Phoenix is one of the many Sun Belt cities where housing markets have taken a big hit during the recent real estate bust, with residential prices down nearly 45 percent since 2006. That, plus high foreclosure and vacancy rates, make for a dismal market for sellers. For homebuyers, of course, it's a very different story, both in Phoenix and in the many other cities that have followed similar patterns.
We created a list of the 10 U.S. cities with the biggest home price discounts. We compiled this list using the newly launched quarterly Home Offer Report from Trulia.com, a San Francisco-based real estate listing site. Trulia evaluated price cuts in America's 50 largest cities, as defined by the U.S. Office of Management and Budget.
The Trulia folks scoured nonforeclosure residential listing data for all of these cities in the year through March 31, 2011. They tracked prices for single-family homes, townhouses, condos and apartments. The listing information itself came from real estate brokers, agents, third-party aggregators and Multiple Listing Services that participate on the Trulia.com platform.
The quarterly Home Offer Report, which also provides users with interactive mapping, broke down price cuts on the basis of four metrics: average number of days on the market before first price reductions; average discount during the price-cut period; probability of a second price cut; and the total percentage of for-sale properties of which prices have been reduced at least once.
Forbes took the data, equally weighted it, ranked the 50 cities according to each metric and then combined those rankings to find the 10 cities with the most dramatic overall price reduction activity.
Arizona clearly did not fare well, in part because of the double-whammy of a high likelihood that already struggling housing markets will face a second round of price cuts before properties move. Second behind Phoenix at the top of our list was its neighbor to the south, Mesa, Ariz., which is broken out as a separate geographic area in this report. The Copper State's second largest city, Tucson, placed 10th.
Among all homes for sale in Phoenix, 35 percent had their prices cut at least once since going on the sale block, and 56 percent faced the likelihood of further cuts. The average Phoenix home has been sitting at the original sale price prior to that cut a short 48 days. That's a stark contrast to rebounding markets. In relatively robust New York City, for example, property prices had been cut a mere 6 percent after 80 days on the market.
"When you look at Mesa and Phoenix, there are so many foreclosures that sellers have to compete with," explains Daisy Kong, a manager at Trulia.com.
With distressed properties selling for anywhere from a 15 percent to 50 percent discount, sellers of nonforeclosed homes are forced to offer price cuts to compete. Hence Las Vegas, the nation's foreclosure capital, with more than 26,000 foreclosure filings currently on the books, made our list at number seven. Home sellers in Vegas gambled with higher list prices only a short time, slashing values after 54 days on average, with the likelihood of a second chop at 48 percent.
San Francisco, like New York, has avoided an abundance of price cuts. That's not the case for its Bay Area neighbor, Oakland, Calif., which is No. 6 on our list.
"In San Francisco itself you don't see as much movement on price cuts, because those markets tend to be more expensive in general, and sellers are not willing to cut as much," says Kong.
The one Midwestern metropolis that made this list is Minneapolis, Minn., at No. 3. During the year in which Trulia tracked price cuts, the Twin City saw them arrive the fastest — in just 45 days on average. The likelihood of a second round was estimated at 45 percent.
Interestingly, though, the ratio of listed homes that had their prices reduced has fallen from 40 percent last year to around 28 percent this April.
"Sellers are actually pricing their homes much lower to start now," explains Kong. "There's not the disconnect (between asking and offering prices) that was there this past year."