Real estate article: High-end Luxury Homes in Phoenix Housing Market Likely to Experience Further Price Declines

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According to David Lorti, a Realtor with RE/MAX in Tempe, Arizona, high-end million-dollar luxury properties are at substantial risk for additional price declines.

July 1, 2008 – Custom, million dollar luxury homes represent the weakest segment in the Phoenix housing market and are likely headed for additional price declines. This decline is part of an evolving market trend that is slowly resolving pricing inequities in the housing market for the Phoenix area.

In terms of closed sales, the number of transactions for homes priced above $1,000,000 is shrinking in absolute terms and as a percentage of total sales:

• 2002 – 0.68%, 465 properties (Normal Market)
• 2003 – 0.74%, 594 properties (Normal Market)
• 2004 – 1.1%, 1,041 properties (Accelerating Price Appreciation)
• 2005 – 1.7%, 1,938 properties (Rapid Price Appreciation)
• 2006 – 2.7%, 1,992 properties (Transitional Market)
• 2007 – 3.2%, 1,737 properties (Declining Market)
• 2008 – 2.3%, 582 properties YTD (Declining Market)

“Sales for 2008 are clearly down from 2007 figures and as a result, the competitive environment for homes above $1,000,000 is intensifying. We may be seeing an overall corrective trend here in that the percentage of luxury properties sold each year is recalibrating more closely to 2004 levels. This will create significant pressure for prices to dip further as sellers will be forced to adjust to the realities of the market in order to successfully sell their homes,” says David Lorti.

In terms of pending sales, “absorption,” as measured by the percentage of available homes currently under contract, continues this trend:

• Only 5.6% of homes priced from $1,000,000 to $2,000,000 are currently under contract.
• Only 3.3% of homes priced above $2,000,000 to $3,000,000 are currently under contract.
• Only 3.5% of homes priced at $3,000,000 and above are currently under contract.

This lack of activity at the high-end of the market translates into the overall performance of specific communities in the Phoenix area.

Scottsdale and Fountain Hills, known for their affluent lifestyles and higher cost of living, are two of the weakest markets in the Valley, each averaging about 10% of available properties currently under contract.

Compare that to Chandler, Gilbert, Ahwatukee, and Glendale that average 16% to 21% of homes currently under contract. Maricopa, Surprise, and Queen Creek, much more affordable markets, lead the market due to buyer interest in the large numbers of foreclosure-related properties there.

But this isn’t all bad news depending on how you look at it, according to Lorti.

“This could be a sign that the market is slowly working to resolve pricing imbalances and is actually a very positive trend in the long-term--though it won’t feel that way for many in the short term,” says David Lorti.

“That said, a luxury property owner can sell their home. It’s just going to take additional focus and a level of commitment to sell when dealing with some of the Valley’s more elite properties.”

It will also take a knowledgeable Realtor. “The Realtor involved needs to understand the luxury home market and alter pricing and positioning strategies based on the dynamics and realities of that market in order to be successful,” says David Lorti.

“For buyers, you can imagine that there will be more opportunities to get fantastic properties at improved prices,” says David Lorti.

About the author of High-end Luxury Homes in Phoenix Housing Market Likely to Experience Further Price Declines

About David Lorti: David Lorti is a professional Realtor for RE/MAX Elite in the Phoenix area and helps clients buy and sell homes. He holds a Master of International Management and Bachelor of Arts degrees and his insights have been quoted in several news outlets. He also holds a Certified Negotiation Expert (CNE) designation – one of only 1,600 realtors nationwide. His website, www.LortiHomesArizona.com, and monthly newsletter, Dave's Real Estate News You Can Use, offers market updates and other information pertinent to home buyers, home sellers, and investors. Contact: David S. Lorti, Realtor – MBA, Certified Negotiation Expert RE/MAX Elite 480-227-6911 Direct 480-285-3600 Office www.lortihomesarizona.com