New Record: Phoenix-area Home Prices Drop 30 Percent

January 16, 2009

New Record: Phoenix-area Home Prices Drop 30 Percent

TEMPE, Ariz. — For the first time ever, Phoenix-area home prices dropped 30 percent in just one year. The latest data from the Arizona State University – Repeat Sales Index (ASU-RSI) shows average prices declined 30 percent between October 2007 and October 2008.

The current slump in home prices is now the longest in Valley history at 20 straight months of declines in the year-to-year index. This eclipses the 17-month downturn that happened in the early 1990s.

Also, for the first time, home prices in the northeast region of the Valley dropped more than 20 percent in one year. Home prices in the southwest region were down 40 percent. The median home price in the Phoenix area is now $160,000, about the same as the median home price back in March 2004, close to the start of this cycle. Fortunately, the report also mentions some positives.

”Houses are becoming much more affordable in the Phoenix area,” says Karl Guntermann, the Fred E. Taylor Professor of Real Estate at the W. P. Carey School of Business at Arizona State University, who calculates the ASU-RSI with research associate Alex Horenstein. “When home prices dramatically increased from 2004 to 2006, people’s household incomes couldn’t keep up. Now, falling home prices and the significant reduction in interest rates should have a strong positive impact on the housing market.”

The report also shows Valley home prices aren’t dropping as fast as they were earlier this year. Guntermann predicts the year-to-year rate will bottom out, down between 30 and 35 percent, sometime late this year.

Guntermann adds, “If governmental action leads to a slowing in the number of foreclosed houses added to the market, then that will further improve the housing outlook for 2009.”

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing market. Repeat sales compare the prices of a single house against itself at different points in time, instead of comparing different homes with different quality factors.

The ASU-RSI is produced through the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. The current report and archived previous reports are available at the Division of Real Estate - Repeat Sales Reports. Further analysis is available at http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1737.

W. P. CAREY SCHOOL OF BUSINESS
The W. P. Carey School of Business at Arizona State University is one of the top-ranked and largest business schools in the United States. The school is internationally regarded for its research productivity and its distinguished faculty members, including a Nobel Prize winner. Students come from 75 countries and include more than 60 National Merit Scholars. For more information please visit wpcarey.asu.edu and knowledge.wpcarey.asu.edu.