Arizona real estate experts say that the local market is in crisis. It has become less affordable than ever to buy and rent in the Grand Canyon State. The Phoenix housing market is no exception.
Median sale prices rose over 24% from January to October 2021. Meanwhile, the average price to rent in Phoenix is expected to reach $2,475 by 2028. That is a far cry from the average rental property in 2017, which was only $1,034.
What is driving this affordability crisis in Phoenix? There are many reasons. But one of the most significant economic factors driving Arizona’s housing crisis is a shortage in home supply.
During COVID, all-cash investors snatched up homes on the market. Even corporations joined in on the trend. In Arizona, big companies bought an incredible 31% of all single-family homes for sale.
At the same time, sellers are sitting on their homes because they can not find new ones to move into. And the pandemic caused a slowdown in new home construction, which is down over 50% from the previous decade.
There is good news, though. Reports from 12news, Axios, and Livabl have found that the real estate market in Phoenix, Arizona is about to get way more attractive to potential buyers. That may be bad news, though, if you’re a seller.
What can homeowners looking to move out of their homes in Phoenix do to combat the coming buyer’s market? We answer this question and dozens more in this article, so keep reading to learn more.
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Months after historic highs, Phoenix housing market enters buyer’s market
In a recent report from 12news, Michael Doudna writes that median Phoenix real estate prices are trending downward. The report comes after over ten years of record high home prices due to short home supply.
In May of 2021, the local median home prices hit $480,000. It was around this time that the Fed started increasing interest rates. As interest rates rose, Phoenix home sale prices plummeted.
The median home price started to depreciate over the next six months, hitting $425,00 at year-end. With lower home values, big real estate investors and cash buyers have started to shy away from the Phoenix market.
Now, a year later, prices remain relatively low, especially compared to earlier this year. In the first two quarters of 2022, home prices started rising again. The price increases were due to a short supply of homes.
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In November 2022, the median home value still sat at $425,000. That is a 0% change year-over-year and a negative change from earlier in 2022. We are officially entering a buyer’s market in Phoenix.
What does this report mean for homeowners?
If you are a buyer, you are entering the market at a great time. You may have to pay higher interest rates on your home loan. Yet, at the same time, you will save money on your new home, especially compared to this time last year.
For sellers, the news is less positive. You missed out on a great time to sell your home, with median real estate prices hitting record highs in 2021. Yet, you can still expect to make a profit if you purchased your home prior to last year.
If you purchased your home in 2021, you might want to think again before selling. Most homeowners who bought their homes during the seller’s market will not be able to turn a profit in today’s market.
What’s more, homeowners looking to sell this year will have to make concessions. According to the 12news report, 47% of homes closing feature one or more concessions, which run homeowners a median of $9,000.
Phoenix’s real estate market is finally calmer, but not cheaper
Axios Phoenix’s Sami Sparber sees the market’s cooling prices as a different kind of indicator. Axios’ report claims that supply has returned to pre-pandemic levels. From 2021 to 2022, inventory increased 136.7% year-over-year.
At the same time, Axios refutes 12news’ claim that median home sale prices are back to pre-pandemic levels. They reported the median home sale price at $475,000 in August 2022. However, Axios agrees that prices on trending down.
Yet, despite these signs of a healthier Phoenix real estate market, home sales are still stale. Why? It is more expensive than ever to buy a home, even if that home’s value is closer to pre-pandemic levels.
Phoenix households only needed $41,855 to afford a home in 2020. Fast-forward to now, and lenders are recommending buyers have over twice as much annual income to afford a Phoenix home at $85,618.
The increased cost of taking out a loan has killed the competition in the market. Axios Phoenix reports that pending sales have dropped 61% since this time last year. Homes stay on the market longer, too, averaging 13 days more than in 2021.
What does this report mean for homeowners?
The good news is that these are signs the housing market is correcting from the over-priced real estate we saw in 2020 and 2021. Supply and demand have evened out, making it more affordable and less competitive to buy a home.
Unfortunately, sellers are not so lucky. According to the report, the average seller is getting only 98.1% of the listing price upon closing. Compare that to 2021, when homes sold 1.6% above asking.
Sellers can also expect their homes to stay on the market longer. Because of the higher cost of borrowing, there are simply fewer people looking for homes. Expect buyers to become even more cautious in the coming months.
Home prices may correct even further going forward if interest rates remain high and prices stay relatively flat. However, if home sale profits remain relatively low, fewer people will be looking to sell, which could drive prices up.
Arizona housing market predictions for 2023
The reports discussed above are retrospective. So, you may be wondering what you can expect from the housing market in Phoenix throughout the rest of 2023.
According to a report by Livabl’s Erin Nicks, a looming recession and rising interest rates could make the market cool off even further.
Factors currently keeping prices high include a relative dearth of homes on the market and the housing price bubble still leftover from COVID. Still, the report backs 12news’ claims about a buyer’s market for 2023.
Livabl’s report consolidates findings from Moody’s Analytics, Fortune, and Wells Fargo. According to Moody’s, national home prices could drop 20–25% throughout 2023. Home values in Phoenix could drop as much as 57.47%.
Fortune also reports that the housing bubble in Phoenix and other overvalued markets is about to pop. Work-from-home made the perfect recipe for skyrocketing prices. Now, demand is bottoming out while supply is on the rise.
Wells Fargo’s report also spells doom and gloom for Phoenix’s once-hot home market. Markets that saw massive price hikes in 2020 and 2021 will see the largest corrections. Phoenix is no exception.
What does this report mean for homeowners?
Like the other reports we’ve discussed, Livabl believes that the Phoenix-area real estate market is cooling. A potential recession in 2023 could make problems worse for sellers, especially if consumers pull back on spending.
Real estate markets in Canada, Sweden, and New Zealand can serve as a model for what to expect. The overvalued housing markets in these countries saw negative home value growth after recovering from the pandemic.
In Canada and Sweden, average home values declined by over 1% per month over the course of six months. Meanwhile, New Zealand saw double-digit declines over the course of eight months, dropping a whopping 11%.
Unlike the other reports, however, Livable is optimistic about Phoenix real estate’s future. The local climate, private sector growth, and affordability will continue to draw buyers to Phoenix, keeping demand healthy.
Key takeaways
If you want to sell your Phoenix home in 2023, there is good and bad news. Here are our key takeaways from these Phoenix housing market reports:
- Home values are trending downward, signaling a buyer’s market
- If you bought your home in 2020/21, it will be hard to make a profit on it in 2023
- You may have to make thousands of dollars in concessions to close
- If you do sell your home, there is enough supply on the market to find a new one at a relatively affordable price
- You can not sell your house for above or even on par with the listing price
- If you list your home, it will stay on the market for longer than last year
- A 2023 recession could force home values even lower
Home prices may cool off even further throughout 2023. If you are waiting for home values to go back up, that may not happen. Now is the best time to sell your home in Phoenix.
But how do you ensure you get the best price in this buyer’s market? That is where an iBuyer can come in. iBuyers will give you an instant cash offer on your home, so you can sell your home fast and for what it’s worth.
If you want to sell your home in Phoenix, we can help. Enter your address in our search bar to get a no-obligation home value estimate from iBuyers in Phoenix.
