Housing market cools ... along with weather

For now Rector, president of Realty Executives International in Phoenix, is happy to see prices and sales activity moderating.

“A market like we had over the past year and a half — it’s so unbalanced that it’s no fun being a buyer and no fun being a seller, because most sellers have to go buy something,” he said. “A balanced market to me is much healthier.”

A 30-year veteran of the market, Rector said he had never seen anything like the buying frenzy that gripped the region recently.

“We have never had a market where it was common to get multiple offers on properties, and for houses to sell in matter of minutes, and we’ve never seen appreciation rates like these,” he said.

After rising at a steady 6 to 7 percent annual pace for most of the past decade, the median price of an existing home sold in the Phoenix metro area jumped 46 percent over the past year to $259,700 at the end of the third quarter, compared with $177,500 a year earlier, according to the Arizona Real Estate Center at Arizona State University.

Prices also have been soaring for new homes, which are more common in fast-growing Phoenix than in many older markets. A typical 2,000 square-foot home in the southwest Phoenix area that sold for about $244,000 in June 2004 was selling for $407,000 last month, according to local analyst R.L. Brown, publisher of the Phoenix Housing Market Letter.

The reasons for the surge in demand are unclear. Some analysts chalk it up to the near-mythological “California investors” who arrive flush with cash and snap up home sight-unseen, sometimes even before they are built. After sweeping through Las Vegas and now conquering Phoenix, they are believed to have moved on to relatively untapped markets like Albuquerque, N.M.

"There is clearly some evidence of speculative behavior taking place," said Ross DeVol, director of regional economics at the Milken Institute. "You can't really predict what the outcome is going to be. You could see a correction, but I don't think it would be a major correction."

In addition to the speculation, high real estate prices in California probably boosted normal migration patterns, and low mortgage rates might have induced some baby boomers to buy their retirement homes in advance.

Whatever the reasons, there are signs the frenzy is coming to an end. There are now 17,000 residential properties listed for sale, up from just 5,000 a few months ago, and would-be buyers have regained some of their bargaining power.

“Prices have settled,” Rector said. “I won’t say they have come down, but they have stabilized.

Brown agreed, saying, “We are seeing a decline in the rate of increase in housing prices here, and that is a very positive development for the sustainability of the housing market.”

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