Phoenix Real Estate - “How Much Have Values Really Fallen?”

Falling home values for Phoenix real estate always spur this question from clients and other people I meet, “How much have values really dropped since the market high?” Believe it or not, this question is not answered by the conventional statistics often quoted in the news.

We often hear about the “Median Sales Price” or the “Average Sales Price.” These figures are only helpful for understanding just a facet of the market and what is happening with home prices. Let me explain.

Phoenix Median Sales Price

The Median Sales Price only tells us what the value of the property is where half of the closed transactions fall below it and the other half above it. In this market, this figure has steadily declined which means only tells us that market values are declining while sales in the market are taking place in the lower and lower price bands. It doesn’t yield any more useful information than that. Take a look at the graph.

Though compelling in that there is a sharp and consistent decline, this information simply won’t tell us what is the real percentage decline in home values and real estate in a given area of the Valley.

Phoenix Average Sales Price

The Average Sales Price tells us the average market value of all the homes that have sold in a given period. This figure could be skewed by the sale of a very expensive home or a very inexpensive one being averaged with more middle-of-the-road homes. For instance, if the average sales price of homes in a given city was $250,000 and a $20M property is then sold, the average sales price would get skewed upward. If home values were more stable and the ‘basket’ of average properties was relatively similar, then this statistic would be more useful.

As well and like the Annual Median Sales Price, the figure is a rolling showing a Overall though, the average sales price is not a very effective measure either. So, both the Median Sales Price and Average Sales Price are not effective in answering the question.

What Does Effectively Answer the Question as to Home Values?

The best way to answer the question is to have a direct comparison of a property that sold during the market high period and a similar one that has sold recently. Better yet, if one can compare the same exact home at these two different times, then you get a real clear picture as to what has happened to values.

Now, unlike the Annual Median Sales Price and Annual Average Sales Price which are empirical and take into consideration a lot of properties, the method here is limited unless many properties using this approach are combined (and dates matched, etc.). However, it does give people a very quick understanding as to what has changed within their area from a snapshot-in-time perspective.

Here’s a couple of examples. Keep in mind that the properties that are used here are likely foreclosures and may push values down more than what your property depreciation rate might actually be. In later posts, we will be adding more specific community information.

This home in Glendale at 5829 W. Del Lago Circle:

Sold in September 2006 for $725,000.
Sold in January 2009 for $380,000.
-47% decline in value!

This home in Phoenix at 2307 W. Red Range Way:

Sold in May 2006 for $549,000.
Sold in January 2009 for $250,000.
-54% decline in value!

This home in Gilbert at 4037 E. San Angelo Ave:

Sold in November 2005 for $239,000.
Sold in January 2009 for $154,900.
-35% decline in value.

Or finally, this luxury home in Scottsdale at 10040 E. Happy Valley Road 50:

Sold in January 2006 for $3,200,000.
Sold in January 2009 for $2,477,000.
-23% decline in value.

The Median Sales Price and Average Sales Price are useful figures for seeing overall trends in a given area though they don’t relate as well to the actual decline in value for a specific home. Pulling property information for properties that have closed recently and that were sold during the high period of the Phoenix real estate market yields us more in terms of specific examples of the changes in prices and helps people to relate as to the changes that really have taken place in the market and the opportunities out there as well.