Metropolitan Phoenix's housing market started 2005 with a bang but ended it amid concerns of a price bubble. Home values soared and houses sold within days in most neighborhoods during the first six months of the year. But then investors began to bail, listings climbed and asking prices stared surpassing home appraisals.

By September, the market was showing signs of cooling. In October, home prices slipped slightly.

The Arizona Republic's Valley Home Values analysis of housing prices and sales by postal ZIP codes that shows all neighborhoods racked up big gains early in 2005. Increases from 30 to 50 percent were common as metropolitan Phoenix led the country in percentage gain of housing price. But prices began to level or dip during the last three months of the year.

The slowing has continued this year with metropolitan Phoenix's overall median existing home prices inching down again. Resale listings exceeded 30,000 in January, nearly nine times the level of the same month of last year, says the Arizona Regional Multiple Listing Service. Selling time increased from about 5 1/2 days to 49. Sellers are frustrated because they are getting few offers, and many are cutting prices. Buyers seeing the slowing have become much more cautious.

Neil Brooks, a Century 21 agent in northeast Phoenix, said shoppers are trying lowball offers of $30,000 to $50,000 less than asking prices as a starting spot in negotiations.
"Last year, it was the sellers who were being very aggressive, and now it's the buyers," he said. "There's so much inventory, they can sit back and spend their time looking at bazillions of homes."
Most real estate market watchers say the Valley's housing market is only reverting to a stable one after last year's frenzy. Metropolitan Phoenix led the nation for home price increases with an almost 50 percent run-up during 2005. And that price includes a few dips late in the year.
Now sellers need to be more realistic and realize their homes aren't going to be sold in just a few days, or a couple of hours, for thousands more than they are worth.
"The market has done a complete about-face," said Barbara Sage, a northwest Valley and Sun City specialist at ERA Encore Realty. "Last year, 14 offers for a home would come across at once, clogging up the fax machine."
Now, she said, after showing a property the seller's agent will call and tell her the "owner is anxious to sell." She tells them with a "yawn" that her buyer has a few more properties to look at.
"The days of multiple offers made on sight-unseen properties and offers well above list price are gone for now," said Cecil Duarte of Serving Valley wide Realty. "The market has softened. Inventory ballooned, and the days are here again for buyers to negotiate on price, terms and even seller contributions toward closing costs."
"Homes lasting on the market longer will affect prices," he said. "If we get that speculated 'dump and run' by investors, I expect to see prices to get competitive, and sellers offering incentives like they did in the early 1990s."

The slowdown has hit the new-home market as well. Builders that were overwhelmed with demand a year ago now are offering such freebies as thousands off spec homes, free pools or price cuts on upgrades to bring back the buyers. Top players and industry analysts disagree about the prospects for this year after a record 2005 when 63,570 new homes were permitted in the Valley.

Some look for a performance similar to last year as population gains and new jobs keep buyers coming. Others look for a steeper decline. The new-home median price increased nearly $100,000 to $299,000 last year, said analyst RL Brown, publisher of the Phoenix Housing Market Letter. And there is worry across the board that even with demand softening, higher costs for land and for materials, labor and city-approvals are pushing new-home prices beyond the comfort level of the mass-market buyer that volume builders rely on. High prices also remove a key incentive for people to move to Arizona.

Healthy slowdown

"Those kind of price increases cannot be sustained," said Brown, who sees a slowing market as a positive change and predicts a 4 percent price increase for new homes this year.
Doug Fulton, of Tempe-based Fulton Homes, said the slowdown was obvious to him on a recent flying tour of Pinal County. He said the number of new-house slabs in Maricopa was down by a third or more compared with six months ago
Fulton, of Tempe-based Fulton Homes, said executives of public builders are under pressure from Wall Street to duplicate last year's results in the Phoenix market this year. He said that would be difficult and said he would be happy with the 10 to 15 percent price increases he expects this year.
"It's no longer 'build it and they will come.' That's not what will happen in '06," Fulton said. "It will be a battle. Corporate expectations are very high, but we are coming back to a more normal market."
Investors made up at least a quarter of Valley resale home purchases last year but market professionals say that group of buyers is leaving.
John Foltz, president of Phoenix-based Realty Executives, said the experienced speculators are pretty much out of the market, leaving newbies who could get hurt by the slowdown.
He said the worst-case scenario for the resale market this year would be flat prices.
"We haven't seen a decline in home prices in years, and I don't think we will this year," Foltz said. "For resale prices to decline, we would have to experience interest rates in excess of 10 percent and a job reduction of 40,000. Both are very, very unlikely."

