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Sept. 28, 2012, 6:44 a.m. EDT

More evidence of housing recovery

Price per square foot rising in most active markets

By Lew Sichelman

Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 40 years, responds to readers’ questions on real estate. 

WASHINGTON (MarketWatch)—Here’s another sign that a housing recovery is afoot: Prices on a per-square-foot basis rose in 78 of the nation’s 100 most active housing markets over the latest three-month period, according to the latest figures from the field. 

For the most part, price-per-foot increases were in single digits. But several “core-based statistical areas,” including formerly downtrodden places like Phoenix and Fort Myers, Fla., notched strong double-digit gains, according to data from Pro Teck Valuation Services of Waltham, Mass. 

When it comes to studying house prices, price per square foot is the great equalizer because it adjusts for product mix, a phenomenon that skews other so called “rip-and-read” indexes when more houses at one end of the price spectrum are selling at a greater clip than the other. 

Median house costs are interesting, said Michael Sklarz of Collateral Advisors, which supplies Pro Teck’s data. “But if you want to know how much houses are for, you need to know their price per square foot.” 

Why? Because it “normalizes” for swings in product type and size, it presents a truer picture of the market. And because Pro Teck’s figures are more current than anything else available, they also offer another advantage. 

Numbers from other indexes can be as much as three to six months old. But Pro Teck says it catches sales data straight from 850 local multiple listing services nationwide almost immediately. Once a deal closes, it is captured in the database, which is updated at least once a day and culled 15 days after the end of each month. 

Pro Teck’s numbers aren't without their drawbacks. For example, new-home sales, which tend to lead the market up and follow it down, aren't fully captured. But in that savvy builders these days are listing their products on local MLSs—790 of the 9,292 current listings in the immediate Washington area are for brand new houses—Pro Teck catches at least some builder sales. 

Pro Teck’s numbers also are more detailed than any others, drilling down deep into ZIP Codes and neighborhoods. National numbers make for great headlines, but they are absolutely worthless for buyers and sellers who need to know what’s going on in their local markets. 

The Massachusetts company sells its data to investors, lenders and loan servicers, which is another shortcoming. Government figures are preferable to those from a private concern trying to make a profit from them. 

But in that all real estate is local, Pro Teck’s statistics are as good as they come. A core-based statistical area is defined by Uncle Sam as a geographic “micropolitan” area of at least 10,000 people who are tied to the urban center by commuting. 

Here’s some of what the company’s figures for the three-month period ended Aug. 1 tell us:

• Phoenix and Fort Myers, Fla. are rebounding very well, as are San Jose and Detroit.
  
• The median price per square foot paid in Phoenix rose by a whopping 31.2% from the same period a year ago, from $64.03 to $84.01. Interestingly, the median price in the Phoenix-Mesa-Glendale CBSA was up 31.36% over the same period, from $118,000 to $155,000.
  
• In the Fort Myers CBSA, the median square foot cost was up 19.4%, from $59.46 to $71.
  
• In the San Jose, Calif.-Sunnyvale-Santa Clara CBSA, the median price per square foot rose almost 19%, from $377.86 to $449.51. Nearly $450 a foot is a lot to pay for a house, which is why the median sales price in San Jose was $765,375 as of Aug. 1.
  
• But it’s even more expensive in the neighboring CBSA of San Francisco-San Mateo-Redwood City, where the median price per square foot is $476.95, up 5.9% from a year earlier.
  
• The Detroit area also is showing signs of a strong recovery. The average cost per square foot in the Detroit-Livonia-Dearborn CBSA rose by 16.4%, from $41.54 to $48.34, while the price in Warren, Mich.-Troy-Farmington Hills increased by 10.3%, from $68.01 to $75.
  

Overall, prices were up by double digits in eight CBSAs. On the flip side, none of the 22 core areas which registered lower prices per square foot over the past three months saw more than an 8% decline. The largest slides were in Gary, Ind., down 7.8%, and Birmingham, Ala., at minus 6.4%.

For what it’s worth, the median price per foot for the 100 most active markets combined was $89.75 as of Aug. 1, a 2.5% increase from $87.44 at the same time a year ago. 

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 40 years. MarketWatch readers are encouraged to send their real estate questions to him at lsichelman@aol.com. Answers will be presented in this column every Friday. However, because of the volume of email he receives, he cannot answer every reader’s query.