appears that the most rapid declines -- 36 percent -- occurred last summer," Guntermann said.     

Regions and cities

Parsing the valley by region, prices in all regions fell by single digits except the Northeast, where the drop was 10.1 percent.

"The declines represent a dramatic slowdown since last fall and in the next few months at least a few regions should begin to show price increases," Guntermann said.

The Southwest is down the most, 58 percent, from the top of the market in 2008, but even in the Northeast prices have dropped 38 percent, Guntermann said. The Central, Northeast and Southwest still show total declines in excess of 50 percent.

All cities experienced a slowing of decline in year-over-year price comparisons, with Peoria dropping the least (5.8 percent), and Tempe the most (15 percent). In terms of total declines from the peak, only Glendale and Peoria are still over 50 percent.

"Interestingly, the rate of decline in Tempe, which had been among the least affected cities, is essentially unchanged since last fall," Guntermann said. In terms of total declines from the peak, only Glendale and Peoria are still over 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