Buyer-seller standoff

Jay Butler, head of the Arizona Real Estate Center at Arizona State University Polytechnic, said the housing market needs to "cool down to sustain the appreciation it gained last year. I wouldn't be surprised to see prices fall this year" as the market recovers from the investor buying binge.
"Investors played a key role in turning the Valley's housing market upside down," Butler said.
Pete Kanton of Arizona Realty Advisors is trying to sell several of his own Valley residential properties as well as some for clients.
"All are priced competitively, at or below what other homes of similar size and amenities have sold for in the areas," he said. "All have been marketed on MLS, signs, classified ads and mailing to the neighborhood. But none have sold."

"In addition to the normal drop in activity, the first quarter of the year the market appears to be in a 'holding' pattern," Kanton said. "Buyers are anxiously waiting to see if sellers will begin those price reductions many have speculated about, and sellers are looking at comps their agent puts in front of them from middle to late summer and into last fall when the market peaked and not willing to lower their list price because others got that price."
Timmy Carter is glad the housing market is slowing. Last spring, he looked for a home for weeks before finding a "doll house" near Central and Missouri avenues in Phoenix.
He made a full price offer. Later that day, he was told another buyer had made an offer for more. After a two-day bidding war, he got the house for $25,000 above the listed price. But then a week before closing, his "stomach was in knots" and he decided to go with a gut feeling and not close on the home.
He checked property records later and saw the house sold for the original price.
"I was being shanked the whole time and my gut feeling proved me correct," Carter said. "The market last year duped quite a few buyers. I am glad it's over."
Terry Mindham spent most of 2005 in Iraq training Iraqi police cadets so he missed out on most of the big runs up in the Valley's housing market.
He now wants to move to Virginia, tired of the desert after his time in Iraq, and knows his 1,700-square-foot home in Surprise won't sell fast or for the prices buyers in his neighborhood say they sold for last summer. So he has decided to sell it on his own "for sale by owner" to try to save money on commission.
"I plan to try selling myself for a while, pricing it so that the buyer actually gains a large part of what a Realtor would have added to the cost," he said.
But Mindham said he would pay real agent agents 3 percent if they bring him a buyer.
"I am not pressured to sell so it's worth my time to see if I can make a sale happen on my own," he said.

A definite cooling

"Home prices in metro Phoenix are down or flat now," said John Burns, a national real estate consultant. "Investors are selling. Listings are up. The market definitely is cooling."
He thinks prices may fall slightly more in some outlying areas of the Valley but that prices in Scottsdale, Tempe and most of Phoenix will hold up.
Eric Brown, a veteran Valley home builder who heads Artisan Homes, said last summer when he predicted housing appreciation in 2006 would be half of what it was in 2005, he was "overly positive."
Shannon Osborn put her home in the 85254 ZIP code in north Scottsdale on the market last December. She has lowered her price twice so it's $25,000 less than where she started. Her real estate agent is running several ads, but so far the only potential buyers who have come to see it want to "flip the house" so they don't even come close to the asking price.
"With what I owe and what I have put into it, I am not going to give it away," she said. "My home is beautiful and all the new interior remodel is beautiful. So I am at a loss on ideas."
Margie O'Campo de Castillo, past president Hispanic Association of Real Estate Professionals and head of Arizona Dream Realty, said the housing market still is strong.
"But homes won't appreciate like last year," she said. "Sellers can't over inflate their prices anymore. If you don't think the market is slowing, just look at all the open