IN TODAY’S PAPER

How inflation takes a bite out of homeowners and flattens small gains in the Valley’s real-estate market.

Some of the 530 property owners in Glendale’s 85302 ZIP code who sold their houses in 2014 may have welcomed a sale price close to what their homes were worth 10 years ago.

But that sale price only matches up to the 2004 value on paper.

In 85302, the median home-sale price in 2014 was $147,000. That’s up 0.9 percent from 2004. When the effects of inflation are considered, last year’s sellers actually got about 20 percent less for their home.

Overall, home prices in the Valley are pretty much the same as they were 15 years ago, when adjusted for inflation, said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business.

“Someone who has seen their income go up 30 to 35 percent won’t find housing more expensive, but those who haven’t seen big income gains will,” Orr said.

Some of those celebrating the gradual return to the pre-boom, pre-crash home prices of 2003 and 2004 may look past the reality that those prices haven’t come close to catching inflation.

See VALUES, Page 9A

Longer-term homeowners who unloaded their property after 10 years likely did so at a loss, especially when considering the generally higher cost of living today.

But homeowners who bought in 2009 and sold their home last year likely saw a respectable return on the sales price, even when considering the effects of inflation, according to an Arizona Republic analysis of figures tracked by the Information Market, part of the Arizona Regional Multiple Listing Service.

Inflation is “a factor in individual consumer decision-making. It’s a factor in forecasting. It’s a factor in business planning,” said Dennis Hoffman, director of the L. William Seidman Research Institute at the W.P. Carey School of Business at Arizona State University. “If you’ve got low and falling prices, why buy today when it’s going to be the same or even cheaper next year? So why buy at all? That’s the recipe for a slow economy.”

Except for the occasional global financial meltdown, inflation is usually a quiet constant, adding to the price of goods and services over time. It encourages purchases today but also provides tangible payoffs to longer-term investments.

In recent years, that routine was disrupted, first by a rapid surge in home prices during the housing bubble, followed by a collapse in values during the crash. Unlike retail sales prices that are intended to get consumers to quickly open their wallets, falling home values, along with an anemic economy, fed a vicious circle that kept many off the housing market.

The result is a slower recovery in sales and prices for homes.

There were about 83,000 home sales in the Valley during 2014, according to the Information Market. Of those, 60,000 sold in ZIP codes where the median over- all price was higher than it was in 2004.

When accounting for inflation, just 7,000 sold in areas that showed a 10year break-even price, or better.

The story is very different for those who were buying in 2009 and selling in 2014.

Without inflation, 82,000 of last year’s sales — nearly all of them — were in ZIP codes that had seen a fiveyear increase in the median sales price. Some 77,000 of those sales were in areas where values rose faster than inflation.

About 30,000 of those sales were in ZIP codes where the median sales price jumped at least 25 percent over five years.

“The typical homeowner might not track inflation, but investors watch the moving line to see how it tracks with home-price appreciation,” said Tom Ruff, real-estate analyst with the Information Market. “Inflation is a telling point for when to buy and sell houses.”

Each house has its own financial history, and each group of buyers and sellers brings their own expectations and needs. But collectively, those with shorter histories in the real-estate market likely have seen a better return on their spending.

With the economy improving and the accumulation of years of low inflation, renters may be seeing lease increases high enough to begin pushing them into the housing market, Hoffman said.

“What explains a lot of the recent behavior is low inflation,” Hoffman said. “The question is, at what pace will we start to transition into a more normal and maybe even quasi-robust inflation trajectory?”

Many forecasts still see annual inflation at 1 percent or less this year, he said. Ironically, oil shocks in the 1970s helped create a spasm of high inflation. These days, Hoffman said, an oil shock is helping keep it low. Reach the reporters at ronald.hansen@arizonarepublic.com and catherine.reagor@arizonarepublic.com.