May 19, 2009— -- With a new baby on the way Patrick Sliney and his wife wanted to buy a new home, and since prices had fallen so precipitously in Phoenix in recent months, he thought owning a home would be no more expensive than renting.
After paying $1200 in rent each month for the past three years, he figured he could spend that same money each month towards a mortgage.
As foreclosure notices blew through town like tumbleweeds and For Sale signs dotted the landscape like cacti, finding and buying a new home, he thought, would be easy.
He was wrong.
"There were plenty of homes to be had when we started looking. There were 18 houses listed in the one neighborhood where we most wanted to move, a maybe 10-square-mile area. Within two weeks, they had all been sold. It was that quick," said Sliney, 32, a computer engineer and Air Force veteran.
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For months, a glut of foreclosed homes caused prices to fall in Phoenix at rates faster than anywhere else in the country. Between January 2006 and January 2009, prices fell in half, the biggest decline in the United States.
But in March that rate began to slow, indicating to economists the market might be turning around. To investors, that slowdown signaled that the market could be approaching bottom, prices might soon go up and they should buy up properties now while the getting was still good.
As recently as February, Phoenix homeowners facing foreclosure were so under water they were willing to negotiate with buyers well below the asking price and sell for less than the value of the house.
But with prices so low now, investors -- some from as far away as Canada -- are sweeping in to buy up low-end homes, driving up prices, starting bidding wars and sometimes closing out would-be first-time buyers like Sliney.
Sliney was outbid on four homes for which he was willing to pay the asking price, before finding a two-story four-bedroom home outside the city.
He said he recently closed on a "brand-new house in an exclusive neighborhood in the mountains just outside Phoenix" for $185,000 or $1,235 a month, just a few dollars more than his current rent. As a veteran he did not have to put any money down.
Phoenix Home Sales Rising, But Not a Boom
Economists are wary of calling house sales in Phoenix a boom. "Boomlet," might be a better description. But the city, which had become a synonym for the housing market's rapid bust, may be ever so slowly, rising from the ashes.
"Rebound is a little too strong a word," said Karl Guntermann, a professor of real estate business at Arizona State University. "Preliminary data for April suggests a turnaround."
Prices are low, the lowest they have been in years and they're still falling.
Median prices for resold homes peaked in June 2006 at $268,000.
In January 2009, the median price for a home was half that at $131,000. In February it was $121,000. Preliminary data for March puts prices at $119,000 and in April at $117,500, according to the Case-Shiller home price index and Guntermann.
There is, however, a silver lining.
The good news is that the prices are not falling nearly as fast as they were in January.
"Preliminary data shows prices are declining at slower rate rather than a faster rate," Guntermann said. "In this market, that's good news."
Rather than falling by $10,000 a month as they did between January and February, prices slipped just $1,500 between March and April.
Phoenix is not the only city to see a thaw in prices this spring. Homes sales in Southern California and the San Francisco Bay area, which saw high rates of foreclosure, are on the rise as prices dropped.
Bidding wars similar to those in Phoenix have broken out in California "especially the Inland Empire east of Los Angeles [and] the area between the Bay Area and Sacramento," said Glenn Kelman, president of California-based real estate firm Redfin.
He said homes in those areas sometimes have as many as 70 competing offers.
Those areas in California have some things in common with Phoenix. They are places people want to live, which caused home prices to boom over the past decade. And they are places with huge rates of foreclosures.
Some 41,382 homes -- or one in every 40 -- in the Phoenix metropolitan area went into foreclosure in the first quarter of the year, according to RealtyTrac. That is the ninth highest rate in the country.
Foreclosed Homes Driving Sales
It is all those foreclosed homes that are driving the buying and bidding wars, said Pat Lashinsky, CEO and president Ziprealty.com.
"Bidding is taking place primarily on distressed properties, foreclosed on or owned by the bank," Lashinsky said.
He said he has seen as many 30 offers on one property.
Sales, he said, were being driven by three groups: first-time buyers, investors and foreigners.
Many first-time buyers have taken advantage of the $8,000 credit that the Obama administration offered this year.
Like Patrick Sliney, many buyers realized "the gap between renting and owning has shrunk."
Lashinsky said investors were also driving sales. "People are coming in and buying four, five, six properties. Many of those investors left Phoenix, but now they're coming back."
The third group, he said, were international buyers, particularly Canadians in the past four to six months looking for "snow bird" homes.
"The Canadian dollar is strong and home prices are down," Lashinsky said. "From a value perspective it makes a lot of sense."
For Americans looking to banks that are still reeling from the sub-prime loan mess, getting a loan is not as easy as it was a decade ago. Qualified first-time buyers, however, are getting warm receptions when looking for loans.
"The qualifying standards are tighter than they were a few years ago. There is more normal qualifying ratio," Guntermann said.
"People are getting finances, the private market working. They're going through banks and mortgage brokers," he said. "You can get a loan, it's just harder than it used to be."