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[Updated with September 2008 data; click on charts to expand]

How is the Phoenix real estate market doing? Will the Phoenix metropolitan area real estate market improve?

Here are major indicators of a real estate recovery:

1) The number of new MLS listings must decline, especially compared to same month previous year.  This did not happen in September 2008, the first time in eight months this year.  September 2008 over September 2007 had more new listings (14,241 vs. 12,705).  The majority of the new listings were bank-owned foreclosure homes.  This means inventory is climbing again, not a good sign of a recovery.

2) The average # of days on market must decline.  Phoenix area homes sold quicker in September at 75 days compared to 95 days in September 2007.  This was the best amount since September 2006.  Buyers are attracted to the lower-priced bank-owned foreclosure listings and buying them quickly before someone else does. This lowers the average days on market for homes.  However, condos are taking longer to sell, 96 days in September 2008 versus 90 days in September 2007.  With lower prices for homes thanks to foreclosure listings, buyers are focusing on single-family residences instead of condos.  Condo sales accounted for less than 8% of the total sales in September 2008.

3) The percent of $$$ that sellers keep must increase (sales price divided by list price).  September 2008 went up to 96.96%, the eighth month in a row in increased figures, which is encouraging news.  We haven’t seen this level since August 2006.  Sellers are negotiating better on price. [The average is about 97.5%] What we’re seeing in the Phoenix area are foreclosure listings being priced very low at the beginning.  Buyers are flocking to them, as the recognize a bargain; then two or more buyers fight for the house with multiple counter offers, which raises the final sales price.

Here are a few other signs of a real estate recovery:

4) The # of pending sales goes up.  Foreclosure listings are selling quicker and boosting the numbers of pending sales.  The pending sales numbers were very strong in September 2008.  September 15’s pending sales was just 25 short of June 25’s record high for 2008.  This can be attributed to the last minute rush of home buying before the AmeriDream and Nehemiah zero down payment assistance programs expired October 1st.  Current October pending sales are down about 1,000-1,200 from September.

5) The # of sales goes up. September 2008 sales of 6,179 was the highest sales month of 2008.   And the best sales month since August 2006.  That’s really amazing is comparing September 2008’s sales to last year’s meager 3,421 sales.  The boost in sales is due to the rush of buyers with zero down payment assistance loans.

6) The absorption rate goes down (the # of months’ inventory available for sale).  Due primarily to buyers grabbing homes before the October 1st expiration of the zero down payment programs (AmeriDream and Nehemiah), increased sales meant a decrease in the inventory of homes in September 2008 to 8.81 months, the lowest since August 2006.  The absorption rate in September 2007 was 15 months!  After October 1st, only buyers with actual cash to put down can buy homes & condos.  Inventory is already starting to rise in October.  And as is seasonally normal, fewer homes get sold in the Fall months.

7) Sales prices increase.  As long as foreclosure properties continue to dominate the Phoenix real estate market, sales prices will not increase soon.  The average and median sold prices in September 2008 were about the same as May 2004 and September 2004 respectively!  That is not good news for home sellers and homeowners.  For buyers, it means Phoenix area homes are more affordable than ever.  The average sold price in September 2008 was $218,989 versus $307,000 in September 2007.  The median sold price in September 2008 was $170,000 versus $235,000 in September 2007.

8) Price per square foot increases.  Again, it’s not happening.  September 2008’s average of $112 per square foot was the lowest since November 2003.  That’s terrible for home sellers, but great for homebuyers.  Price per square foot is likely to decrease for many months due to the high number of foreclosure property sales.  The price per square foot a year ago was $159.

Cloudy days ahead:  The increase in sales in September 2008 was a one-off due to the October 1st deadline for zero down assistance programs.  Sales in the Fall months typically decline.  Buyers must have money for down payments now, so the pool of buyers will shrink.  Mortgage interest rates spiked this last week to the high 6% range.  The number of foreclosure properties continues to increase.  A positive here is that days on market will continue to decline as investors take advantage of lower home prices.

Many, many MLS listings in Phoenix are vacant.  Vacant homes accounted for nearly 79% of all sold properties sold in September 2008, the highest level in over nine years!!  What’s really scary is if you play with the statistics for owner-occupied homes.  The “normal” home seller is someone who still lives in their home.  Only 1,169 owner-occupied properties sold in the Phoenix metro area in September 2008.  Compare that to the number of active listings and it could be interpreted that only one in 50 owner-occupied properties sold in September.  Are you better off moving out of your home if you’re selling?  No.  That won’t help.  It just shows the impact that foreclosure homes are having on our market.

Sold prices continue to decline as the lower-priced foreclosure sales skew the statistics. The average list price of new listings in September 2008 was $296,607, the lowest since December 2004 and down from August’s $312,114. The chart below compares average sales prices with average new list prices.

The median new list price in September 2008 was $180,000, the sixth consecutive month of decline, while the median sold price was $170,000 in September 2008 (the lowest since September 2004), the eleventh month in a row of consecutive price decline.  Again, it’s evidence of the predominance of lower-priced foreclosure listings.

Final word:  It will be interesting to see how increased mortgage interest rates affect the Phoenix real estate market.