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The Phoenix real estate market is experiencing significantly stronger buyer activity for the start of 2009 as compared to one year ago.

The overall Valley is off to a solid start with "Pending" or under contract sales activity for the beginning of the year beating years 2006-8 and even slightly greater than that seen in 2004, prior to the market run-up. The stronger turnout bodes a positive but early sign that buyer demand is more robust and could be a good indicator for overall 2009 performance versus 2008.

Though serious market challenges remain for the year and their conclusion uncertain, many cities across the area are showing greater buyer activity than in the year prior.

The "Core" Performers

The City of Phoenix is experiencing stronger buyer activity as indicated by "Pending" or "under contract" sales activity. Phoenix's activity appears to make up a substantial portion of the improvement seen across the Valley. Comparatively, the number of properties under contract in Phoenix was 1,309 properties at the start of 2009 compared to 530 properties the year before, a 146% improvement. So, Phoenix real estate is experiencing more significant demand.

Several more centrally located communities showed strong improvement as well. Glendale posted a 133% improvement going from just 126 homes under contract to 294 homes under contract. Mesa and Peoria also showed very strong gains. Gilbert saw gains of 62% going from 172 homes under contract at the start of 2008 to 280 homes under contract presently.

The Middle Ground

Chandler and Tempe both posted modest gains in activity. Given the relative affordability and the appeal of both Tempe and Chandler, and the lower levels of foreclosures in these communities, activity has remained somewhat constant as compared to previous years.

Action in the Edge Communities

Other clusters of strong buyer activity are occurring in the places where one might least expect it - in the edge communities where prices have experienced their greatest declines (prices are approximately 35-50% of their 2006 values).

For instance, Avondale's buyer activity increased over 200% from 56 homes under contract at the start of 2008 to 170 homes under contract at the start of 2009. Maricopa has experienced a similar increase from 66 homes under contract to 197 homes under contract. Queen Creek's pending sales activity grew 180% to 366 properties under contract from 131 properties. Buckeye, El Mirage, Goodyear, Laveen, and Surprise all posted gains of at least 70% in the number of homes under contract year over year.

Retirement Communities Sitting This One Out

Established retirement communities such as Sun City, Sun City West, and Sun Lakes show virtually no improvement or even showed small declines in Pending activity. These markets were likely more immune from the investor activity that took place and represent specialized sub-markets that don't necessarily move with the broader Phoenix real estate market.

The Poor Performers

On the opposite side of the spectrum, the most affluent communities fared the poorest in terms of buyer activity. Fountain Hills and Paradise Valley both posted modest declines in buyer activity. Cave Creek Scottsdale real estate showed a slight improvement from 191 homes under contract to 210 homes under contract for the start of 2009.

What's Driving The Increase in Buyer Demand?

December sales of homes were unexpectedly stronger for the holiday season where we typically see a steady decline in activity. This may be attributable to the fact that FHA loan limits in the Valley were slated to drop to $271,000 from $346,250 as of January 1. Home buyers using FHA financing to purchase a home may have been rushing to complete their transactions prior to the cutoff date.

Foreclosures represent the biggest attractant to buyers given the perception of deals offered by these properties. Edge communities are experiencing a high rate of these properties so declining prices are making homes surprisingly more affordable in these areas. Prices are 35-50% of their 2006 highs which is enticing to home buyers and investors looking for deals.

Poor performance in the more affluent communities is consistent with the concentration of buyers in the marketplace right now. Indeed, 86% of the homes currently under contract are priced below $300,000. Looked at another way, of the 16,758 homes priced above $300,000 actively on the market, only 6.1% of this total are currently under contract for purchase.

Finally, anecdotal evidence indicates that some investors have begun moving ahead with purchases of real estate in the area.

Conclusion

There is no doubt that substantial challenges remain across the broader economy and more specifically, the Phoenix real estate market through the coming year. However, combined with the fact that 2009 sales actually slightly exceeded 2008 sales and that buyer demand is showing marked improvement, the 2009 Valley housing market could shape up to post stronger sales results than the previous year.

Only time will tell the full extent of improvements in the market, but the New Year is off to a great start.

About the Author:
David Lorti is a professional Realtor for RE/MAX Elite in the Phoenix Real Estate market. He holds a MBA and Certified Negotiation Expert designation and his insights have been quoted in numerous news outlets. His website, LortiHomesArizona.com, and blog, LortiHomesBlog.com, offer additional market insights on Phoenix Arizona homes.