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Hardest Hit Markets Overshot on the Downside: Report

June 28, 2012

Hardest Hit Markets ‘Overshot on the Downside’: Report

Although the Phoenix market doesn’t have the appeal bustling coastal cities such as Boston, Los Angeles, and Miami claim, it has still drawn interest from foreign investors and is one of the fastest growing metros, according to a report from Pro Teck Valuation Services.

In Pro Teck’s June Home Value Forecast report, Phoenix was used as an example to argue the point that some of the hardest hit markets have “overshot on the downside.”

The real estate valuation company looked at two traditional appraisal methods for determining property values: replacement cost and income capitalization. Based on these two factors, Pro Teck concluded that home prices in certain markets are selling at prices which are actually way below their replacement costs and the rental yields.

Pro Teck also used a home forecast model displaying prices for metropolitan areas based on two price drivers: employment growth and affordability. The model shows prices plummeted from 2007 to 2008 while employment stayed steady.

Pro Teck explained that the median price in Phoenix started to return to sustainable levels after the bubble burst, but instead of just declining to economically supportable levels, prices plummeted below that mark.

Now, after hitting a low that Pro Teck concludes was “overshot,” recent data reveals that Phoenix is now returning to a more reasonable long-term value.

According to Pro Teck, Phoenix’s months of remaining inventory (MRI) is down to 2.5 months.

San Diego-based DataQuick recently released a report showing the median price paid for a home in the Phoenix area in May reached a 41-month high. For all new and resale houses and condos sold in Maricopa and Pinal counties, the median purchase price was $150,000. That figure marks the highest median for any month since December 2008, when the median stood at $154,000.

The median increase was a 5.6 percent gain from April and a 25 percent improvement from May 2011, according to DataQuick.

Although the median price is 43.2 percent below the all-time peak of $264,100 in June 2006, the median price still sits 26.7 percent higher than the post-peak low of $118,347 in August 2011.

DataQuick also reported 2,385 Phoenix-area foreclosures in May, which is an 8.9 percent increase from the month before, but a 51 percent decline from a year ago. The number of homes foreclosures so far this year (January to May) totaled 12,475, which is a 53.8 percent decrease year-over-year.

Pro Teck’s Home Value Forecast for June also ranked the 10 best and 10 worst performing metros among the top 200 Core Based Statistical Areas (CBSAs).

Factors included in the ranking were sales and listing activity and prices, MRI, days on market, sold-to-list price ratio, and foreclosure and REO activity.

Unlike the top performing CBSAs, Michael Sklarz, Principal of Collateral Analytics and contributing author of the report, noted that a high percentage of the bottom-ranked metros are located in the Northeast.

“All have double digit Months of Remaining Inventory. Prices in these metros have held up much better since the market peak in 2005-06 compared to the current top ranked markets. This helps explain the relative rankings in that the bottom ranked metros are not offering the same bargains as the top ranked ones with regard to compelling prices and high rental yields,” he said.

Top CBSAs
Phoenix-Mesa-Glendale, Arizona
Dallas-Plano-Irving, Texas
Houston-SugarLand-Baytown, Texas
Oklahoma City, Oklahoma
Fort Lauderdale-Pompano Beach-Deerfield, Florida
Warren-Troy-Farmington Hills, Michigan
Birmingham-Hoover, Alabama
Salt Lake City, Utah
Los Angeles-Long Beach-Glendale, California
Santa Ana-Anaheim-Irvine, California

Bottom CBSAs
Saginaw-Saginaw Township North, Michigan
Tyler, Texas
Salem, Oregon
Harrisonburg-Carlisle, Pennsylvania
Nassau-Suffolk, New York
New York-White Plains-Wayne, New York-New Jersey
Eugene-Springfield, Oregon
New Haven-Milford, Connecticut
Newark-Union, New Jersey-Pennsylvania
Poughkeepsie-Newburgh-Middletown, New York

Home Value Forecast was created through a partnership between Pro Teck and Collateral Analytics.

via Hardest Hit Markets Overshot on the Downside: Report.

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