The market for foreclosed homes in the Phoenix metro area appears to be approaching a turn around, according to a new index from the Center for Real Estate Theory and Practice at the W. P. Carey School.
Real estate Professor Karl Guntermann, who compiles the ASU-Repeat Sales Index, added new indices this month that look at transactions involving foreclosed homes only, and one that tracks non-foreclosure sales. He reports that according to the new index, the median price of foreclosed homes dropped 15 percent in October; the drop is expected to be 8 percent in November and 2 percent in December. In contrast, prices of homes that have not been in foreclosure dropped 19 percent in October, and are expected to drop 23 percent in December. Prices on non-foreclosed homes have been dropping at about 20 percent per month, year over year, since October 2008.
The foreclosed home market started a steep drop in early 2007, while non-foreclosed market has been falling at a gradually increasing rate. The latest numbers suggest that the foreclosure segment is turning around, but the October data and preliminary numbers through December show that the non-foreclosure market continues with its 20 percent pattern of decline.
The decline in foreclosure house prices was driven primarily by mortgage related issues, Guntermann wrote in his report, however, the continuing decline of non-foreclosure prices may have more to do with weak economic conditions, especially in the Phoenix area, and the difficulty in qualifying for new mortgage loans.
Patterns in the Overall ASU-RSI
The overall ASU-RSI, which tabulates foreclosures with traditional sales, shows that prices dropped 21 percent in October compared to October 2008; in September the year-over-year drop was 23 percent and 25 percent in August. Projections call for the rate of decline to continue to soften -- to 17 percent in November and 12 percent in December.
The slowdown in the rate of decline has been two to three percent since mid-2009 so the decline reflected in the December rate may indicate that prices will level off by this spring, Guntermann writes.
Price declines continue to be more rapid for lower-priced homes than for the more expensive ones. The October-to-October decline for lower priced homes was 28 percent compared to 16 percent for more expensive houses. The preliminary estimate for December for lower priced houses calls for a 14 percent drop, and 11 percent for the high end. The total decline in prices from the mid-2006 peak is now 47 percent, according to the report which breaks down to 58 and 38 percent declines for the lower and higher priced houses, respectively.
The overall median price continues to move up, to $131,000, from $130,000 in September. Preliminary median prices for November and December are $135,000 and $132,500. Guntermann says that recent increases in price reflect foreclosed houses that have been purchased by investors and first-time buyers taking advantage of the federal tax credit.
The median price in October for foreclosed houses, $115,000, is an increase of 19 percent from its low in May; preliminary estimates are $120,000 for November and $126,600 for December. The median for the non-foreclosed sector was $167,000 in October, but preliminary estimates for November and December indicate back-sliding: $165,700 and $158,000 respectively.
The improvement in the foreclosure segment of the market is offset by continuing weakness in the more important non-foreclosure portion of the market, Guntermann said.
The townhouse/condo sector is showing very slow improvement, with a 31 percent decline in October compared to 34 percent in September. November and December rates are expected to be better still: down 28 percent and 26 percent. It appears that the most rapid declines (36 percent) were last summer, Guntermann said, but the way forward still looks rocky. October's median price of $89,200 -- a large drop from $99,500 in September -- is expected to be $89,000 in November and $84,600 in December.
October marked the first time declines in every region were less than 30 percent on an annual basis, according to the report. Price declines ranged from 16 percent in the Northeast to 28 percent in the Central region. Slight up and down changes in rates from last month also continued across regions.
In terms of total declines from the 2006 peak, the Southwest is down the most, 60 percent, but even in the Northeast prices have dropped 35 percent from their peak, Guntermann said. Of the five regions, the RSI for the Northeast and Southwest has not hit bottom, which would be indicated by a clear upward trend in the index.
Since the annual change in prices is based on the year-to-year change in the index, it must show an upward trend before price appreciation is even possible, he added. For those two regions that will not be until late 2010 at the earliest.