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Report shows first sign of increase in Valley home prices

April 27, 2010

The Phoenix-area housing market has finally reached an important milestone. Preliminary numbers show the first year-over-year increase in Valley home prices happened last month for both the lower end of the market and the foreclosure segment of the market. A new report from the W. P. Carey School of Business at Arizona State University reveals this development, after almost three years of negative numbers.

“While an increase in house prices is occurring only in certain portions of the market, steady improvement also continues in the rest of the market,” said professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the new report with research associate Adam Nowak.

The Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The latest index shows average single-family home prices declined 9 percent from January 2009 to January 2010. That is less than the 13-percent drop from December 2008 to December 2009 and the 17-percent fall from November to November. Preliminary estimates for February and March show continued slowing of the declines to just 7- and 3-percent, respectively. The overall index is expected to level off later this spring.

The most interesting developments now, though, appear to be in two areas. From January 2009 to January 2010, the lower-priced end of the market still saw a decrease in home prices of 8 percent. By March, the rate had gone positive, with a 4-percent annual increase. Foreclosed-on homes also grew in value. The January-to-January number showed a 3-percent decline, but that turned into a 5-percent increase from March to March.

“The March figures also show the first monthly increase in the median price of non-foreclosure home prices since the end of 2007,” Guntermann said. “This may signal the start of price stability throughout much of the housing market.”

The overall median price for single-family homes sold in January was $125,000. Preliminary numbers indicate the median jumped to $132,000 in March.

The median price of townhouse/condo units was $80,000 in January, with an expected median price of $83,500 by March. The townhouse/condo segment of the market continues to suffer, with average prices down 28 percent from January 2009 to January 2010.

This month, Guntermann is also introducing an index to track commercial real estate. The new index will be produced quarterly and will cover office, retail, industrial and multi-family properties.

“Like the housing market, commercial real estate in Phoenix has been hard hit by the national recession and corresponding slowdown in the local economy and the related financial fallout,” Guntermann said. “For this reason, reliable information on commercial real estate prices should prove useful to market participants.”

The inaugural commercial index report explains that the commercial market tends to lag behind the residential market. While the Phoenix-area housing market peaked in mid-2006, the commercial real estate market didn’t peak until almost two years later. Even though the residential side of the market began showing some improvement in early 2009, the commercial side has kept right on declining. In fact, at the end of 2009, commercial prices were declining at an annual rate of 40 percent.

“Normally, we would expect commercial prices to start showing more improvement to follow the improvement already happening in the residential market for almost a year,” Guntermann said. “However, the commercial real estate market tends to be tied even more closely to economic conditions than the housing market. That means we will probably still have to wait for better employment conditions for several quarters before the commercial real estate market actually improves.”

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing and commercial real estate markets. Repeat sales compare the prices of a single property against itself at different points in time, instead of comparing different homes and buildings 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 residential housing report can be found at, and the new commercial real estate report can be found at Further ASU-RSI analysis is also available from Knowledge@W. P. Carey, the business school’s online resource and biweekly newsletter, at