True to its name, Phoenix has risen from the ashes of its foreclosure-ridded real estate market to lead the nation in year-over-year price increases, up 32.63 percent year over year in Realtor.com’s May data.

A new analysis of appraisal data from the Phoenix market, which has puzzled experts and delighted local homeowners, suggests that its prices overshot the downside and fell further than warranted due to the appraisal methods used to set values: replacement cost and income capitalization.

Home prices in Phoenix reviewed by economists at Home Value Forecast suggest they are selling at significantly below their replacement costs and the rental yields generated on these homes are far above historical levels. Based on employment growth and affordability they argue the Phoenix market is detached from economic fundamentals.

“Phoenix provides a good case study of a market which has been in transition over the past year,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “Market drivers here have all turned positive for home prices, with months of remaining inventory (MRI) dropping to the lowest in the country. The big drivers are that these homes are selling at significantly below their replacement costs and rents, and the rental yields these homes can generate are far above historical levels.”

Looking at historical employment numbers and the median single family prices in Phoenix since 1985, the authors note a correlation up to 2004, at which time home prices went into bubble mode and became completely detached from the employment picture. After the peak of the market in 2007, the median price began to revert back to a more sustainable level such as what would be suggested by the employment numbers. However, as is typically the case with bursting bubbles, Phoenix home prices went not only to the economically-based level, but significantly below it. Since home price cycles are measured in years not months, the authors note that it isn’t surprising that the Phoenix market (and other bubble markets) have spent the last several years in a bottoming out process before they begin to revert back to their fundamentally driven values.

“The Phoenix market recovery shows many positive leading indicators including the number of active listings in Maricopa County down 39.4 percent from a year ago, months of remaining housing inventory down to 2.5 months and foreclosure sales down 50.4 percent,” added O’Grady. “In many areas of the Phoenix market, we are seeing nearly every ZIP code classified as “strong” or “good” according to our most recent Market Condition scoring system.”

This month’s Home Value Forecast update also includes a listing of the 10 best and 10 worst performing metros as ranked by our market condition ranking model. The rankings are run for the single family home markets in the top 200 CBSAs on a monthly basis to highlight the best and worst metros with regard to a number of leading real estate market indicators, including: sales and listing activity and prices, MRI, days on market, sold-to-list price ratio and foreclosure and REO activity.

“The top ranked metros in the current month represent an interesting mix of U.S. real estate markets. Not surprisingly, our case study Phoenix market is one of the strongest, as are other southwest U.S. markets such as Dallas, Houston and Oklahoma City,” said Michael Sklarz, Principal of Collateral Analytics and contributing author to Home Value Forecast. “One thing that all these markets have in common is that they all have experienced significant declines in active listing counts over the past year, leading to tighter months of remaining inventory.”

In Mirage Mills, we’ve seen it all when it comes to the housing mess. Entire neighborhoods are so run down you would think Home Depot went out of business. Our kids think “bank owned” is an invitation to invite their friends to a weekend blow-out and trash a vacated house. The black market in copper stripped from hot water pipes and gutters is a major source of local employment. They don’t call my town the Chernobyl of American real estate for nothing.

So it’s no surprise that Mirage Mills was the birthplace of the short sale. Back then, we didn’t call it a short sale. We called it the Big Loser.

The Big Loser was the brain child of Ernest S. Crowe, the smartest mortgage guy in town. His friend, Ziggy Callamitti, was farther underwater than Jacques Cousteau in a National Geographic special. The monthly payments were killing him, so Ziggy decided to walk away from his home and mail the keys to the bank. Today they call that a “strategic default.” In those days we called it being a bum.

Ernest had a better idea. “Your bank will lose a ton of money if they foreclose on you. It will take them years to sell your house. I’ll ask them if they would consider forgiving, say, ten percent of your principal and refinance you at today’s rates. Then you would be able to afford your monthly payments. “

“Why would they ever do that?” asked Ziggy. “They don’t care if I lose my shirt. Ernest, these are the same people that sold me a loan they knew darn well I could never afford.”

“You have to think like a banker,” said Ernest with a knowing smile. “Bankers aren’t stupid.”

Well, Ernest was wrong. The bankers laughed at him. “Ten percent? Get outta here. I guess you would like to us to lower our profits ten percent, cut our dividends ten percent and get Christmas bonuses ten percent smaller than last year?”

“But you will lose a lot more if he walks,” said Ernest.

