Arizona real estate markets tend to swing wildly. During boom
periods, home prices accelerate precipitously, but when the bubble
bursts, residential values sometimes slink all the way back to the
price level at the start of cyclical upturn.

However, the tend line is much different in this recession. Things
are actually much worse as housing prices in the Phoenix metropolitan
area have overshot the beginning of the cycle mark, according to the
latest data (January) from the Arizona State University-Repeat Sales
Index (ASU-RSI).

The upswing in Phoenix metro home values began in earnest in January 2004, reports Karl Guntermann,
the Fred E. Taylor Professor of Real Estate at the W. P. Carey School
of Business and the researcher who puts together the ASU-RSI along with
research associate Alex Horenstein. But, the median price for a
Phoenix house is now down to $130,000, the same as it was in January
2001. That's way back before the beginning of the cycle.

The median house price in the Phoenix metro peaked at $262,500 in
2006. In addition, the rate of appreciation for the overall metro
topped off in September 2005 at a 44 percent annual rate with house
prices surging 76 percent from January 2004 to July 2006.

The reporting of the ASU-RSI data carries a three-month lag, so
Guntermann also charts selected data that is used as an indicator of
future housing price direction. As he reads the preliminary numbers,
home prices could slump to $121,000 in February and $120,000 in March,
which would push prices back to the level of April and March 1999,

Markets over-react, says Guntermann. Optimism pushed prices well
above the long-term trend line for appreciation, and when the market
corrects, like it is doing, it goes too far in the other direction.

Unlike most popular indices, such as those developed by the National
Association of Realtors that measure median home prices, the ASU-RSI
index is based on repeat sales. The use of repeat sales data for the
same house is considered the most reliable way to estimate price
changes in a housing market, says Guntermann, because the house
quality issue remains constant. In other words, since repeat sales
compare the prices of a single house against itself, the numbers don't
incorporate different homes with different quality factors.

The ASU-RSI tracks very closely to the S&P/Case-Schiller Index
for Phoenix since the same methodology is employed for calculating both
indices. However, the ASU-RSI scrubs the data differently, dropping
transactions with sale prices less than $5,000 and where homes
increased more than 60 percent annually.

While the news of home value does seem to be grim, there are also
nuggets of hope in the preliminary ASU-RSI data as well. In January,
home prices declined by 35 percent. Preliminary numbers show home
prices will drop 37 percent in February and then 36 percent in March.

That 1 percent slackening in March may not be much, but if the data
holds up then it would be the first time in 25 months home price
declines would be at a slower rate rather than at a faster rate. If
that trend line stays consistent for a couple of months, it would
finally indicate a turnaround on house prices, says Guntermann. Until
now, there has been nothing in the data to give us a sign of optimism,
or hope.

Before an index can get back to zero, which means prices have been
flat on a year-to-year basis, they need to start declining at a slower
rate, which may be happening, Guntermann adds.

When the January ASU-RSI is parsed for regional and municipal numbers, readers tend to get a similar mix of optimism and doubt.

The ASU-RSI divides the Phoenix metro into five sectors, all of
which showed equally abysmal declines on a year-to-year basis. (ASU-RSI
figures represent a price comparison of January 2009 versus January
2008) The two sectors which the most profound declines were the
Southwest (Avondale, Buckeye, Goodyear and Litchfield Park) and Central
(Phoenix) regions, which were off -43.4 percent and -41.4 percent,

In descending order of severity follows the Northwest (El Mirage,
Glendale, Peoria, Sun City, Sun City West, Surprise and Youngtown),
drooping 35.7 percent; Southeast (Tempe, Mesa, Gilbert, Chandler,
Apache Junction, Higley, Queen Creek and Sun Lakes) slipping -34.9
percent; and Northeast (Carefree, Cave Creek, Fountain Hills, Paradise
Valley and Scottsdale) contracting -25.1 percent.

On a regional basis, we don't appear to be bottoming out,
Guntermann observes. Yet, if one dives deeper into the numbers there
may be a hint of less turbulent times ahead.

Things look better on a municipal basis as three of metro area's
seven major cities (other than Phoenix) are showing signs of price
decline moderation.

 In Chandler, falling prices have eased -- as compared to the prior
month -- for three months straight, touching -24.4 percent in January
and better than the -25 percent in December. Tempe also experienced
softening home price declines for three months; reporting in at -15.7
percent, a spiffier number than the -16.5 percent in December.

Finally, Glendale also looked better in regard to home prices over
the past two months. While its -36.3 percent home price decline in
January was the worst drop of any Phoenix metro city, that was still
better than the -37.8 percent decline in the prior month.

Still reporting more severe price declines on a month by month
comparison were Peoria, -34.8 percent (versus -33 percent in December);
Mesa, -33.7 percent (versus -31.9 percent); Scottsdale/Paradise Valley,
-24.5 percent (versus -22.1 percent; and Sun City/Sun City West, -16.7
percent (versus -15.2 percent).

This may be an indication of the Phoenix metro housing market
beginning to split into haves and have-nots, says Guntermann, where in
certain areas prices are going to decline slower but others are still
seeing declines at a faster pace.