Although Phoenix residential real estate prices are falling less than during the November through April period, home prices are still careening down.
I thought in recent months that prices seemed to start to stabilize but I’m really not seeing any slowdown in the rate of decline since May. The rate of decline slowed from April to May but it hasn’t really slowed again since then.
The July and August shenanigans with Fannie and Freddie and all the recent bank “failures” can only be bad news for home prices in Phoenix. However, it’s hard for me to see how Phoenix home prices could fall any more rapidly than they already are. All the Wall Street troubles will make it harder for Phoenix home prices to strengthen which will likely delay and/or lower the eventual bottom we see in Phoenix home prices.
Metropolitan Phoenix home prices in July 2008 were the lowest since November 2004. If prices keep falling at the June to July rate, by December we will be at March 2004 prices.
Phoenix homes have depreciated 34% from their peak value in June 2006 according to my analysis of the Case-Shiller data.
Let’s say that another way; Phoenix homes were 53% more expensive in June 2006.
From June to July, metro Phoenix, Arizona home prices fell 2.8%, according to the S&P/Case-Shiller Home Price Indices.
As always, the Case-Shiller index obscures the large differences within metro Phoenix sub-markets. This web site, Arizona Real Estate Notebook, is the best I’ve seen for allowing you to look at real estate trends by zip code and to tease out trends within the metro Phoenix area.
Race to the Bottom
The S&P/Case-Shiller Home Price Indices are calculated monthly using a three-month moving average and published with a two month lag.
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Rich 10.01.08 at 12:02 pm
John,
Thanks for another very informative update.
It’s not a pretty picture, but unfortunately I think you’re being too optimistic that “prices can’t fall any more rapidly”.
As you know, foreclosures now dominate the market. Despite the fact that more and more foreclosures come on to the market every month, foreclosure sales have grown in step and inventory of foreclosures on the market has remained quite low. This tells me the banks are willing to do whatever it takes to move houses.
With end of the buying season + tightening credit + recession, buyers are going to be VERY hard to come by in the next 6 months. Yet the number of foreclosures coming on the market is still growing. If the banks want keep moving houses they are going to get even more aggressive with price cuts.
The only way I see a bottom or even a slowing of the declines any time soon is that the bailout package (or some subsequent government move) can counteract the natural market forces at work. The second possibility is a rapid devaluation of the dollar.
John Wake - Real Estate 10.01.08 at 1:30 pm
Rich,
As prices get closer to a long term price trend line (whatever that is), I think the downward “pull” on prices becomes less strong.
Tightening credit standards, for instance, have less of an affect when home prices are more affordable.
And we are indeed seeing sales increase which relieves some of the downward pressure on home prices no matter what the reason for the bad news.
Anyway, that’s my theory this afternoon.
Rich 10.01.08 at 4:15 pm
All valid points.
However, increasing sales only improve pricing conditions when they’re not met with increasing inventory. Surging summer sales have barely managed to counteract increased foreclosures, but now sales are slowing but foreclosures are still growing.
I also think you’re underestimating how dire our economic situation is.
You haven’t published an ARMLS report for a couple of months but I think when you take a look at the August numbers you will be shocked. For SFR in Maricopa Co. median is down 5.9% in 1 month, by far the worst month yet. We’ll see this show up in the Case-Shiller data in a month.
Also the PMI (mortgage insurance) Fall report is out. It now lists Phoenix as having a 96.3% chance of prices being lower in 2 years than today. That’s up from 81.3% 3 months ago. That means they think we are much farther from the bottom now than they thought 3 months ago.
I’m praying with all my heart that you’re right. But my head (which has the direct connection to my wallet) fears you’re not.
p.s. I have no objections if you’d like to remove my posts. I understand what your business is and it is not my intention to hurt it in any way. I’m simply sharing information and opinions.
John Wake - Real Estate 10.01.08 at 5:03 pm
Rich,
First, I rarely remove posts unless someone is making a personal attack on someone else.
I like the back of forth of different opinions.
ARMLS changed the way they report the numbers and I haven’t been able to get a good concordance with the old reports yet.
I agree if sales are up but inventory is up, prices will be under pressure.
I’m not crazy about the PMI index since they changed how they calculated it last year. They weight very heavily how much a city has already fallen so that index will be poor at catching bottoms until long after the fact. I’m not saying, however, that we are reaching a bottom now in Phoenix.
And be aware that some areas in Phoenix will bottom out before others.
Rich 10.01.08 at 5:40 pm
Fair enough.
I haven’t investigated the validity of the PMI methodology. I definitely respect your opinion, so I will take this report with a grain of salt. It is evident that all the cities rated at high risk are also the ones which have already dropped a lot already, so your criticism seems valid.
The August drop in ARMLS report is a comparison to the same “new” report in July, but since July was the first month of the “new” report it is entirely possible that there were some bugs in the July report and comparisons to August aren’t completely valid. Point taken.
Thanks for enlightening me on potential “holes” in my facts.
david wilson 10.02.08 at 3:29 am
From January 2004 to Dec. 2005 alone, prices rose about 100%.
In Scottsdale, even more.
You can’t see how they would continue falling at 20%?
Am I missing something?
John Wake 10.02.08 at 6:54 am
david,
True, although it’s more from January 2004 to the peak in 2006.
On the other hand, check out the page for 85286 (link in right hand column).
The current median home price in the Anthem zip code is similar to January 2004.
In a few zip codes the median price is in 2002 or 20o3 territory.