Last Sunday, the Arizona Republic ran a special report on how the current real estate crisis in Arizona compares to the crash 20 years ago. They included a number of graphs showing how key statistics -- population growth, median home price, median sales -- have changed between the last real estate bubble in the late 1980s and now.
But they didn’t explain what those statistics mean for homeowners, buyers and sellers in the Valley today -- and, as the media often does, the Republic simply continued to sound the “catastrophe” alarm bells. So I created graphs of my own using the Republic’s data and came to somewhat different conclusions.
What does the word “crash” really mean?
Clearly, the housing market in the Phoenix area has been hit hard in the last two years. For homeowners facing foreclosure -- or even those simply looking to sell their homes, facing much lower home values than two years ago -- I’m sure this feels like the worst real estate market possible. But is it? To see, I took the Arizona Republic’s numbers and created some graphs of my own that illustrate what’s really happened here in the last two decades. Check them out:
Population growth, as you can see from the graph, has fluctuated quite a bit over the last 20 years. Sure, it’s down now -- but it’s been down in the past and has always rebounded. Once Arizona’s economy -- and the national economy -- rebound, then people will once again move to Arizona in high numbers. And actually, the drop in housing prices will cause more people to move here because houses are now more affordable. What’s stopping the influx now? People are having a hard time selling their homes in California, Florida, Michigan -- wherever they might be moving from to come to Arizona.
Home sales -- when counting both new and existing homes (resales) -- are clearly down from the peak in 2005. But remember from the monthly market updates I produce that sales of existing homes alone are up dramatically. So it’s the decline in new home sales that is pulling the overall total down. What does that mean for you? As a seller, remember that more existing homes are being bought and sold in the Valley than in a long time. While you won’t get the price you would have in 2005, it is possible to sell your home now.
Between 1986 and 2004 the median sales price of new and existing homes in the Valley was on a nice upward trajectory -- growing at an average annual rate of 4.5%. Between 2004 and 2007, that average annual growth rate skyrocketed to 13.6%. So, when comparing 2008 median prices to median prices in 2005, 2006 or 2007, things do indeed look awful. But comparing to 2004 median prices, the real estate “crash” doesn’t seem as bad.
The line I’ve added to the chart is a trend line -- basically the average growth in home prices over the 1986-2008 period. It shows that in 2005, 2006, and 2007 prices were far above the trend. Prices in 2008 were just below it. That means comparing home prices in 2008 to home prices in 2005, 2006 or 2007 doesn’t give you the real picture -- home prices in 2005, 2006 and 2007 were inflated. Compare, instead, to the trend line and things don’t look as catastrophic as the doomsayers would have you believe.
What do you think? What’s your take on the Valley real estate market? Click on the “Comments” link to join the discussion!
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