Dr. Jay Butler of ASU’s Realty Studies has released his monthly report on the Phoenix housing market.  He says he see’s "signs of recovery" in the market, but then goes on to say the market is "still bottoming out".  Here’s what Butler said about sales:

In October, foreclosures on 3,815 homes accounted for 38 percent of the total market, according to Butler. This is an increase from September’s 32 percent, but a drop from the 46 percent of a year ago. That’s not the whole story, however. Approximately 45 percent of traditional transactions — 6,140 sales — involved properties that had been in foreclosure. That means foreclosure-related activity was 66 percent of the market in October — about level with September.

While sales have returned to the levels of the boom years, the market is being driven by speculation and foreclosures.  October sales undoubtedly received a bump from the concern of buyers that the $8,000 credit would not continue.  Speculators, however, are having a hard time finding renters for these properties–the rental market is glutted.  The Phoenix economy continues to be poor and is unlikely to sustain it’s former rate of immigration.  What we are basically seeing is the activity of vultures picking over the carcass–this is not healthy activity.

Median Price

The median price in the Phoenix market held steady at $140,000 in October, 20 percent less than the $175,000 of a year ago. The median price for foreclosed properties, however, rose from $136,800 in September to $153, 450 in October compared to $159,775 a year ago.

The median price is off of its lows:

Year-over-year depreciation seems to have moderated as well:

So is this the "bottom"? Are we seeing "recovery"?  Here’s what Butler has to say:

Recovery is a matter of definition. The ordinary homeowner expects recovery to bring his home value back to the level of purchase, but whether or not that will happen is an open question, Butler said. Another definition relates to market structure. Butler said that typically, foreclosures account for 3 to 5 percent of the market, a fraction of the current level.

. . .

"The current economic recovery is limited, with the possibility of higher rates and a continuing weak job market," Butler writes. "Further, the housing tax credit — which has been extended to April 2010 — could be dissipating the pent-up demand and weakening its influence in the coming few years. And, foreclosures will eliminate many households from obtaining home financing to buy another home."

Investors are making the market right now, Butler commented. Lured by low prices, they are buying homes to flip or to rent out. A lot of people are troubled by the fact that the market is still being driven by investors rather than buyers who intend to live in the homes. One perception is that the growth in rental houses will negatively impact the already weak apartment market.

All told, Butler thinks the market is still bottoming out rather than recovering.

My take is that this is a plateau, not a "bottoming".  This data is basically watching only the lower end of the market, as sales above the conforming limit are basically dead.  In September, about a quarter of listings were for homes over $400K.  As Butler pointed out, there were 18 homes in foreclosure this month priced at over a million dollars. This is a sign of things to come. We have not yet begun to see a bottoming in this segment of the market.  With upper-end housing going into foreclosure at an increasing rate, lower-end housing will have no chance to appreciate. 

I disagree that "recovery is a matter of definition".  When you think about it, housing is a consumer product. As long as consumers are in financial straights and concerned about the future, they are not going to be investing in housing.  Until Phoenix consumers have recovered, housing won’t recover–no matter what the numbers say.