Phoenix's Home-Price Puzzle: How to Rise from Ashes?

The Phoenix housing market is defying conventional economic theory. Inventories of homes for sale are low, falling 41% to 21,304 in October, compared to 35,732 at the same time a year ago for Greater Phoenix, according to the Cromford Report, a market research firm in Mesa, Ariz. The number of home sales is rising—to 6,428 in October from 5,443 in same month a year ago, according to the Cromford Report. The city's unemployment rate is inching down and is below the national average. The laws of supply and demand suggest housing prices should be rising, or at least stop falling. But they continue to decline, due to a flood of bargain-hunting investors who still dominate the market, as well as conservative bank appraisals. As a result, economic recovery in what was once one of the country's most dynamic cities is being held back. The monthly median price for a previously owned, single-family home in Greater Phoenix sank 5% to $120,000 in October from $127,500 a year earlier. The national median was $165,400 in September, the latest month reported by the National Association of Realtors. Over the same time, as prices weakened, unit sales rose 18%, according to the Cromford Report. That compares with a 3.5% decline in median prices nationally on a 12.2% increase in sales in the 12-month period ended in September, according to the latest data from the Realtors group.

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