Huge supply of houses keeps prices down
THE VALLEY'S VOLATILE HOUSING MARKET
Catherine Reagor and Ryan Konig
The Arizona Republic
Oct. 22, 2006 12:00 AM
Home prices are a touchy subject in the Valley.
People aren't bragging about how much their home appreciated in a single
month. There are no bidding wars for homes. No one is talking about how
they're going to spend their equity.
No, homeowners today are watching every sale in their neighborhood,
cringing if they see "For Sale" signs lingering too long and losing their
tempers when neighbors drop prices.
Some have cause to be anxious. An Arizona Republic survey shows:
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Most Valley neighborhoods saw home values peak by May or June.
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Housing prices dipped in more than half of all ZIP codes in metropolitan
Phoenix during July and August
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Several areas saw significant monthly drops of 10 percent or more.
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There are some areas where home prices continue to climb, but the appreciation
is not enough to inspire the euphoria that last year's increases of 50
percent or more did.
Homes near central Phoenix, Tempe and south Scottsdale are holding their
value or gaining, unlike those in many suburban neighborhoods, where home
builders are undercutting the used-home market by offering big incentives
to sell houses.
"The housing market hasn't cooled as much in central Valley neighborhoods,"
said P.J. Dean, a real estate agent with Dean-Maldonado. "But if you are
trying to sell a home in Surprise now, good luck, because that's where
speculators snatched up homes, and builders are offering the best deals."
In the Surprise ZIP code of 85374, home prices hit a low for the year
in August. Home prices in the Buckeye ZIP 85396 hit a high in February
and have been yo-yoing since. In the Gilbert ZIP 85297, prices have been
falling since June. In the north Valley, prices in Anthem fell to a 2006
low in August.
"Most people who bought on the fringes last year are likely going to
have to hold on for at least three years or sell for a loss," said real
estate agent Margie O'Campo de Castillo of Phoenix-based Arizona Dream
Realty.
Prices go up and down
In January, when the Valley's housing market started to come down from
last year's wild run-ups, about one-third of metro Phoenix's ZIP codes
experienced small price dips. Now it's more than half.
"The Valley's housing market is going through a definite and obvious
correction," said O'Campo de Castillo. "Homes are selling, but they have
to be priced right. No one is paying last year's inflated prices."
The Valley's price dips are a result of supply and demand. There are
45,000 homes on the market across metro Phoenix now, compared to fewer
than 20,000 last October.
Housing analysts say when the Valley's supply of homes for sale drops
below 35,000, the market will have rebounded or be close to it.
"When the supply/demand scenario is corrected, home prices will start
climbing again," said John Foltz, president of Phoenix-based Realty Executives.
The number of listings has stopped climbing by 2,000 to 3,000 a month
and was almost flat in September. That shows that the biggest dips for
the Valley's housing market could be over.
During 2005, a slew of mostly out-of-state investors buying multiple
homes artificially drove up demand. Bidding wars sparked by those investors
worked to push up home prices 50 percent in a year, something housing analysts
say hurt the real estate market more than it helped.
Prices in some areas have dipped more than others. And while most parts
of the Valley saw their prices peak this summer, values in some areas are
still climbing. Prices in Laveen, ZIP code 85043, and Glendale's ZIP 85302
peaked in August. In the central Phoenix ZIP 85006, housing prices hit
a high during August. In Phoenix's 85018 ZIP, home prices dipped in May,
June and July, then rebounded in August.
But the north Phoenix 85050 ZIP code has seen its median home price
go up and down since January for a 14 percent drop so far in 2006. In the
Mesa ZIP 85208, home prices had been climbing since January but hit a low
for the year in August. In the El Mirage ZIP of 85335, prices had steadily
climbed since January to a high in July; in August, they fell back to January's
level.
The downward trend in many of these areas likely continued in September
because the overall figure for a Valley resale dipped again last month.
September figures for Valley's ZIP codes aren't yet available.
But the median used-home price fell to $256,900 last month, down from
$263,000 in September 2005. It hit a record $267,000 in June.
"The Valley's housing market is returning to normal. After last year's
inflated home price run-ups, that means many areas will see prices drop,"
said Jay Butler, director of the Arizona Real Estate Center at Arizona
State University's Polytechnic. "Some areas of the Valley will feel the
correction more than others."
Rebound could be slow
Valley home prices aren't expected to dip much lower, but everyone is
watching for signs the market is done slowing.
Some homeowners are getting more motivated about selling, which could
boost sales. "More sellers are starting to see last year's market is not
today's market and are offering buyers concessions," said Jay Luber, vice
president of First Horizon Home Loans of Phoenix. "There are sellers now
who are now giving buyers time to sell their other house."
The Valley, more than other parts of the country, could feel the pain
of the housing slowdown. Year-over-year U.S. existing home prices recently
fell for the first time in 11 years.
"What was Phoenix's asset last year has become its liability this year:
available land," said Tim Sullivan of the San Diego-based real estate consulting
firm Sullivan Group. "The investor-driven new-home buying frenzy came because
the Valley had land."
He said now all those new homes that investors are trying to flip, as
well as the ones builders can't sell, are dragging down the area's housing
market and some home prices.
Sullivan said housing markets in California and Las Vegas, where there's
not a lot of land for new building, will rebound quicker than Phoenix.
But the Valley has something most areas don't: strong job and population
growth. Analysts say the market could rebound by mid-2007.
"There are still more people moving into the Valley than moving out,"
said Crocker Liu, the McCord Chair in Real Estate at ASU's W.P. Carey School
of Business. "Short term, I expect a market correction. Over the longer
term, I expect the housing market to rebound but to more rational levels
than the recent past."
