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Soaring Phoenix-area Home Prices Finally Slow Down

Phoenix-area home prices, which had been sharply and steadily rising since last September, finally went down a little this summer. A new report from the W. P. Carey School of Business at Arizona State University reveals the numbers for Maricopa and Pinal counties, as of July:

The median single-family home price dropped slightly between June and July this year – down less than 1 percent.
The median single-family home price was still up almost 31 percent from last July.
Sales of bank-owned homes plunged 73 percent from July 2011 to July 2012, with fewer foreclosures coming into the pipeline.

The median single-family home price in Maricopa and Pinal counties in July was $149,000, very slightly down from $150,000 in June. Even though this was the first monthly median drop since last summer, the report’s author, Mike Orr, does not think it indicates a reversal.

“This small drop is likely a reflection of both the normal, annual summer slowdown in the Phoenix-area housing market and a natural pause in the soaring prices we’ve seen here,” explains Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “I expect it will continue through August, but prices are likely to resume their upward direction in late September or October.”

The median single-family price was still up 30.7 percent from last July, when it was at $114,000. Realtors will note the average price per square foot went up 21.1 percent from last July. The median price for townhomes and condos was up 17.3 percent from $69,900 to $82,000.

Activity in the market remains limited by the amount of homes available for sale, with the number of transactions down 7.7 percent from July last year. As of Aug. 1, the supply of homes for sale — excluding those already under contract – was down 26 percent from the same time last year. Many homeowners still don’t want to sell, since their homes are worth much less than when they bought them. Also, so-called “distressed supply,” the number of homes up for short sale or that recently went through foreclosure, went down a whopping 69 percent from last July to this July, meaning fewer bargains are out there.

“Seventy-eight percent of the existing homes available for sale are priced above $150,000,” says Orr. “That means competition for the other 22 percent is fierce. Most homes priced below even $250,000 are attracting a large number of offers within a short time, and offers often exceed the asking price. Ordinary home buyers are still struggling to compete with investors who offer all-cash, with no appraisal required.”

In fact, 54 percent of the homes that sold for $150,000 or less in July went to all-cash buyers. The low supply in this range has many people turning to new-home construction. As a result, new construction permits went up a massive 87 percent from July 2011 to July 2012. New-home sales went up 58 percent year-over-year.

Completed foreclosures for both single-family homes and townhome/condos went up 13 percent from June to July. However, Orr believes this is the beginning of a short, passing wave that came from the February signing of a legal settlement between the states and five of the nation’s largest lenders. Foreclosure starts — homeowners receiving notice their lenders may foreclose in 90 days – went down 14 percent from June to July.

“Most lenders are strongly encouraging homeowners facing financial hardship to use short sales as a preferred alternative to foreclosure,” says Orr. “Consequently, we have seen single-family short sales grow by 12 percent over the last year, while foreclosure rates have declined sharply.”

Almost all parts of the Phoenix area have seen prices go up since last summer. Even the high-end areas of Scottsdale and Paradise Valley have had average prices per square foot go up 9 and 12 percent, respectively. The only areas still showing a decline in average price per square foot are Rio Verde and Sun Lakes.

Orr’s full report, including statistics, charts and a breakdown by different areas of the Valley, can be viewed at http://wpcarey.asu.edu/finance/real-estate/upload/FullReport201208.pdf. More analysis is also available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com/index.cfm?cid=13.