Home prices in many parts of metropolitan Phoenix have fallen so low, they have returned to levels from before the housing boom.
New data compiled for The Arizona Republic show median housing prices in most Valley ZIP codes have dropped to where they were in early 2005 or late 2004, signaling the housing market already has lost most of the gains from the boom when home prices shot up 50 percent.
For example, in the Glendale ZIP code 85305, the median price of a home fell from $385,000 at the peak in 2006 to $227,000 today, which is about what it was in 2004.
The overall median home price in the Valley has dropped around 30 percent from $267,000 to $180,000 in the same time period.
Climbing foreclosures, a glut of foreclosure homes being resold and fewer buyers able to get mortgages are all working to drive down home prices.
Yet despite the price drops, the Valley's housing market still hasn't hit bottom. Analysts say the market will likely overcorrect before it improves.
"Phoenix-area homes are more than halfway to where they are likely to fall," said Marshall Vest, an economist with the University of Arizona, who in early 2006 predicted housing prices would fall significantly even as they were continuing to climb then. "Many neighborhoods still have 10 to 20 percent home-price declines in their near future. A lot depends on how many homeowners can't pay their mortgages in an area."
Foreclosure wild card
As long as foreclosures continue to climb, home prices will fall.
More than 30,000 Valley homes have been foreclosed on so far this year. That compares to fewer than 1,500 foreclosures in 2006. Now, almost all of the homes are going back to the lenders, which are reselling them for bargain prices.
"It's clear foreclosures are putting a lot of pressure on home prices," said Tom Ruff, a real-estate analyst with the Information Market, which compiled housing-value data for The Republic.
The impact on prices is apparent. The Valley's overall median resale price without factoring in foreclosures is $215,000. The overall median resale price of a foreclosed home is $149,000. That foreclosure median pulls down the overall median resale price to $180,000. At the height of the housing boom in 2006, the median was $267,000.
Ruff said foreclosures could peak by the end of the year.
But that doesn't mean prices will have hit bottom because of the backlog of foreclosures that lenders still need to liquidate.
Foreclosure properties are dominating the Valley's housing market. In a few Valley neighborhoods, there are more foreclosure resales than regular resales.
Lower home prices are drawing more buyers, but they may not all be the types of buyers neighbors want.
Investors return
Many foreclosed homes are bought by investors who can pay cash, market watchers say. That means fewer homes are going to buyers who plan to live there and hang onto the house for a while. Owner-occupied homes ultimately help an area's recovery.
The Valley's housing market is seeing the flipside of the investor cycle now. In 2004, investors cashing in on loose lending guidelines, the Valley's growth and relatively affordable housing started the buying frenzy that led to the wild run-up in home prices. Many of those investors, who didn't sell before prices dropped, ended up walking away from the homes and starting the Valley's foreclosure problem.
Aimee Jackson has been trying to buy a foreclosure home in the West Valley for the past six months, but the pharmaceutical sales representative keeps getting beat out by investors.
"I am pre-approved for a loan, and that's not easy now," said Jackson, who has been making offers on newer homes in Surprise, Peoria and Buckeye. "But lenders all seem to be going for the cash offers from investors. It seems unfair."
Jackson is going to keep looking at foreclosure resales because she doesn't think prices are going to go up on those properties anytime soon. She also doesn't think regular homeowners are pricing their houses low enough to compete with foreclosure properties.
Bettina Franco, a real-estate agent with Phoenix's HomeSmart, said lenders are trying to resell so many foreclosures now that homeowners trying to sell have given up trying to compete with them.
There is concern among real-estate analysts that investors will again hurt the housing market.
"In some areas of the Valley, we are starting to see the bottom for prices," she said. "But we need to get rid of all the foreclosures first and watch what investors are doing."
Hitting bottom
No one knows for sure just where the bottom is for the Valley's home prices because the housing market is in uncharted territory. Never have home prices shot up 50 percent in a year as they did in 2005 or fallen 30 percent in a year as they have this year.
Housing analyst RL Brown, who publishes the Phoenix Housing Market Letter, believes that because of foreclosures, the median resale home price in the Valley could fall to $160,000. That is where it was in 2003.
During the Valley's real-estate recession in 1990, home prices fell only about 5 percent.
But those home prices didn't climb significantly for several years after that. Most people who bought homes during the peak in the mid-1980s didn't break even on the value of their homes until the mid-1990s.
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