New downward trend in Phoenix home prices?

Is the Phoenix-area housing market experiencing a new downward trend? A new report from the W. P. Carey School of Business at Arizona State University reveals a year-over-year decline in home prices for the second month in a row. After a year of relative stability, this is not good news for Valley homeowners.

“Because of the volatility in the housing market, it is hard to be sure this is the start of a new downward trend, but an accelerating decline next month might well confirm that to be the case,” said Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who wrote the report with Adam Nowak, a research associate. “Continuing weakness in the Phoenix economy, the flow of foreclosures into the market and the seasonal slowdown that occurs in housing toward the end of the year are reasons to be pessimistic about house prices.”

The Arizona State University-Repeat Sales Index (ASU-RSI) measures annual changes in average Phoenix-area home prices. The new report estimates a 4-percent decline in average house prices from September 2009 to September 2010. This follows a 2-percent decline from August 2009 to August 2010. Previous reports revealed no change from July to July and small annual increases in June, May and April. The last negative showing was back in March.

Guntermann points to a couple of good signs in the market, saying, “Positives are the strong presence of investors who are showing confidence in the long-term potential of the Phoenix area and the major price declines that have already occurred, which dropped prices back to levels not seen since the end of 2001. It could be argued that the price adjustments that have already occurred and improved housing affordability will make large future price declines less likely.”

Foreclosure homes had been one of the stronger segments of the market until a year-over-year decrease finally happened in August. The slowdown got more severe, with a 6-percent average price decline from September 2009 to September 2010. Meantime, non-foreclosure homes dropped 9 percent from September to September, and Guntermann says the data doesn’t provide a basis for much optimism in that segment.

The median price for all sales included in the September index is predicted to be $124,900. Since June 2009, median prices have fluctuated between $122,000 and $135,000. Six Valley cities have average prices still down more than 50 percent from the 2006 market peak: Mesa, Peoria, Glendale, Surprise, Goodyear and Avondale.

The townhouse/condominium market is also hurting. Since March, townhome/condo prices have been falling year-over-year at around 20-percent. The preliminary median price for a townhome condo in September dropped to $62,000. That’s down from $65,000 in August and $77,100 in July.

The new ASU-RSI report can be found at http://wpcarey.asu.edu/realestate/housing-market-reports.cfm. Further analysis is also available from Knowledge@W. P. Carey, the business school’s online resource and biweekly newsletter, at http://knowledge.wpcarey.asu.edu.