Thursday, 22nd of May 2008 at 01:59:44 PMAnother report on Real Estate came out of ASU, this time from the W.P. Carey Division of Real Estate. On May 21, they released the Arizona State University Repeat Sales Index (ASU-RSI). In the past couple of days there has been a storm of discussion around another ASU report which historically includes properties that are Foreclosed on. This report showed an increase in sales for the area, but didn’t distingish from resale and foreclosed properties. Many have been upset by this report because it is felt that it was misleading. Anytime you work with a statistical report, there are always areas that can be misleading and requires an understanding of the underlying data.
The ASU-RSI data only deals with homes that are resold, meaning that the same home is used to track trends and even then, they scrub against neighborhood averages. Is this report perfect? Is it better than other reports. Yes and No, or in the infamous words of attorney’s possibly. It all really depends on what you are trying to do. Are you trying to figure out the future, I wish you luck, please let me know if you figure it out, we can both be rich and retire early. If you want to get an idea of what is going on historically, then this index is pretty good. They remove many of the flaws in other indexes. They take a property and follow it through history, what did it sell for last, how about the time before that, okay, what did it sell for this time? How did it do compared to the rest of the neighborhood? Okay, now lets repeat for the thousands of other properties out there and take the average.
Does that mean this index can be applied to all properties, no, it’s just an average. Now we take that average and look at the average income of those in the area. If the average person can afford the average home, then we have a 100% match, if we have an index of 125, that means it would require a 125% of the average income to afford the average home, this is bad. If we have an index of 75, then the average person has more disposable income after buying the average home.
This index does not take into consideration the challenges that can come from acquiring a loan, right now the mortgage industry has moved to a conservative state. This makes it harder for the average person to get the average loan for the average home. How do you take that into consideration? It would be hard to measure.
Okay, so enough of my commentary, let’s talk about what the report says for you:
For the Northwest region (El Mirage, Glendale, Peoria, Sun City, Sun City West, Surprise and Youngtown), home prices were hit the hardest by a 15.3 percent decline in the past recession (late 1980s), only to top that in 2006-2008 with 18.6 percent. We’re facing some bad times in the Northwest valley.
The first quarter 2008 Affordability Index shows Peoria, has a positive in regard to affordability, with a score of 102. Meanwhile, Glendale and Phoenix have moved closer to an affordable match, 98 and 97 respectively.
So let’s interpret these results to the most famous question, should I buy now. Well, we are looking affordable in Peoria, Glendale and Phoenix, we’ve declined historically, but have we hit bottom? Not sure. So, how about this, do you want or need to buy? That’s the more important index of all.
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