Greater Phoenix resale market sees increased investor interest

In June 2009, 11,820 resale homes recorded as being sold, while there were 9,980 recorded sales in May and 7,840 sales for a year ago. Foreclosure activity in June 2009 represented 34 percent (4,060 transactions), while there were 7,760 traditional market transactions. In the traditional market, though, approximately 50 percent of the recorded sales represent previously foreclosed property.

Foreclosure activity, as a share of total activity, is down significantly from the 51 percent (4,295 recordings) of February 2009. Since recorded sales represent decisions made in prior months, this slowdown can primarily be attributed to the various hiatus programs that lenders instituted, while awaiting the results of the various loan modifications and re-financing programs from the federal government. 

For June 2008, there were 3,275 sales in foreclosure or 42 percent on the month’s recordings. For June 2009, foreclosure activity differed throughout the Valley such as 40 percent in Goodyear, 36 percent in Mesa and 38 percent in Surprise.

Historically, June is one of the strongest months in the resale home season that usually lasts until August.  During the resale season, sales and median prices tend to increase, so some improvement in the local housing market would not be unexpected.

Although mortgage interest rates and prices are attractively low, tighter underwriting standards, a weak economy and poor job market (including job losses and lost income through reduced pay and furlough programs) could place sever obstacles before the potential of the market. The impact of foreclosures on the market has been the primary concern of the last year and will continue to be in the coming months, especially with the end of many hiatus programs and the weak job market.  The fundamental mitigating factor could be the various existing and potential loan modification programs that will allow households to save their homes.

“While there is hope that the housing troubles are beginning to ebb, the recent rise in activity, while impressive, does not necessarily represent recovery,” said Jay Q. Butler, director of Realty Studies in the Morrison School of Management and Agribusiness at Arizona State University.  

“Except for the sense of failure -- foreclosures and bankruptcies --- the current market is not much different than the 2003-2006 hyper-market for it is driven by similar-minded investors looking for the deal, especially the potential of great appreciation. It is not driven by the traditional owner-occupant looking for a place to live.

“Recovery cannot really take place until the owner-occupant looking for space is the fundamental market force and the other areas of activity -- investment and foreclosures -- return to their respective historical norms,” said Butler.  

The declining prices have piqued interest for potential investors and owner-occupants, especially in the lower income ranges. For the traditional market, the median price in June was $134,000 or down 39 percent from the $218,000 of a year ago. Foreclosed properties had a median price of $154,000 ($169,890 for June 2008). Investment interest is being driven by the anticipation that home prices will rise again in the next few years.

While lower prices can greatly improve affordability, they can adversely impact many owners and potential sellers whom are watching their limited equity erode, as prices decline to and even below existing debt level. Rapidly declining value can be another issue in some of the mortgage modification programs which require a limited decline in value from the purchase and financing of the home.

There are two fundamental reasons why the median price for foreclosed homes is higher than traditional transactions. The first reason is more expensive homes continued to be foreclosed, with 22 being over $1 million in June, including seven over $2 million, and 4 percent of the foreclosures were in the $400,000 to $1 million range. Since most loan modification programs are designed for homes under $400,000, the increase in foreclosure activity for the upper-end market was expected.

The other reason is that, for the last year, approximately 50 percent of the traditional sales were foreclosed homes that were sold again with a median price markdown of 24 percent. The markdown varied throughout the Valley ranging from 51 percent in Maryvale to 30 percent in El Mirage to 12 percent in Tempe.

Since the greater Phoenix area is so large, the median price can range significantly. For June 2009 in North Scottsdale, the median price for a foreclosed property was $451,595 ($451,530 in May), while the traditional market was $460,000 ($435,000 in May). In South Scottsdale the splits were $180,000 ($249,105 in May) and $192,500 ($203,000 in May), respectively.

In Maryvale, traditional transactions were $48,000 ($42,000 in May) and foreclosures were $76,285 ($99,300 in May), while in Union Hills it was $210,500 ($205,450 in May) and $193,725 ($191,720 in May), respectively.  For June 2009, Paradise Valley had a median square footage of 3,825 and a median price of $1,425,000. 

Within the 1,390 total recorded sales for June 2009, the townhouse/condominium market had 510 foreclosed properties.  For a year ago, there were 855 total transactions with 230 being foreclosures. In June 2009, the median price for foreclosed properties was $112,100 while the traditional market stood at $107,000. Last year, the splits were $133,215 and $164,950, respectively.

The median square footage for a single-family home recorded sold as foreclosed in June was 1,695 square feet (1,665 for a year ago), while it was 1,765 square feet (1,865 for a year ago) for a market transaction home. In the townhouse/condominium sector, the median square footage for a foreclosed unit was 1,055 square feet (1,075 for a year ago), while the traditional market unit was 1,185 square feet (1,120 for a year ago).

Realty Studies is associated with the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus. Realty Studies collects and analyzes data concerning real estate in the greater Phoenix metropolitan area. Realty Studies is a comprehensive and objective source of real estate information for private, public and governmental agencies. Its director, Dr. Jay Q. Butler, may be reached at (480) 727-1300 or e-mail him at Jay.Butler@asu.edu. Visit http://realty.wpcarey.asu.edu for more information.

Jay Butler, Jay.Butler@asu.edu
(480) 727-1300

Chris Lambrakis, lambrakis@asu.edu
(480) 727-1173
Public Affairs at ASU Polytechnic campus