The fact that Phoenix has experienced a 42 percent housing price drop since its June 2006 peak is a sign of the area’s strength, not weakness. The high housing prices were always unsustainable, because of Phoenix’s capacity to build. Unrestricted supply meant the price boom was always a mirage. The decline in prices reflects the ability of Phoenix’s great growth machine to create inexpensive housing.
Edward Glaeser rescues Bill Steigerwald's rather ham-handed attempt to lampoon Pittsburgh's real estate market. The boom-bust cycle in places such as Phoenix is indicative of an unlimited housing supply. The comparative advantage is one of a dynamic housing market versus fixed residential building stock. In other words, all inexpensive housing supplies are not created equal.
What does this mean for Pittsburgh? The region should focus on the quality of in-migration, not the quantity. Embracing the shrinking city paradigm as Youngstown has would seem wise given that Rust Belt cities can't expect to compete with a sunny climate and endless available land. Instead, Pittsburgh must focus upon the density of talent. The terrain has already fenced in a lot of the innovation within the highly regulated city-limits, which is one of the reasons why the real estate market has enjoyed modest growth over the last few years.
Update: Ryan Avent posts a few critiques of Edward Glaeser's Pittsburgh-Phoenix comparison.