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Report: Housing market still unstable going into new year

December 22, 2009

Although Phoenix-area home prices have been slowly moving up since April, the market remains unstable as we enter the new year. A new report from the W. P. Carey School of Business at Arizona State University shows improvements in both the lower- and higher-priced ends of the Valley housing market, but no guarantees the boosts will continue.

"While the increases reflect a clear trend, this is still an unstable housing market substantially influenced by foreclosures on the supply side and investors on the demand side," says Professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the report. "We saw a market turnaround in 2009 as investors and first-time home buyers were drawn to the housing market to take advantage of deeply lowered prices. However, uncertainty about the timing of recovery in the local economy coupled with new foreclosures makes it difficult to predict the trend of house prices in 2010 with much confidence."

The Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. If the economy does continue to get better, then Guntermann expects the index to turn positive by mid-2010. That's based on the combination of currently rising prices and the lower values for 2009 that the new prices would be compared against.

The latest ASU-RSI report shows home prices fell 23 percent from September 2008 to September 2009. This is slightly less than the 25-percent decline from August 2008 to August 2009 and the 28-percent drop from July to July. Preliminary estimates for October and November have prices declining at even slower rates, 20 and 17 percent respectively.

The index started dropping in March 2007 and has continued to show a decline for a record 31 months in a row. However, the index has been falling at a progressively slower rate since March 2009. Also, while the lower end of the market has been hit much harder than the higher end, the difference between the rates of decline has gotten narrower. Lower-priced Valley homes are down 59 percent since the price peak in mid-2006. Higher-priced homes are down 38 percent from the peak.

The median price for Phoenix-area homes in September was $130,000. That's up from $126,500 in August. Preliminary median price estimates are $131,000 for October and $135,000 for November. Prices have increased for seven months straight, since they hit bottom with an April median of $117,500.

"For the first time, the townhouse/condo RSI is declining at a slower rate like the single-family home index," adds Guntermann. "However, townhouse/condo prices appear to be taking a step down after four months with a median price just under $100,000."

The townhouse/condo RSI dropped 34 percent between September 2008 and September 2009, as compared to 36-percent declines in both July and August. The median Phoenix-area townhouse/condo price was $99,500 in September, but plunged to a preliminary median price of $89,000 for October and November.

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 reports are available at the Division of Real Estate - Repeat Sales Reports. Further ASU-RSI analysis is available at