This from my Arizona Republic real estate column (permanent link):
With all this activity in the Phoenix real estate market, prices must be going up, right?
Wrong.
Sales prices for bread-and-butter single-family homes in Metropolitan Phoenix were down in June, July and August. They were up in May, and it looks like we’ll finish higher in September. But the net effect is to put average home prices right back where they were in March of 2009.
That’s right. We just worked our way through six very busy months, with the $8,000 first-time home-buyers tax-credit as a huge incentive to buy houses, but sales prices for those homes are virtually unchanged.
How can that be? Haven’t we heard about shortages of homes, about frenzied bidding wars? If you’re trying to sell a home right now, market activity can look like manna from the heavens. But if you’re trying to buy, what you’re seeing may look more like a plague of locusts.
But taking account of the bigger picture, none of that matters. The Phoenix real estate market is over-built, especially at the lower end of the market. The long-term systemic trend of prices is downward, and it will be for quite a while. Incentives like the tax-credit can stimulate activity, but until demand eclipses supply, prices will continue to deflate slowly.
When the tax-credit lapses, the pace of that deflation will quicken. If banks start to reintroduce foreclosed inventory at a faster rate, prices will drop even more. Arguably, we are two or three years away from reselling all of the homes that will have to be repossessed and resold by lenders.
And prices could be low and trending generally lower that whole time. New home builders are not able to compete in this market, so we’re not adding new inventory. But until the supply of foreclosed homes is fully absorbed, prices probably will not go up.
And even then, don’t bet your life savings on dramatic upswings. It took us a long time to dig this hole, and it could take a long time to dig our way out.
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