Beyond Expectations: The ASU RSI homes sales index.

February 19, 2009

How the Phoenix real estate market leaves most baffled. It's not the same old cycle this time.

"Real estate expert Karl Guntermann has been predicting for a long time that the decline in Phoenix area home prices would probably bottom out by the end of 2008.

But, after scrutinizing the latest data from November, and projecting forward for December and January, even Guntermann is scratching his head in dismay. A professor of real estate and finance at the W. P. Carey School of Business, Guntermann has seen his forward guesstimates blown-up.

This the starting paragraph of the newest edition of the ASU-RSI (Repeat Sales Index)

Prices did continue to fall even as sales rose well over 2008 levels. Review the January 2009 home sales. And see other more detailed current reports on the real estate market in Greater Phoenix.

So what keeps driving the prices down? It's not demand: homes are selling better then they have in a few years. January sales were 63% higher then 2008 and 8% over 2007. Then pending homes, a good indicator of the future market were up 82% over 2008. Even in the fall of 2008 sales were already up.

Not all the homes on the market are "in" the market, some simply hover above it: for sale but overpriced, which increases active inventory but not sale-able inventory. What's driving the prices down is not necessarily the supply in itself: supply is still high at 11.2 months but the type of supply: bank owned homes.

The active supply of bank owned homes is 26% but more importantly REO's accounted for 67% of all residential sales in January 2009. These are homes being sold at large discounts because lenders want to remove them from their books and make room for the next ones which will have to move as well.

"..foreclosures are a big problem out there, driving prices down even more." Guntermann.

They are a big problem for sellers and they are a big problem for banks themselves who have to compete against each other to sell sell them. It's a good problem for buyers with some caveats: there are limits to this goodness.

"With home prices dropping so steeply in the core of the Phoenix metro, the more desirable locations closer-in will attract the next wave of buyers, making home price problems further out on the environs, such as in the far Southwest sector, deeper and more intransigent, Guntermann adds."

It took a while but the pricing pressures have reached the denser urban parts of the valley including the luxury home market. While these areas have not seen the dramatic drops of the outskirts the prices are more reasonable and affordable. This is bringing in more people to the central core in line with urban living trends. Anything on the outer reaches of the valley except for a few exceptions like Queen Creek will continue to see pressure on pricing.

This trend to more urban living may be part of grand transformation of the American landscape

Artur Ciesielski, CCIM 602.628.4349 "Marketing With Measurable Results™"