Foreclosed homes accounted for 37 percent of the total activity in the Phoenix metro real estate market in July — down from February when foreclosures represented 51 percent of the sales. But despite the drop, foreclosures continue to play a major role, signaling that the market has a ways to go before it is healthy again, says Jay Q. Butler, Associate Professor of Real Estate in the Department of Finance at the W. P. Carey School of Business.

Although prices in metro Phoenix dropped 33 percent in May compared to May 2008, the rate of decline once again slowed, adding another month to an improving trend in the market, according to the ASU-Repeat Sales Index (ASU-RSI). The latest data also shows that unlike the last downturn, lower-priced homes are the hardest hit sector.

What does the trough of a real estate slump look like? Phoenix metro area property owners will have time to take a close look at this unpleasant and hazardous landscape as the real estate market slides to the bottom over the next several months — and settles in for a slow, volatile recovery. According to Karl Guntermann, who compiles the ASU-RSI, a slight increase in resale median prices offers some hope. Construction and commercial? Elliott Pollack, co-editor of the Greater Phoenix Blue Chip Economic Forecast says: "Not a pretty picture."

Although nonresidential building held up longer than residential activity in the current recession, the nonresidential downturn now has started and is expected to continue into 2010. The timing of the rise and fall of these two construction categories differs. Nonresidential building began to increase strongly at the beginning of 2006, just as residential activity was sagging, and double-digit growth continued in seven of the next 10 quarters, partially offsetting the drag on GDP created by the residential downturn. But nonresidential building hit the skids in the fourth quarter of 2008 with an annualized decrease of 5.9 percent. Now, looking forward, analysts see no bottom in sight for nonresidential spending during the current year.

Luxury homebuilder Geoffrey Edmunds says the Phoenix market is suffering from a troika of price correction, financing troubles and oversupply — and has yet to hit bottom. But when it recovers, the market will look different, he says. People will be less interested in developments flung out into the desert, and more attracted to the core — inside the Route 101 loop. Many will be looking for what he calls "custom homes in a vertical configuration." Edmunds, who was inducted into the W. P. Carey School’s Hall of Fame this fall, helped bring that style of living to Phoenix and California.