Despite signs of stability, Valley's foreclosure-stressed market remains vulnerable

The Phoenix-area housing market in 2010 settled into a pattern of activity that, while it could hardly be described as normal, at least kept home prices relatively stable, according to the latest Valley Home Values data.

But housing analysts said the market remained vulnerable to a number of potential threats, including a lack of job-market recovery, rising interest rates, overly cautious mortgage-lending practices and loss of investor confidence in the market's future recovery.

The supply of homes on the market in 2010 continued to come primarily from home foreclosures, short sales and recently foreclosed-on homes bought and resold by investors, according to an Arizona Republic analysis of housing data provided by Glendale-based Information Market.


Demand for homes came from more diverse sources, including first-time homebuyers, out-of-state residents looking for winter-home bargains and investors seeking revenue from home rentals and resales.

There were signs in a number of communities that home prices began to find more solid footing in 2010, particularly in Phoenix and parts of the West Valley, where post-peak declines in value were the most immediate and severe.

Meanwhile, median home prices in communities with relatively little foreclosure activity such as Tempe and Scottsdale experienced a gradual decline, which local housing analyst Mike Orr described as a necessary step toward reestablishing the standard price differentials that exist between communities in a stable market.

"The whole market is looking better than it did a year ago," said Orr, who publishes a daily housing-market update called the Cromford Report.

Still, local analysts said long-term stability in the housing market would require a gradual shift away from the current, investor-dominated market to one in which the bulk of demand comes from homebuyer occupants.

Recovery also would require home-foreclosure activity to decrease significantly from the current level - about 40 percent of all sale transactions - to a level much closer to the historical norm of less than 5 percent of transactions.

The good news, Orr said, is that monthly pre-foreclosure notices continue to decrease, along with the number of pending foreclosure transactions. That means the worst of the Phoenix-area housing market's foreclosure crisis is likely behind it, he said.

"I think we're well past the peak of foreclosures," Orr said.

On the rebound

In some communities, Valley Home Values data revealed a departure in 2010 from the price trends of previous years.

Nowhere was that departure more apparent than in Phoenix, which had been the market leader in home-value decreases since 2007.

From 2009 to 2010, Phoenix home prices rebounded by a whopping 21.1 percent, far more than in any other community.

The same phenomenon occurred to a lesser degree in Goodyear, where prices bounced back 4.8 percent, as well as in Tolleson, El Mirage and Rio Verde, where prices rebounded by 2 percent or less.

All of those areas suffered steep and immediate price declines beginning in 2007, Valley Home Values data show, and they remain among those communities where homes have lost the biggest percentage of their peak-market value.

Still, Orr said the rebounds in price in 2010 indicated that those markets had been caught in the momentum of a downward trend and were due for a positive readjustment.

Meeting in the middle

Just as sharp downward price trends created a certain momentum, communities with relatively little sales activity had experienced a form of inertia that kept home prices artificially high, Orr said.

It was inevitable that the local housing market's slow march toward stability would require higher-price communities to break free from that inertia, Orr said.

As a result, communities such as Tempe, Paradise Valley, Scottsdale and Wickenburg in which home prices had fallen relatively little in 2007 and 2008 began to experience more significant declines.

Those declines were most pronounced in 2009 but continued in 2010, the data show.

Communities that experienced double-digit losses in median home price in 2010 included Wickenburg (-16.8 percent), Waddell (-15.4 percent), Tempe (-11.7 percent) and Paradise Valley (-11.6 percent).

Outside influences

Changes in the local housing market in 2010 could not be explained without taking into consideration employment trends, population shifts and political issues, Orr said.

For example, heavily Hispanic communities including areas in west-central Phoenix continued to experience an ongoing decline in home prices in 2010, which Orr attributed to population losses that decreased the local demand for housing.

That phenomenon helps explain why ZIP code 85009 in west-central Phoenix did not experience a rebound in median home price despite having the lowest median of any Phoenix- area ZIP code in 2009. It remained the same - $29,000 - in 2010, according to the data.

Orr said there is also circumstantial evidence that controversial statements made by politicians arguing over Arizona's border security placed a temporary drag on home sales to out- of-state buyers in fall 2010, although the negative effects of those comments appear to have dissipated.

"There was a big dip last year when we were talking about headless corpses, but those things wear off," Orr said, referring to Gov. Jan Brewer's statements on the 2010 campaign trail that there have been beheadings in the Arizona desert.

Orr noted that some communities were able to boost local demand for housing by boosting the availability of high-paying jobs.

He cited Chandler as an example.

"It's done a better-than-average job of attracting jobs," Orr said.

by J. Craig Anderson, Ryan Konig and Matthew Dempsey The Arizona Republic Apr. 3, 2011 12:00 AM




Despite signs of stability, Valley's foreclosure-stressed market remains vulnerable