Phoenix Real Estate: Prices Rise for Second Month in a Row

Between 2008 and 2010, the Phoenix housing market was in the news for all the wrong reasons. It was often lumped together with Las Vegas and most of Southern California, and labeled as ‘ground zero’ for the housing crash. It spawned countless headlines of doom and gloom, like these:

  • “Prices have fallen more than 30 percent in Phoenix” – U.S. News, December 18, 2008
  • “Phoenix Leads U.S. Home Price Decline as Lenders Unload Houses” – Bloomberg News, December 30, 2008
  • “Home prices in Phoenix skidded 33% in October” – The Arizona Republic, December 31, 2008

Today, the Phoenix real estate market is still making headlines, but for totally different reasons. It now appears to be one of the strongest of the major metropolitan areas, in terms of home-price stability. Consider the following:

The Phoenix Real Estate Market Today

In stark contrast to the gloomy headlines of the past, we have these recent developments:

  • According to the most recent S&P/Case-Shiller Home Price Index, Phoenix had the largest price gain from November – December 2011 (when viewed against the other cities in the 20-city index).
  • The Phoenix market also had the largest price gain from December 2011 to January 2012. So for two months in a row, it was the strongest local housing market on the 20-city index.
  • Of all the metro areas included in the index, only three have had year-over-year price gains from January 2011 – January 2012. The three cities that experienced annual appreciation were Phoenix, Denver and Detroit.
  • From January 2011 to January 2012, home prices in the Phoenix metro area rose by 1.3%. Only Detroit had a higher year-over-year gain for that period, with an increase of 1.7%.

The chart below comes from the most recent Case-Shiller Home Price Index, which was released on March 27, 2012. The data for Phoenix has been marked in yellow.

Phoenix home prices, January 2012

It’s the real estate market equivalent of a rags-to-riches story. Almost. Home prices still haven’t reached their pre-bubble levels. Currently, the median home price in the Phoenix metro area is $124,500. In 2002, at its pre-bubble high point, the median price was closer to $145,000. Still, this market seems to be moving in a positive direction.

Demand Has Risen for Phoenix Homes

Ever since the end of 2010, there has been steadily rising demand in the Phoenix housing market. There have even been cases of bidding wars in several high-demand neighborhoods in the metro area. This helps to reduce inventory in general, and foreclosure inventories in particular. All of which helps sustain, and even boost, home prices in the area.

As far as home sales go, this past January was the strongest January in five years. According to DataQuick, a total of 7,123 residential properties closed escrow in January, within the combined Maricopa-Pinal counties metro area. This marks an increase of 3.2% over January of last year.

Much of this demand has come from investors who have snapped up homes at rock-bottom prices. Such properties are held and used for rental income. Some fear these investors will turn around and sell the homes back into the market, when prices rise to a certain level. But this kind of thing doesn’t happen all at once. So the market will likely be strong enough to absorb these homes as they come back on the market. A higher absorption rate will prevent another inventory surplus from growing, like the one that swelled in 2008. This is how things work in a healthy housing market, and the Phoenix market is headed in that direction.

Foreclosure Inventory Could Rise in Coming Months

Despite having one of the highest foreclosure rates of any metro area (one out of every 259 homes, as of March 2012), Phoenix has seen an overall decrease in foreclosure filings over the last year. The city has also seen a decline in foreclosure sales as a percentage of total home sales. A year ago, nearly half of all sales were foreclosure properties. In February, that percentage had dropped to 24%. These are positive trends that, over time, could push prices higher as housing inventories fall.

But there may be another mini-surge in foreclosures coming down the line. In February, the federal government reached a settlement with the largest mortgage lenders in the United States, in relation to last year’s ‘robo-signing’ foreclosure scandal. Among other things, the settlement allows the banks to process foreclosure homes at full speed once again. This could lead to a short-term spike in Phoenix foreclosures, as idle properties are repossessed and sold back into the market (often below market value).

Fortunately, home buyers and investors have been snatching up many of the distressed properties in the Phoenix area. So the city might not be as heavily affected by an uptick in foreclosure processing, compared to other cities across the U.S.

National vs. Local Housing Market

It’s easy to get caught up in national headlines about ‘the’ housing market, as if there were just one. But conditions vary from one city to the next, and often significantly. Consider the difference between the two-month appreciation trend in Phoenix and the continued plummet in Atlanta. Local home buyers need to focus on local market conditions. And right now, conditions in the Phoenix housing market seem to favor buyers and investors.

Home prices are affordable. Mortgage rates are still very low, with the 30-year fixed averaging 3.99% last week. And most signs point to a market that has already hit bottom and is now moving past it. Barring any unforeseen financial calamities, it is likely that the Phoenix housing market will continue to strengthen for the rest of 2012 and into 2013.

Disclaimer: This story contains forward-looking statements about the future of home prices. This information is provided for educational purposes only, and is based solely on current economic conditions. We make no guarantees or assertions about the future of this, or any other, housing market.