Arizona home price graphs - Updated with October 2007 data

November 16th, 2007 · 6 Comments

EXCLUSIVE - Graphic presentation created by John Wake, Associate Broker, HomeSmart Real Estate, using ASU data.

Definition of a Bubble

“When prices increase and people buy more. When prices decrease and people buy less.”

That terrific definition was given to me by a brilliant client and friend of mine.

Many of the glass-half-empty readers of this blog will certainly agree with the first part of that definition. They saw themselves surrounded by that attitude in 2005.

Unfortunately, they won’t see that they themselves embody the second part of the definition.

In 2005, many people saw large price increases as a sign to buy. Now many people see large price decreases as a sign not to buy. The logic is identical.

Approximate Median Home Price Drops

El Mirage: Peaked about $225,000. October about $180,000. A decline of about $45,000 or 20%.

Sun City: Peaked about $220,000. October about $180,000. A decline of about $40,000 or 18%.

Avondale: Peaked about $260,000. October about $215,000. A decline of about $45,000 or 17%.

Gilbert: Peaked about $330,000. October about $275,000. A decline of about $55,000 or 17%.

Sun City West: Peaked about $250,000. October about $210,000. A decline of about $40,000 or 16%.

Goodyear: Peaked about $295,000. October about $250,000. A decline of about $45,000 or 15%.

Glendale: Peaked about $250,000. October about $225,000. A decline of about $25,000 or 10%.

Surprise: Peaked about $255,000. October about $230,000. A decline of about $25,000 or 10%.

Tempe: Peaked about $290,000. October about $260,000. A decline of about $30,000 or 10%.

Phoenix: Peaked about $225,000. October about $205,000. A decline of about $20,000 or 9%.

Mesa: Peaked about $245,000. October about $230,000. A decline of about $15,000 or 6%.

Chandler: Peaked about $295,000. October about $280,000. A decline of about $15,000 or 5%.

Graphs based on data published by ASU’s Realty Studies which is affiliated with the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus. I may occasionally make an error when graphing the ASU data.

ASU did not publish data for March, June, September or December until 2006.

Tags: Arizona Price Graphs

6 responses so far ↓

1 Brian McMorris // Nov 20, 2007 at 6:55 am

John, the bubble definition is fine, but just because there is a 5% decline after a 100% increase does not mean that the home market is now a good buy. Good Value will be established when home affordability gets back into line with historical averages. That is around 2.5 times after tax family income, over the long term (maybe $160K as of today).

Put another way, for every $750K Scottsdale house, is there really a family occupant making $300K after tax or $400K before tax? I doubt it.
2 Brian McMorris // Nov 20, 2007 at 7:00 am

Just saw the news on the troubles at Fannie Mae and Freddie Mac this morning. So, add that to this argument: even IF there are families wanting to spend 4 or 5 times (or 6 or 8 times in S. CA) their after tax income on a house, there is no non-conforming mortgage money available, and less and less conforming (FME or FNM) money. Affordability will be enforced by lenders, if not elected voluntarily by buyers.
3 John Wake - Realtor // Nov 20, 2007 at 8:29 am

Loans above $417,000 are certainly available. They aren’t handing them out to anything with a pulse but they are very available to borrowers with good credit.
4 John Wake - Real Estate // Nov 20, 2007 at 9:20 am

And a down payment.
5 Peter Fork // Nov 22, 2007 at 12:21 pm

Brian: interest rates are still well below historical average, which makes house prices naturally well above historical average.

A loan of 200k$ with a 30-years fixed rate of 6% means payments of 1200$ per month, which is affordable for a family earning 64k$ after tax (it’s 22% of their after tax income)., especially considering taxes are so low in Arizona.

At a rate of 8% (which is about what we could call an historic average), they would have to pay 1467$ per month, so their home would cost them about 20% more, but still only 27% of their after tax income.

In the graphs on this page, only Scottsdale has a median sales price above 300k$, and most medians are under 250k$. I think inventories will send prices down in the next few years, but I also think affordability in Phoenix is still a lot better than it is in California and Florida.
6 Brian McMorris // Nov 24, 2007 at 3:37 pm

Peter

Your math is okay. You make my point regarding a 2.5 times “affordability” average. Though, I am not sure why you believe the interest rate will average over 8% in the long term so that 6% is below long term average for a mortgage (unless you were born after 1970). Actually 6.5%, today’s rate, is very near the long term average for a long term (20 or 30 year) mortgage. The range is averaging between 6-7% since the Depression. 8% is well above the “long term” average, though that did look very good in the 80s and is near the average for the past 40 years.

To substantiate, there is no great source for that long term average that I have found. But there is a source for 30 year FHA loans since 1964: http://research.stlouisfed.org/fred2/data/FHA30.txt

You can also look up the 10 year Treasury rate since 1953 and add 2.5% to get a nominal mortgage rate. http://research.stlouisfed.org/fred2/series/GS10/downloaddata?cid=115

These show we were in a period of higher than normal average inflation from the late 60s to the early 90s. If we go back to the 50s or from the 90s to now, we can see that 6-7% is the norm.

To accept that 8% is the long term average, it is necessary to believe that 5% inflation is also the long term average despite statements from the Fed that 1-2% is their target for inflation.

The bottom line is that at this point in time, interest rates are around 6.5%. If you are right and $64,000 after tax family income is the average in the Valley then that will support a mortgage of about $160K. (2.5 times 64). Add a modest down payment, and you get a home price around $180K. I believe the market will overshoot the nominal “affordable price” during a significant correction and may end up at $160K as a low water mark. That is also supported by the idea of “reversion to the mean”, which many economists support.

As for comparing Phoenix to FL and California real estate prices, those are a special case in America. No where else has the special combination of factors that permit such high prices as a function of income (mainly attractive geography and limited supply). As much as I love the Phoenix area, it doesn’t have an ocean and has almost unlimited land supply (but it does have limited water supply which could limit appreciation in the long term).

But I do think that $400 a square foot, which is the norm in Scottsdale, is right up there with CA and FL and may not be sustainable in this economy.

Arizona Real Estate Notebook

Arizona real estate news by John Wake, Associate Broker, HomeSmart