An interesting little look at a home price index (Case Shiller Index) for Dallas, Phoenix, and the US in general for the last nine years. This comes via the Market Movers blog. The traditional explanation for Texas' non-participation in the recent housing bubble has been related to the availability to expand supply of homes when demand increases.
If demand for homes rises with supply staying put, then the prices will rise correspondingly. The supply has been argued to be limited (or inelastic) in coastal areas or areas with difficult zoning regulations.
Since Phoenix does not traditionally have that problem, and could, in theory, expand supply of homes as rapidly as Dallas did, why did Phoenix inflate as much as it did?
Interestingly, Ryan Avent of Market movers points to new research that shows that home prices rose abnormally in Southern California because of the reason explained above, and Phoenix simply 'cought the contagion' of that bubble because of the relative proximety of the Phoenix market to San Diego and LA. In other words, when home prices rose in nearby Souther California, buyers in Phoenix became willing to view the two markets as very similar and pay somewhat similarly rising prices for their real estate.
I think I will include "...and Thank You that You allowed me to purchase a home in Dallas, not Phoenix, in 2005..." in my nightly prayer tonight.
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