PHOENIX -- Valley home prices are not just leveling off; they're taking a dip.
After a roller-coaster 10 years of incredible highs and crashing lows, the Phoenix housing market has stabilized over the past year.
Now, a new report from ASU's W. P. Carey School of Business has found a four percent drop in home prices in January, with the median home price averaging $196,900, compared to $205,000 in December 2013. But prices are still much higher than they were a year ago.
It's a case of supply and demand. Many people are looking to sell, but not a lot of people are looking to buy. In fact, many houses are sitting on the market for months.
"It's become more of a buyer's market," says Michael Orr of ASU's Center for Real Estate Theory and Practice. Orr is the author of the report. "The advantage lies with the buyer," he says.
Prices are dropping drastically in some parts of the Phoenix area, in an attempt to attract the pickiest buyers.
“January is usually the quietest month of the year for sales, but this January was far weaker than January 2012 and 2013,” says Orr. “Despite the huge price increases between January 2013 and 2014, the total dollars spent on homes here this January actually dropped by seven percent. This is the second lowest level of demand we’ve seen in 14 years, behind only 2008.”
At Hunt Real Estate ERA, realtors call it unprecedented.
"It's great when I'm working with buyers now, because we have all this inventory to choose from," says Taylor Pfeifer. "In the last 24 months was saw prices increase by about 20 percent, and that kind of growth is not sustainable."
Luxury homes are one of the only bright spots in the market, with homes above a half-million dollars representing 14 percent more of the sales transactions this January than last January. However, even the supply of luxury homes is quickly rising, so sellers in that space will face tougher competition in 2014.
Investors continue looking to other parts of the country for bigger bargains, since Phoenix prices have risen. In January, the percentage of residential properties bought by investors was down to 21.1 percent from the peak of 39.7 in July 2012.
New home sales were also down 21 percent from last January to this January, representing the steepest fall in new-home closings in several years. Millennials and those who lost their homes to foreclosure or short sale in the recession appear more interested in renting than buying. That’s led to an upward trend in multi-family construction permits. It could also lead to higher rental rates in the next two years, during which time, home sales may continue to be relatively slow.
“The market conditions suggest prices will struggle to make any further upward progress in 2014,” Orr adds. “With February through June the strongest part of the year, we may yet see a little forward movement, but it’s likely to be tentative at best. The real test will come in the second half of the year, which is likely to see lower prices unless demand takes a distinct turn for the better.”
Foreclosure levels remain below the normal, historic trends for Maricopa and Pinal counties. Foreclosure starts – owners receiving notice their lenders may foreclose in 90 days – were down 55 percent from January 2013 to this January. Completed foreclosures were down 54 percent.
You can view the full report here.