REALTY STUDIES from ASU W.P. Carey School of Business

With the advent of a new year, there is always the hope that the troubled times will end. In the last few months of 2010, foreclosures represented only 30 percent of the recordings due to various moratoriums and legal issues. Unfortunately, the resale data for January 2011 shows a reemergence of the trouble times with 43 percent (3,620 transactions) of the 8,325 total recorded sales being foreclosures.

The main question for the coming months is whether the January surge in foreclosure activity is a temporary response in unclogging the pipeline after the moratoriums and or a continuation of a market being dominated by foreclosures. The year ended in the midst of an unusual set of influences including foreclosure moratoriums, legal challenges to the foreclosure process, weak economic and job (income) recovery and stricter underwriting guidelines. In confronting potential uncertainty, the level of activity and prices could even be lower than generally expected as people await the review and resolution of the problems associated with the foreclosure process.

Foreclosure activity, as percentage of the total resale market in January 2011, varied throughout the Valley such as 52 percent in El Mirage, 42 percent in Surprise, 46 percent in Maryvale, 38 percent in Chandler and 29 percent in Scottsdale. Another component of the market was the sale of previously foreclosed property, which accounted for approximately 40 percent of the traditional transactions in January (4,705 sales). Due to concerns about the foreclosure process, foreclosure–related activity represented 66 percent of the recorded activity for the month, but 63 percent in 2010.

Beyond the impact of foreclosure activity, the absence of a strong move-up market, which is fundamental to a housing recovery, will also limit any growth in home prices. While lower prices can greatly improve affordability, they can adversely impact many owners and potential sellers whom are watching their limited equity erode, as prices decline to and even below existing debt level. The median price for the traditional market in January was $125,000, which is the same as December 2010, but down from last year’s $136,500. The foreclosed properties in January had a median price of $143,580 in contrast to $141,700 for December and $152,935,000 for a year ago.

Housing prices are being influenced by foreclosure-related activity. Even with all of the foreclosure issues, expensive homes continued to be foreclosed, with 12 being over $1 million in January. Another influence is that, for the last year, approximately 40 percent of the traditional sales were foreclosed homes that were sold again with a median price markdown of 14 percent from the foreclosed price. Although the markdown has improved from 25 percent a year ago, it does vary throughout the Valley ranging from 44 percent in Maryvale to 14 percent in Peoria to 8 percent in the Gilbert area.

Since the Greater Phoenix area is so large, the median price can range significantly. For January 2011 in North Scottsdale, the median price for a foreclosed property was $365,250 ($374,775 in December) while the traditional market was $421,000 ($401,000 in December). In South Scottsdale the splits were $148,500 ($159,000 in December) and $163,500 ($166,500 in December), respectively.

In Maryvale, traditional transactions were $46,000 ($43,000 in December) and foreclosures were $76,005 ($61,500 in December), while in Union Hills it was $156,600 ($156,500 in December) and $170,500 ($179,870 in December), respectively. For January 2011, Paradise Valley had a median square footage of 4,750 and a median price of $1,237,500.

Within the 1,320 total recorded sales for January 2011, the townhouse/condominium market had 520 foreclosed properties. For a year ago, there were 1,150 total transactions with 495 being foreclosures. In January 2011, the median price for foreclosed properties was $99,460 while the traditional market stood at $76,000. Last year, the splits were $105,920 and $95,000, respectively.

The median square footage for a single-family home recorded as foreclosed in January 2011 was 1,680 square feet (1,685 for a year ago), while it was 1,805 square feet (1,785 for a year ago) for a market transaction home. In the townhouse/condominium sector, the median square footage for a foreclosed unit was 1,050 square feet (1,040 for a year ago), while the traditional market units was 1,145 square feet (1,135 for a year ago).