Posted: 30 Nov 2009 01:11 PM PST

 *Originally posted on ABC15.com*

First let’s look at the factors that will greatly impact Phoenix real estate next year:

1) National Government Intervention: The extended tax credit for contracts signed before 4/30/10, which now includes a move up buyer provision with higher income levels, will definitely have a positive effect on our market for the first 2 quarters next year.

2) Low Mortgage Interest Rates: Anything below 6% will allow for a steady market recovery.

3) Lender Owned Properties (REO’s): The percent of REO’s will continue to decline from the 65% of all closings’ peak in May of 2009, but will be replaced by Short Sales.  REO’s will account for approx 55% of all closings in 2009.  I expect the percent of REO’s sales to decrease to under 40% for 2010.

4) Short Sale Properties (SS): SS’s started 2009 at about 5 or 6% of all closings and has risen to 15% YTD.  SS’s will at least double that number for 2010.

5) New Home Construction: New home sales should increase from 2009 levels, not a lot but a start in the right direction.

So with these factors identified as having a significant impact on predictions for 2010, let’s examine where the Greater Phoenix Market is now and where it will be going in the next 12 months.

Number of Sales: We certainly won’t see the 50% increase in unit sales that we’ll end 2009 with (2008 had 60,000 closed sales-2009 will have about 90,000).  I think a 5-10% increase in sales is attainable, and that figure will be the 3^rd highest number of closings- all time for our market.

Prices: Prices get measured in a number of ways.  The most quoted measures are Median Price, Average Sales Price (ASP) and Price per square foot ($SF).  Let’s look at how these measures are stacking up for 2009.

a) The Median Price of homes sold will show a drop of 18% in 2009 to $130,000.  The flaw of this method of comparison-is that the lower priced homes, i.e. REO’s, overly influence the number.

b) The ASP should end the year at $172,000-down 17% for the year.  The weakness of the ASP measure is that it is overly impacted by high priced sales, i.e. the $3 million sale brings everyone’s ASP up.

c) The $SF should end the year at $90 a square foot, which is down 14% in the last 12 months.  This measure is the least susceptible to low and high sale price fluctuations.

All of these price measures are showing improvement for the past 6 months, which I believe will continue.  Expect the annual comparison numbers to show a year over year improvement (appreciation) by April of 2010.  The tricky part is attaching a number to that improvement.  I think 10% is reasonable, as we have already improved 10% from the bottom earlier this year.  Based on the percent of SS’s and REO’s still in the market, I wouldn’t expect any additional run up in prices.   Both the SS and REO sales prices are usually viewed as ‘rock bottom’ since the lender wants to sell not hold and has no emotional or sentimental attachment to the property.  It’s an asset not a home to a lender, and a Toxic or troubled asset at that.

Let’s discuss other characteristics of our 2010 market.  Again as we’ve experienced in 2009, we will see a ‘Tale of 2 Cities’ or markets.  Our 2009 market has seen dramatic improvement initially in the less than $250,000 price range and is gradually improving to the less than $500,000 market.  The +$600,000 price range has not completely adjusted to the impact of SS’s and REO’s (bank competition) and the prices are still coming down as the number of sales continue to lag in these price ranges.  At this time the +$600,000 market still has over a 1 year supply of active listings, which according to supply and demand 101 principles-is a buyer’s market with downward pressure on the prices.  As a contrast, the supply of active listings less than $150,000 has only a 3-month supply, which is a seller’s market and the buyers in this price range are seeing prices rise.

So let me summarize my predictions for 2010; we will see a market that performs a lot like 2009 especially the second half of 2009, in terms of number of sales and price improvements.  We will see a majority of sales still in the distress category-SS and REO, with an increasing number and percentage of normal sales (owner occupied).  Luxury properties will still have downward price pressure as too many sellers compete with lenders for too few buyers in this price range.

I would be remiss if I didn’t acknowledge The Cromford Report as a major source of my analysis of the market and the statistics that I referenced.  The numbers quoted are taken from the Arizona Regional Multiple Listing Service (ARMLS).

Jim Sexton, Designated Broker John Hall & Associates