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JapanOnce the envy of most of the nation, Arizona's real estate industry has become a cautionary tale, and the new story of recovery in the real estate market is one of fits and starts.
In the past, the Valley and state's real estate industry had been able to grow its way out of economic downturns thanks to a steady stream -- and at times flood -- of new residents from around the country. Over the past decade, in the belief that the good times would, at worst, merely slow, thousands of new homes rose up in the farthest reaches of the Valley and new commercial real estate ventures boomed.
A typical down cycle was predicted. But few could have guessed at the devastation the Great Recession would wreak all across the nation.
The state is finally starting to create jobs again, but the pace won't be strong enough or fast enough to translate into a quick and powerful rebound for Arizona's residential and commercial real estate sectors.
"Conditions are improving, but slowly," said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center and a W. P. Carey research professor of economics. "It's like cleaning up your yard after a tornado compared to a rainstorm. This recession was a job-loss tornado. Every state in the nation lost jobs in 2009; we didn't see that in the recessions of 1991 or 2001."
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Residential market
The latest figures from the ASU-Repeat Sales Index (ASU-RSI) show that housing prices in the Valley have resumed falling. According to preliminary November data, housing prices fell for another month and the year-over-year rate of decline accelerated slightly to -7 percent.
"We started 2010 with prices falling on an annual basis at single-digit rates, which was an improvement from prior years," said Karl Guntermann, a professor of real estate finance and author of the ASU-RSI reports. "By March, prices turned slightly positive for several months, but then began a gradual downturn in August. The first-time homebuyer credit undoubtedly helped support prices earlier in the year, as did demand from investors who remain strong buyers in the market. Buyers were attracted by prices that reached levels not seen since the late 1990s. Investors are confident that Phoenix will return to its long-time high rate of growth but also realize that the market will take several more years to fully recover."
In the November ASU-RSI report, Guntermann points to a trend of continued price declines over the next several months.
"Markets don't move smoothly in one direction so perhaps it should not be surprising that another period of price declines has begun," Guntermann said in his report. "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."
According to the November data, the overall median price for sales was $122,300 compared to $125,000 in October and $124,900 in September. Since June 2009, the index has recorded a price fluctuation between $122,000 and $135,000, which Guntermann said in his report reflected "the instability that characterizes the current market and recent median prices are still within that range in spite of indications that the market is softening."
A resumption of falling home prices is not limited to the Valley. In fact, the October S&P/Case-Shiller Home Price Indices indicate a nationwide decline.
"The double-dip is almost here, as six cities (Atlanta, Charlotte, Miami, Portland, Ore., Seattle and Tampa) set new lows for the period since the 2006 peaks. There is no good news in October's report. Home prices across the country continue to fall," stated David M. Blitzer, chairman of the Index Committee at Standard & Poor's, in the report. "The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25 percent and the months' supply of unsold homes is about 50 percent above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and subprime markets."
In recording home sales for the third quarter, Ken Fears, manager of regional economics for the National Association of Realtors (NAR), stated that the foreclosure rate on prime loans remains highest in Florida, Arizona, California, and Nevada, which were hit hard by the subprime market collapse.