“You guys live in the Chernobyl of American real estate. You’re all bottom feeders. One guy gets ten percent, everybody else is gonna want ten percent. No, we need to make an example of deadbeats like your client. Tell him to go ahead and walk. We’ll torch his credit for the next 40 years,” said the bankers.

“Ernest, your problem is you don’t think like a banker,” said Ziggy when Ernest recounted his conversation. “And I mean that as a compliment.”

So Ziggy quit paying his mortgage like almost everybody else in Mirage Mills and waited. When the bank replaced the daily robo calls with very nasty real people threatening to foreclose, he decided to act first and not give them the pleasure.

The U-Haul in his driveway was nearly packed when Ernest called. “Congress just passed this thing called the homebuyer tax credit. Prices are going to go up.”

“So?”

“So let’s go ahead, find a buyer for your house now and get out of this whole mess. Do the bank a favor and save them some money. They’ll do much better than they would if they foreclose. You’ll take a credit hit, but at least you’ll be free and you can more on. It’s as close to a win-win as we’re gonna get.”

Ziggy reluctantly agreed and his real estate agent managed to find a young couple who had just heard about the tax credit. They put a contract on the house before it was listed. When Ernest called the bank, he discovered they had brought in a new manager because the old one had lost so much money. The new manager didn’t think like a banker, either. He listened when Ernest explained how they would do better by going ahead with the sale and agreed to jump through hoops with his bosses to make it happen.

They say that things happen for a reason and maybe the world wasn’t quite ready for the first short sale. The financing fell through for the young couple. It took another whole year to sell Ziggy’s house, for a lot less. By then the tax credit deal was over and prices in Mirage Mills plummeted once again. The bank lost $20,000 more than they expected on Ziggy’s house but the new manager stuck it out until the deal was done.

Instead of a win-win, it was actually a lose-lose . But it could have been a lot worse for everyone concerned, so that’s why we called it the Big Loser instead of the Biggest Loser, like the TV show about fat people. Ziggy lost his house and he couldn’t get a credit card for years, but he got to live in his house for free and saved enough to make some great stock investments. The bank lost a bundle, but they still did better than they would have had the house gone into foreclosure. Most importantly, the managers got their full Christmas bonuses every year. Ziggy’s real estate agent worked ten times harder than she would have for a normal sale, but she wrote a hugely successful training course based on what she learned and became the Mirage Mills Realtor of the Year. Poor Ernest, who thought the whole thing up in the first place, was the biggest loser. He didn’t make a dime.

Never did we think the Big Loser would become such a big deal. Now they call it a short sale, even though there’s nothing short about it. I guess that’s how it goes in the whacky world of real estate where words mean just the opposite of what you would think, like down payments that never go down and closing costs that aren’t the end at all but just the beginning of what your home is going to cost you.

Even though 92 percent of property managers report rents are rising or the same as they were a year ago, property managers are attracting residents more easily than a year ago.

A new TransUnion survey found that nearly half of respondents (48 percent) said rental prices on the majority of their units had increased since this same time last year. Approximately 44 percent said rental prices remained the same.  In the 2011 TransUnion rental survey, only 39 percent reported an increase while 48 percent said prices remained the same.

“Data throughout the last year has pointed to a healthier rental market, and our survey helps validate the current strength of the rental industry,” said Steve Roe, vice president, TransUnion Rental Screening Solutions. “The rise in rental prices, coupled with a decrease in vacancy rates and the ability to attract new residents with less effort are all positive signs for the market and rental property managers.”

Despite increasing rental prices, more property managers are finding it easier to locate prospective residents. Nearly 73 percent of respondents said it is not difficult to find residents compared to 67 percent last year.

Even with a healthier rental market, property managers continue to be concerned with attracting profitable and reliable residents for the remainder of the year. Nearly 60 percent of respondents said they are concerned or very concerned to find such tenants. “Though this number is down from 65 percent in last year’s survey, it does point to the continued unease about the economy and a lingering question about the ability of tenants to make timely rental payments,” added Roe.

Property managers also may be cautious because more than half of survey respondents (53 percent) said they have had a renter “skip out” leaving the unit with unpaid rent or damages. Approximately 18 percent of those surveyed said a tenant has skipped out in the last year.

“Finding reliable tenants is critical as property managers can lose thousands of dollars in rent if a tenant skips out of a rental unit, or if the property manager must take action to evict someone from a unit,” said Roe. “Nearly 50% of small property managers said they’ve had someone skip out of their rental unit. Many of these people only rent out a few units, thus it’s especially important for them to do all they can to identify reliable tenants.”