Home prices in metro Phoenix are falling again, and new data about upcoming sales suggest that they are likely to keep falling over the next few months, bringing concerns of a housing-market "double dip" closer to reality.
Home prices had fallen to a median $119,900 back in April 2009, marking the low point of the region's housing crash. Recent months showed small but steady increases, keeping the price above $130,000.
But in July, the median sales price of a metropolitan Phoenix house fell more than 2 percent, according to the real-estate research firm Information Market. It was the first time the area's median has fallen below $130,000 this year, and the second month in a row that home prices fell.
Pending home-sales data provided to The Arizona Republic show the downward trend continuing.
Thousands of Phoenix-area homes are in escrow. If those deals close at the sales prices listed in their contracts, the region's overall home-sales price will tumble nearly as far as April 2009's low point.
If home prices drop below that mark, most analysts will consider it a double dip. With prices below their previous low point, a housing recovery will be even further away.
July is traditionally a slow month for the Phoenix-area housing market. But there is little data to contradict what pending home sales indicate about where prices are headed.
Instead, several other factors also point to a continuing decline.
The region's recession-battered job market is still weak, meaning few new buyers.
The number of foreclosed homes, which often end up being resold at bargain prices, continues to rise.
And most people who were considering buying anytime soon have likely already bought, getting in on a federal tax credit for homebuyers before it expired in June.
Also concerning to some in the industry is Arizona's crackdown on illegal immigration, which has spurred some people to leave the state.
New residents, who help fuel home buying in metro Phoenix, are no longer moving to the area like they were before the real-estate crash and recession.
"The market is much weaker now than it was a few months ago, with demand down severely almost everywhere," said Mike Orr, who publishes a daily online analysis of Phoenix-area housing called The Cromford Report. "I am currently expecting the average square-foot sales price to fall about 1 percent a month during the next two months. It's anybody's guess after that. It could get quite ugly."
He tracks average square-foot prices because they are less skewed by a few high or low prices. The current average is $87 a square foot, down from $91 a month ago.
The search for a recovery in metro Phoenix's housing market began in April of last year.
Prices had shot up more than 50 percent during the boom of 2004-06, then collapsed amid a mortgage crisis and a local, national and international economic crash.
April 2009 brought the bottom. With the median sales price at $119,900, home values were the lowest they had been since January 2000, according to Information Market. Since then, home prices showed what appeared to be a small, slow recovery. Prices dipped occasionally but never for two months in a row.
Last month changed that. The 2 percent decline was the largest this year.
The Arizona Regional Multiple Listing Service, the home-sales database set up for the state's real-estate industry, now tracks home prices in pending sales agreements.
The index shows metro Phoenix's median home price falling from $128,000 in July to $125,000 this month to $120,000 in September. A slight recovery is expected for October, to $123,000.
The index tracks future home prices by analyzing signed purchase agreements scheduled to close in a given month. The actual median prices for those months may turn out to be slightly higher. The predictions typically run slightly lower than actual sales prices because of last-minute changes to purchase agreements that drive up the final selling prices.
Since most home sales close within three months of a buyer signing a contract, the listing service can track prices and sales from its real-estate-agent members as far out as three months.
"Even with historically low mortgage rates, people in Phoenix just aren't that excited about buying a house now," said Mike Metz, managing director of Scottsdale-based Sun State Home Loans. "More inventory and fewer buyers equals lower prices."
A declining number of home sales indicates that there are fewer homebuyers in the market.
Valley home sales neared record-high levels during the past 18 months as buyers snapped up inexpensive foreclosure homes and houses discounted for short sales. But last month, sales of existing homes dropped 24 percent from June's robust pace. New-home sales in July fell to 534, half their pace in June.
"We have been predicting this kind of contraction as the tax credit expires," said Phoenix home-building analyst RL Brown.
Market watchers say there were fewer first-time buyers last month because of the June 30 expiration of the federal homebuyer tax credit. People who would have purchased later this year or next year rushed to buy to receive the $6,500 to $8,000 credit and are now out of the market.
Investors continue to buy Valley homes, particularly from lenders who have recently foreclosed on them. In July, investors were behind more than 21 percent of all home sales, up from 17 percent the month before, reports Information Market.
"If you aren't selling an inexpensive home, it can be tough to sell in this market," said Jay Butler, director of realty studies at Arizona State University.
Interest rates are near record lows, but it's more difficult to obtain a mortgage now. Also, potential buyers who own homes and can't sell them are stuck until home prices climb.
As demand from homebuyers dropped, the inventory of homes for sale in metro Phoenix climbed. Too many homes for sale and too few buyers will continue to drive down home prices.
There are 43,000 homes listed for sale in the region, up from 41,500 in June and 37,000 a year ago but still well below the record 55,000 homes listed in early 2008, when prices began to plummet.
Still, sales prices are falling, and many of the houses for sale now are lower-priced: one-fourth are foreclosure homes or houses discounted for short sales.
Pre-foreclosures rose 34 percent in July. If many of those homes are foreclosed on and go up for resale, the median price could drop further.
Part of metro Phoenix's home-price plunge can be attributed to foreclosure homes that lenders sold at bargain prices in late 2008 and early 2009.
"So many homeowners and investors are underwater with their homes that foreclosures will continue to lead market pricing," said Deila Mangold, a broker with Scottsdale-based Ideal Homes Realty.
There also is concern that Arizona's new immigration law will cause more legal and illegal residents to leave the state and that many may leave behind homes that will end up in foreclosure.
"Demand for housing is directly related to population," said Ruff, the Information Market analyst. "If there's an exodus due to SB 1070, expect home prices and sales volume to drop dramatically."
Despite the housing market's current setback, many analysts still expect a return to a normal market of steady annual growth by 2015.
For now, market watchers are tracking home sales and foreclosures to determine if prices will drop as far as expected in September and whether they climb again in October as the Arizona Regional Multiple Listing index predicts.
"It's just that there are now far fewer buyers and far more sellers than at this time last year," Orr said. "It's too early to say whether the current setback will be mild, moderate or severe, but there are no encouraging signs in the data from August so far."
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