January 26, 2011

2011: Turning Point for the Phoenix-area Housing Market?

TEMPE, Ariz. — A highly regarded Phoenix-area housing market expert says 2011 will probably mark a positive turning point. His new report from the W. P. Carey School of Business at Arizona State University shows a fifth straight month of year-over-year price declines in the market, but it also asserts a change is on the way.

“Given the pattern that is emerging, it is likely declines will continue for at least the next several months,” says Professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the new report with research associate Adam Nowak. “However, with the economy gradually recovering, employment improving, and the foreclosure problem apparently past its peak, odds are good 2011 will be a transition year in the Phoenix-area housing market.”

The Arizona State University-Repeat Sales Index (ASU-RSI) measures annual changes in average Phoenix-area home prices. The latest report estimates an 8-percent drop from December 2009 to December 2010. Prior to that, we saw a 7-percent decline from November 2009 to November 2010, a 6-percent fall from October to October, a 4-percent dip from September to September, and a 2-percent drop from August to August. Before that, the market hadn’t been in negative territory since March.

Despite the recent steepening of the price drops, Guntermann believes things will improve. However, he adds we have a lot of ground to cover.

“To put things in historical perspective, from December 2007 to December 2008, average Phoenix-area home prices dropped 33 percent; from December 2008 to December 2009, they dropped another 13 percent,” explains Guntermann. “Total declines from the 2006 price peak are still very large in all cities in the Valley, ranging from about 40 percent in Scottsdale/Paradise Valley to almost 65 percent in Avondale.”

The median Phoenix-area home price in December 2010 was estimated at $114,000. This is down from $122,000 in November and $125,000 in October. It’s a very unfortunate drop because median prices had stayed between $122,000 and $135,000 since June 2009.

“The December decline, if it holds up with revised data, would be a notable and unwelcome change,” says Guntermann.

One relatively bright spot in the new report surrounds the townhouse/condominium market. That segment has been experiencing annual price drops around 20 percent for months. However, the median townhome/condo price in December was $63,500, similar to prices in the past several months, indicating the townhouse/condo market finally may be stabilizing.

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 property against itself at different points in time, instead of comparing different homes with different quality factors.

The new ASU-RSI report can be found at http://wpcarey.asu.edu/realestate/housing-market-reports.cfm. Further analysis is also available from Knowledge@W. P. Carey, the business school’s online resource and newsletter, at http://knowledge.wpcarey.asu.edu.

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 99 countries and include 60 National Merit Scholars. For more information please visit wpcarey.asu.edu and http://knowledge.wpcarey.asu.edu.