In my last BUSINESS INSIDER article posted in May, I explained why a housing collapse in major metros was coming and why you needed to prepare now. Since then, Wall Street economists, analysts and other pundits have smugly noted that a consensus has been reached that housing is bottoming. So it’s time for me to show you why this consensus view is pure rubbish.

For months, a slew of pundits have pointed to figures which allegedly show that home prices are now on the rise around the country. Nearly all refer to the Case-Shiller price index which has become the gold standard of what’s going on in housing markets. The June index revealed that the year-over-year price declines for 20 major cities had finally ended. Prices in June were higher than May in most of these metros. Analysts were most excited by how Phoenix had turned around. The Phoenix index was up by nearly 14% year-over-year.

Okay, let’s see what is really occurring in Phoenix. My source is Phoenix realtor, Leif Swanson, whose charts I have used in several previous articles. It is not an index and shows the raw sales data for homes sold in Maricopa County where Phoenix is situated. Here is his latest chart which shows the historical percentage of all homes sold in Maricopa County that were lender repossessions.

In the spring of 2009, 2/3 of all sales were REOs. A year ago, it was still nearly 40%. By July 2012, that percentage had plunged to a mere 11%. For the last year, the banks have tightened the spigot and dramatically reduced the number of foreclosed properties which they put on the active MLS.

What is the significance of this? There is hard evidence that REO properties sell at the greatest discount to the non-distressed market price. That discount normally varies from 20-40% depending on the metro and particular location. So when far fewer REOs are sold in a given metro, this will necessarily push upward any measure which uses median prices. That’s why the median sale price for Maricopa County has soared from $114,000 in July 2011 to $145,000 a year later. Take a look at Leif Swanson’s chart on the median price.

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