Report: Housing market still flooded with foreclosures

More homes are being sold in the Phoenix area now than last year, but the market is still flooded with foreclosures. That's according to the latest Realty Studies report from the W. P. Carey School of Business at Arizona State University. The report shows one foreclosure happening for every two regular home resales in the Valley last month.

"A recovery cannot really be established until foreclosure activity drops to historical levels, which would be about one foreclosure for every 20 regular home resales," says associate professor of real estate Jay Butler, who compiled the report. "Owner-occupants will have to become the primary driving force again. Right now, the market is driven by investors looking for a deal and the potential of great appreciation."

About 6,000 Valley homes were resold and about 3,100 were foreclosed on in August this year. That is actually down from the volume of 7,300 resales and 4,200 foreclosures recorded in July. However, it is way up from just over 4,200 resales and about 3,300 foreclosures in the Phoenix area last August.

"Historically, August usually represents the end of the resale home season, when sales and median prices tend to increase," says Butler. "The fundamental question is whether sales will stay strong, driven by the foreclosure-related market, or start to move down, which is traditional for the end of the year. If the latter occurs, it could represent a preliminary signal that the market is beginning a return to normalcy."

Still, Butler believes that tight underwriting standards, a weak economy and a poor job market could continue to place severe obstacles before the market's potential. He expects that many eliminated jobs are not going to come back, and more people's unemployment benefits will start to run out, prompting them to go into foreclosure on their homes.

His report says the median price of homes resold in the Phoenix area in August was $139,000, down 29 percent from the year before. Some expensive homes are also being foreclosed on, including 17 worth more than $1 million. Butler explains that this is likely because most loan modification programs are designed for homes under $400,000.

Butler's full report, including statistics, charts and a breakdown by different areas of the Valley can be read at http://wpcarey.asu.edu/realestate/Phoenix-Resale-Market-Reports.cfm.