The Phoenix housing bubble spectacularly popped in 2008. Countless signs point towards a similar struggle now. Here's how bad it really is.

• Phoenix's housing market is deteriorating quickly as a drop in demand triggers home-price declines.
• Goldman Sachs forecasts that home prices in the desert metropolis could fall by as much as 25%.

"Like most bubbles, the longer it goes on, the worse the crash will be," Michael Burry, the fund manager and inspiration for "The Big Short" who famously predicted the 2008 housing crash once said about the danger of overly speculative, high-stakes market conditions.

Indeed, booms do often end in busts. And as Phoenix's housing market performs an about-face from the dramatic rise it witnessed from spring 2020 to summer 2022, experts across the country are debating the possibility of the whole market imploding.

According to sale-price data from Realtor.com, the Phoenix market saw a median peak price of $470,000 last May, but subsequently fell by nearly 13% to $410,000 by December. And as of January 2023, area home sales are down 74% year-over-year, according to John Burns Real Estate Consulting.

Phoenix — a sprawling desert metropolis that's home to nearly 5 million people — is no stranger to speculative real-estate bubbles.

In 2008, when the US housing market crashed, bringing the entire global economy down with it, the Phoenix area was a poster child for how real-estate bubbles can burst spectacularly.

While Phoenix's economy and market fundamentals are much stronger today, countless signs now point toward a similar struggle. In 2022, the hot pandemic boomtowns — cities that saw significant housing demand during the pandemic — turned cold as higher mortgage rates spooked prospective buyers, leading to a downturn in home sales, new construction, and prices. Experts and journalists alike have speculated for months about whether the metro is doomed to repeat history.

It's a bearish outlook that Goldman Sachs deems likely. In a recent note to its clients, the global finance giant forecasted home prices in the desert metro to experience a boom-and-bust, 2008-esque crash of 25% or more.

But experts are split on whether Phoenix's housing market is on track to normalize after a few years of unprecedented home-price growth and robust demand.

"There are headlines we read and then there's what's actually happening in the market," Rick Sharga, the executive vice president of market intelligence at ATTOM Data, told Insider, showing skepticism toward the more extreme predictions of a market crash. He said he sees demand remaining strong and that a shortage of housing supply is likely to "prevent prices from declining too far."

This isn't the first time Phoenix has seen a housing downturn

Phoenix wasn't the only US city that saw its housing market come crashing down from great heights during the mid-aughts — but it was among the metros that the crash hit the hardest.

Before 2008, a combination of cheap debt and loose lending practices led to many US borrowers taking on mortgages they could not afford. When the situation finally hit its breaking point during the Lehman Brothers meltdown, the nation witnessed a widespread foreclosure crisis among homeowners and a credit crunch among the investors who owned bonds that defaulted mortgages now backed.

The subprime mortgage crisis was the catalyst to devastating the US economy and housing markets throughout the country, particularly in Phoenix.

The area's once-thriving housing market crumbled as job losses piled up and caused both normal buyers and investors to walk away from underwater mortgages. Phoenix home prices tumbled in the years following the crash, falling by 50% from the peak in 2006.

Despite Phoenix's turbulent past, John Wake, an Arizona-based real-estate analyst and broker, said that the area is unlikely to experience another dramatic collapse. This is largely thanks to stricter lending standards implemented after the passage of the Dodd-Frank Act, he said.

"Focusing on foreclosures is key because that is what really killed the market here," he told Insider. "It was insane. Just in the Phoenix area, we had 50,000 foreclosures in 2009 — it won't even approach that today."

Phoenix leads other US metros in home sales and price declines

While Phoenix — and much of the US — may be off the hook for a tidal wave of foreclosures during this cycle, its housing market is weakening faster than nearly any other city.

For one, homes listed for sale are staying on the market longer. According to the real-estate brokerage Redfin, in December 2022, homes sat on the market for a median of 61 days before selling. That's a 30 day increase — double the amount of time on the market — from the same time period in 2021.

Another factor at play is the sheer number of home-builder cancellations in Phoenix. Data from John Burns Real Estate Consulting shows that as of January 2023, 44.7% of homebuilders' net sales had been canceled, up a whopping 496% from January of last year.

"For builders, unsold inventory costs them money every day they're sitting vacant on the lot," Barry Cox, the vice president of consulting at John Burns Real Estate Consulting, told Insider. "So we've seen price declines on new home sales in a number of markets since mortgage rates ballooned last year."

There's a glimmer of hope, however. Buyer demand across the country is beginning to thaw as mortgage rates fall.

Sindy Ready, the vice president of the Arizona Association of Realtors, told Insider that lower mortgage rates are giving agents hope for the spring homebuying season — a time when buyers typically flood the real-estate market.

"Every year right around the fourth or fifth of January, the phones start ringing after everybody's done with the holidays," Ready told Insider. "We weren't really sure if that was going to be the case this year with interest rates being a little higher, but it was the case. We started seeing more activity in the market in early January."

Phoenix's housing market could be on track to normalizing

Despite the numerous indicators of a weakening housing market, Phoenix may simply be facing a correction instead of a crash, several experts told Insider.

A major difference between the 2008 bubble and today is the fact that the Phoenix area's economy has diversified and become more resilient, attracting employers and their workers who need someplace to live. In terms of overall output, Phoenix's GDP has nearly doubled between 2009 and now, Fed data shows.

"Phoenix remains attractive to buyers because it is expanding and the population is increasing," Wake said, adding that "homes are appreciating and there is a stronger market as people move in."

In 2023, the Phoenix metro area is poised to see several large projects developed throughout the region, including the construction of two factories by Taiwan Semiconductor Manufacturing, which plans to eventually employ 4,500 workers, the Phoenix Business Journal reported.

"Most of the experts that the association relies on are all thinking that we're going to be appreciating in value this year — somewhere between 1% and 3%," Ready said of the expected price growth for the area. "I've heard no one other than Goldman Sachs say that our market is going to be crashing, especially similar to 2008."

Ready said the market isn't in peril — it's just "normalizing" as buyers and sellers become more "realistic" about their expectations.

"I wouldn't be afraid of the market right now," she said. "I'm recommending to my buyers that it's a great time to be a buyer because they can negotiate a little bit again, and from a seller perspective, they just have to be realistic on their pricing."