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Phoenix-area home prices go negative for first time in months

October 06, 2010

Both residential and commercial real estate prices in the Phoenix area are still suffering in the rough economy. New reports from the W. P. Carey School of Business at Arizona State University show Valley home prices going negative for the first time in months, while commercial real estate prices are about 30 percent lower than at the same time last year.

On the residential side, the Arizona State University-Repeat Sales Index (ASU-RSI) measures annual changes in average Phoenix-area home prices. The latest index shows a 2-percent drop from August 2009 to August 2010. Previous reports revealed no change from July 2009 to July 2010 and small annual increases in June, May and April. The index hasn’t been in negative territory since March.

“This is the first overall decline since March, but it is consistent with the small ups and downs associated with relatively stable housing prices,” assures the report’s author, Professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who is assisted by Research Associate Adam Nowak. “The ASU-RSI has been relatively stable for more than a year, which suggests that changes in house prices will be moderate going forward unless there are dramatic changes in the Phoenix economy or housing market.”

Foreclosure homes have been one of the stronger segments of the market in recent months, according to Guntermann. However, the price index in that segment declined 4 percent in August after five straight months of increases.

“The weakness in prices may mean there finally is insufficient demand to absorb the steady stream of foreclosures that enter the market each month. However, it is too early to tell if the decline is the start of a new trend or reflects just a temporary slowdown,” says Guntermann. “The data also doesn’t provide a basis for optimism when it comes to nonforeclosure homes, which showed a 9-percent annual drop in August. That’s the segment of the market of interest to most homeowners either waiting to sell or just wanting to know when their equity will stop shrinking.”

Median home prices in the Valley have also fallen out of the $125,000-to-$135,000 range where they had been for almost a year. The preliminary median figure for August is just $122,000.

The preliminary median price of a townhouse/condominium in the Phoenix area for August was just $65,000, way down from $77,100 in July.

“This is a continuation of a downward trend that began in June,” explains Guntermann. “Townhouse/condo prices seem to periodically take a step down in price and then stabilize for several months before starting the next decline.”

On the commercial side of Phoenix-area real estate, the first two quarters of 2010 show somewhat of a leveling off. Guntermann says commercial prices peaked at an annual rate of 28 percent in the third quarter of 2006. The commercial index began to decline dramatically by the end of 2008, and the decline sped up throughout 2009.

“By the end of 2009, the annual decline reached 40 percent,” says Guntermann. “Commercial prices in 2010 remain about 30 percent lower than the corresponding quarters in 2009, reflecting a market with significant problems. The good news is that the commercial market appears to be showing signs of stability rather than worsening declines.”

Both the commercial and residential indices are based on repeat sales, the most reliable way to estimate price changes in the real estate market. Repeat sales compare the prices of a single property against itself at different points in time, instead of comparing different homes and commercial properties with different quality factors.

The new ASU-RSI reports can be found at and Further analysis is also available from Knowledge@W. P. Carey, the business school’s online resource and biweekly newsletter, at