Assessing One of the Nation's Worst Real Estate Markets

The U.S. real estate bubble that burst in 2006 was more like a froth of individual bubbles, some bigger than others depending on that most important of all real estate value factors — location. Among the biggest bubbles was the southwestern boom town of Phoenix, which in 2007 supplanted shrinking Philadelphia as the fifth most populous U.S. city.

Phoenix appears on many lists of the worst real estate markets in the U.S. for 2009. On a Forbes worst-markets list published in February, for example, only Las Vegas fares worse than Phoenix. The market is closely tracked by two indices at the W.P. Carey School of Business at Arizona State University. The monthly ASU-Repeat Sales Index (ASU-RSI), produced at the school's Center for Real Estate Theory and Practice, tracks patterns in the single-family market. The Greater Phoenix Blue Chip Economic Forecast presents forecasts for single-family construction, and for construction, absorption and vacancy in the commercial sectors.

So how bad is it in Phoenix? It's so bad that the 35% decline in the ASU-RSI from April 2008 to April 2009 was an improvement over the values reported in February and March, when prices fell by 37% compared to last year. Nationally, according to the S&P/Case-Shiller Home Price Index of prices in 20 large U.S. metro markets, prices of existing homes fell 19.1% in April.

Two-month projections in the ASU-RSI offer some encouragement for Phoenix, with an expected 33% decline in May and 31% in June. According to W. P. Carey finance professor Karl Guntermann, who prepares the ASU-RSI with research associate Adam Nowak, the numbers are "pretty good evidence that the worst of the price declines are in the past." An article about the two surveys, "The View From the Bottom: Phoenix Real Estate Market," appears in the most recent issue of the Knowledge Network's Knowledge@W.P.Carey.