Report: Phoenix-area home prices should level off soon

Phoenix-area home prices should level off soon, if the current trends continue. A new report from the W. P. Carey School of Business at Arizona State University shows price drops slowing and likely to come to an end after about three years of falling.

“The rate of decline has been slowing for several months, and if the present trend continues, prices will level off later this spring,” says Professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the new report with Research Associate Adam Nowak.

Guntermann’s Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The latest index shows Valley home prices dropped about 13 percent from December 2008 to December 2009. That’s less than the 17-percent decline from November to November and the 20-percent fall from October to October. Preliminary estimates indicate the slowdown continued with annual rates of decline at 9 percent for January and 7 percent for February.

The lower end of the market has seen the most dramatic improvement. Since October, the annual drop in prices has gone way down from almost 30 percent to just 5 percent. Foreclosed homes are also faring better than they have in past months.

“The prices of foreclosed homes declined at a 5-percent rate from December 2008 to December 2009, but the preliminary decline for both January and February was only 2 percent,” says Guntermann. “These numbers suggest the foreclosure segment of the housing market is very close to the bottom, at least in terms of the rate of price decline.”

The median price of homes in the December index was $132,500. That’s down from $135,000 in November. Preliminary estimates for January and February are also lower at $125,000 and $127,000, respectively. However, Guntermann believes this may reflect only a seasonal slowdown in the housing market, since the overall index trend is positive, and the median just represents the middle of the market.

The total decline of Valley home prices from the mid-2006 peak is 47 percent. Glendale and Peoria are the only cities that still have total declines of more than 50 percent since the peak.

In the townhouse/condo market, the December 2008-to-December 2009 index shows a 26-percent drop in prices, and it’s expected to get worse with estimated declines of 28 percent for January to January and 30 percent for February to February. The median price of townhouse/condo units in December was $84,600.

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 also available from Knowledge@W. P. Carey, the business school’s online resource and biweekly newsletter, at http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1874.