Research Stories

by Hal Mattern

Phoenix-area housing prices are declining at a slower rate than earlier this year, indicating that the worst is over for falling home values, a new Arizona State University study has found.

The Arizona State University-Repeat Sales Index (ASU-RSI), which measures changes in average Phoenix-area home prices from year to year, found that prices declined by 33 percent between May 2008 and May 2009. That was down from a 35 percent year-over-year decline in April and 37 percent in both February and March.

Preliminary estimates for June and July show annual drops of 31 percent and 29 percent, respectively, indicating that the rate of home-price declines continues to slow.

“It is now clear that the worst has passed in terms of the rate of decline in house prices and that prices were falling most rapidly back in February and March,” says Karl Guntermann, the Fred E. Taylor Professor of Real Estate at the W. P. Carey School of Business, who calculates the ASU-RSI with research associate Adam Nowak.

Guntermann says that although the housing market remains volatile, it appears that the median home price in metro Phoenix hit bottom at $117,500 in April and rose to $119,000 in May. Preliminary estimates show the median home price was $120,000 in June.

The most recent ASU-RSI also found that prices of homes on the low end of the market fell more rapidly than prices of higher-end homes. From May 2008 to May 2009, the price decline for less-expensive homes was 48 percent, nearly double the 26 percent decline for higher-priced homes. Guntermann says the faster price decline stems from the fact that less-expensive homes dominate the current market and many of them are in foreclosure.

The current slide in home prices is the longest in Valley history at 27 months. Gilbert and Sun City/Sun City West showed the mildest declines from May 2008 to May 2009. The worst drop was in Glendale, where prices plunged 39 percent in just one year.

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 http://knowledge.wpcarey.asu.edu/