Since soaring to spectacular heights several years ago, home prices in Tucson have fallen like a rock thrown into the Grand Canyon.
The question now is: When will they stop dropping?
"I think we're close to the bottom," suggests housing researcher John Strobeck, owner of Bright Future Business Consultants. "They may drop a little bit more."
Strobeck adds that a rapid rebound in prices is not necessarily imminent.
Citing the upcoming expiration of some questionable financing techniques used during the housing boom, Strobeck isn't predicting a return to normal home prices until 2014. "But my crystal ball isn't always perfect," he admits.
Greg Hollman, of Coldwell Banker Residential Brokerage, is currently the president of the Multiple Listing Service (MLS) for the Tucson Association of Realtors. He agrees with Strobeck, and says Tucson is "skating along the bottom right now" in home prices.
Figures provided by the MLS show how much local single-family home prices rose before falling off.
In 2004, average home prices started to skyrocket, climbing from $219,000 to $304,000 in 2007. But then reality struck, and average prices began to tumble, declining to $262,000 in 2008, $216,000 in 2009, and $206,000 in 2010. This year, the average so far is around $188,000.
Those averages vary widely depending on where a home is located. Last year, the average selling price of a three-bedroom house in the northeast part of Tucson was more than $272,000, while a home with the same number of bedrooms on the southwest side sold for $107,000.
That bell-shaped curve is reinforced by statistics on housing square-footage costs published by the national real-estate research company Zillow. For metropolitan Tucson, cost-per-square-foot figures provided by Zillow show median prices—the point at which half of all prices are higher, and half of all prices are lower.
This median cost rose steadily, from $78 in 2000 to $102 in 2004; by 2006, it reached an astonishing $149. Then the decline began, and the square-footage price has fallen for five consecutive years, to $100 by February of this year.
One factor in the sharp decline of home prices is the growing number of foreclosed homes.
"The housing market has been given a shock," Strobeck observes, stating the median price of foreclosed homes is now less than $95,000. "When you can buy a 1,400- to 1,500-square-foot home for that price, that's a real shock (to the market)."
Strobeck also notes that foreclosures constitute around 40 percent of total home sales now.
"The good news about foreclosures is those homes are being purchased at a pretty quick rate," Hollman says.
As a result, Hollman anticipates that the number of foreclosed homes on the market may dwindle by next year—but that will depend upon how many more of these homes are released onto the market by the banks that own them.
Bob Zachmeier, of Win3 Realty, has seen a shift in where foreclosures are occurring in Tucson. During the early portion of the housing bust, he says, he saw the city's southside hit hardest. "Those areas were pummeled, but now they're starting to rebound," he says.
"A buyer can pay $325 per month for a two-bedroom home," Zachmeier says about mortgages for some of the homes in this area. "Why rent at those prices?"
On the other hand, Zachmeier is now seeing more foreclosures in the foothills. "That area is far from bottoming out," he suggests.
Zachmeier perceives another geographic shift in home buying trends: "We're not seeing a pickup in outlying areas, but around the UA, it is."
He predicts: "The housing rebound will start in the central part of Tucson and spread from there."
Zachmeier believes recent sales figures show another split in Tucson's housing situation: For lower-priced homes, he thinks the market has returned and may even be tipping toward a sellers' advantage.
"Those selling for less than $100,000 are flying off the market," Zachmeier says. Because of the poor economy and rising inflation, he sees many people downsizing—and thus driving up the demand for lower-priced homes.
The higher a current home price gets, the pace of sales begins to taper off, with the tipping point being around $120,000.
At the top end of the market, it's a completely different story. "There were 191 houses listed last month at more than $1 million," Zachmeier says, "and five sold. We've seen a lot more recovery at the low end of the market.
For his part, Strobeck hopes lenders have learned the hard lessons of the nation's recent real-estate bust.
"We're going to see a different market," Strobeck says of home-buying in the future. He believes down payments as high as 20 percent may become requirements, and he thinks huge mortgage-application fees will be common.
"If that occurs," Strobeck says, "new ways will have to be found to get people into homes. Taking a cue from the auto industry, that may include the leasing of homes."