In many ways, the Phoenix housing market could be considered Ground Zero for the nationwide foreclosure crisis that started in 2008.
Phoenix had some of the largest price gains during the housing bubble. It also had some of the largest losses since the bust — home prices in the metro area have fallen 55 percent since their 2006 peak.
There’s no shortage of doom-and-gloom in the media for Phoenix homeowners. In fact, the Phoenix housing market gets battered by the media as much as it does by depreciation and unemployment. So any glimmer of light is worth sharing, no matter how faint it might be.
Here’s some good news for a change. Home sales in the Phoenix metro area are actually heating up.
Well, maybe “warming” up is more accurate. Time will tell if it’s a long-term trend or a blip on the radar. But based on current trends, one could make a case for a Phoenix housing market recovery within the next couple of years. Mortgage rates will remain low for the near future. Homes are more affordable than they’ve been in years. The real key to recovery is inventory reduction.
Market Snapshot in Phoenix – Home Sales and Prices
Home prices in Phoenix have been flat for the last few months, according to the S&P/Case-Shiller Home Price Index. But home sales in the area have been picking up. According to data compiled by DataQuick, June brought the most resale activity in six years. In fact, Phoenix home sales were higher in June 2011 than they were in June 2010, when the home buyer tax-credit program gave the market an “artificial” boost.
It bears repeating. In terms of home sales, the Phoenix housing market was stronger this June without government stimulation than it was last year with government involvement. Taken off life support, the market is showing a glimpse of normality.
In June 2011, existing homes sales in the Phoenix metropolitan area were 7.1 percent higher than the same time last year. More notably, they were 16.7 percent higher than the June average. This is according to public property records compiled by DataQuick.
Investors account for much of the activity. But nobody’s complaining about that. When you have a glut of homes for sale, you need all the buyers you can get. Cash buyers accounted for more than 40 percent of all home sales in June.
Phoenix home prices are a different story. In June, prices were down more than 10 percent from a year earlier. But at least they’re not dropping any farther. Median prices in the metro area have been mostly flat for the last six months, neither rising nor falling significantly.
You could look at this in one of two ways. Glass half-full, or glass half-empty.
The doom-and-gloom folks would point out that some of the other major metro areas are seeing price increases, while Phoenix is still flat-lining. Housing optimists would point out that prices in the metro area are stable for the first time in years. They’re both right. The housing market in Phoenix fell harder than most, so it will certainly take longer to bounce back. But the last few months have shown price stability, for the most part.
Inventory Reduction Key to Housing Recovery
In many ways, the future of the Phoenix housing market will depend on inventory. Or inventory reduction, to be specific. There is steady demand for housing in the area — the data cited above show this clearly enough. But there’s still a huge glut of homes for sale, many of which are bank-owned foreclosures. These homes are often sold for less than market value, which puts downward pressure on prices across the board.
Foreclosure rates have dropped in recent months. But this is somewhat artificial. Banks are moving much more slowly with their foreclosure proceedings, in the wake of the robo-signing scandal. So the decline in foreclosure filings is largely the result of a bottleneck, as opposed to an actual decline in defaults.
It’s another glass half-full / glass half-empty situation. Some claim that the drop in foreclosures is a harbinger of housing recovery. While others describe it as a state of prolonged stagnation, a procedural slowdown that will only delay recovery by pushing foreclosures into 2012.
Mortgage rates are low. Home prices in Phoenix are the lowest they’ve been in years. Buyers are returning to the market. But the glut of foreclosure homes still looms large.
We started on a positive note. So let’s end on one. Foreclosures are still stifling the housing market in Phoenix. But recent reports show that the city is relatively efficient at selling these properties. In other words, Phoenix is doing well in the inventory-reduction department. And therein lies the true path to recovery.
Brandon Cornett
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author