Phoenix Housing Forecast for 2021: Above-Average Price Growth Ahead?

  • The Phoenix housing market has had a big year so far, despite COVID.
  • Home prices are rising steadily due to tight inventory and strong demand.
  • Record-low mortgage rates are fueling demand among buyers.
  • Phoenix housing forecasts for 2021 predict a continuation of these trends.

Phoenix skyline at night
Phoenix skyline at night. Photo by Alan Stark (Flickr)

In many ways, the real estate market in Phoenix, Arizona is behaving like the COVID-19 pandemic never even happened.

Home buyers are competing for limited inventory, while prices continue to climb. It’s a hot housing scene as of fall 2020, and that could be the case for the foreseeable future.

In fact, recent forecasts for the Phoenix-area real estate market suggest that home prices will continue to rise at an above-average pace well into 2021.

The main factor driving all of this? A heavily imbalanced supply-and-demand situation. In short, there are a lot more buyers in the market right now than there are homes available, and that’s putting significant upward pressure on prices across the Phoenix metro area.

There’s a lot to unpack here. So let’s get started by taking an updated look at home prices for this particular housing market.

Home Prices Rising Steadily into 2021?

According to the real estate information company Zillow, home prices in Phoenix, Arizona have risen steadily (and substantially) over the past year or so. As of early October 2020, the company was reporting an 11.4% increase in the median home value for this market.

Looking forward, Zillow offered a positive forecast for the Phoenix housing market into 2021. As of October 6, the company’s website stated:

“Phoenix home values have gone up 11.4% over the past year and Zillow predicts they will rise 6.1% within the next year.”

Separately, in a September 2020 housing market update for the nation as a whole, the company’s researchers singled out Phoenix for having one of the biggest home-price gains.

To quote that September 18 news release:

“Year over year, home values [nationwide] are up 5.1% in August, the largest annual rise since March 2019. Markets with the highest year-over-year increases in home values were Phoenix (10.5%), San Jose (10.3%) and Seattle (9.2%).”

Positive Forecast for Phoenix Housing Market

The chart below shows the median home value in Phoenix, Arizona going back nine years or so. It’s based on data collected by Zillow, along with their own proprietary estimates.

Phoenix price chart
Chart: Median home value in Phoenix | Source: Zillow (October 6, 2020)

As you can see, home prices within the Phoenix real estate market have been following a steady upward trajectory for roughly eight years. They bottomed out in late 2011, following the last U.S. housing market crash and economic recession. But since then, it has been a steady upward climb.

The green shaded area shows Zillow’s home-price predictions for the Phoenix housing market, going into 2021. They expect house values in the area to continue climbing for the foreseeable future. And that’s not surprising, when you look at the current supply-and-demand situation in this market.

As of early October 2020, the median home value for Phoenix, Arizona was around $288,000. That’s according to data collected by Zillow. The median sale price in the area was around $317,000, according to the national real estate brokerage Redfin.

Based on all of these trends, the 2021 housing market forecast for Phoenix, Arizona can be summed up in two sentences:

Record-low mortgage rates will continue to fuel demand among home buyers, at a time when inventory remains near a record low. This in turn will put upward pressure on home prices through the end of this year and into 2021.

Super-Low Inventory Tough on Buyers

Low inventory and low mortgage rates are two of the driving factors within the Phoenix real estate market, as of fall 2020. They’re also two of the key factors influencing those positive housing forecasts mentioned above.

Low mortgage rates are bringing more buyers into the market. Low inventory is forcing those buyers to compete, sometimes fiercely, for desirable properties and locations. All of which bolsters home values.

But let’s zero in on the inventory situation.

According to the latest data from Redfin, the housing market in Phoenix, Arizona had about a 1.4-month supply of homes for sale as of August 2020. (Note the all-important decimal in that figure.) That is well below what’s considered to be a “balanced” real estate market.

Similarly, a recent housing report published by Zillow showed that total inventory for the Phoenix metropolitan area dropped by -21.8% from September 2019 to September 2020. That means there are even fewer properties for sale today than there were a year ago.

Meanwhile, there is still strong demand from home buyers in the Phoenix area. You can see this just by looking at recent sales data, time on market, offer versus list price, and other metrics.

So we’re talking about a housing scene where active buyers outnumber the properties listed for sale. In other words, there’s not enough supply to meet the demand.

Home prices tend to rise under such conditions, and that’s precisely what we are seeing as of fall 2020. It also accounts for those positive predictions and forecasts for the Phoenix real estate market extending into 2021.

Steady Population Growth, With More to Come

We talked about the strong demand for homes in the Phoenix area and how it’s affecting the local market. Population growth is a key factor in this.

According to the U.S. Census Bureau, the population for the city of Phoenix grew by a whopping 16.2% from 2010 to 2019. That’s a much higher rate of growth than the national average for the same timeframe, and higher than many other metro areas across the U.S.

It seems the local population is poised for continued growth in 2020 and 2021. According to a Redfin report published over the summer, Phoenix is one of the top destinations for relocation-minded home buyers who are looking at properties in cities other than where they live.

To quote that July 2020 report:

“The most popular places for users to look to move into are typically inland areas with affordable housing, and the second quarter of 2020 was no exception. Phoenix, Sacramento, Las Vegas, Austin and Atlanta had the biggest net inflows of users in the second quarter [of 2020].”

(In this context, a “net inflow” means there are more people looking to move into an area than leave it.)

A Suburban Real Estate Boom?

The cost of living is a factor here. The median home price in Phoenix is lower than many other similar-sized metro areas across the U.S. And the warm climate appeals to many East Coast and Midwest buyers who are tired of long, cold winters.

On top of all that, the COVID-19 pandemic has put a premium on space. Remote workers who can live anywhere are increasingly eyeing homes in the suburbs as opposed to crowded cities. They want homes with office space and yards, and at a reasonable price. And there’s plenty of those to be found in the Phoenix metro area.

So there’s a lot going on here, but in the end it comes down to the usual market fundamentals. There is currently a lot of demand from buyers in the area, but not enough supply to meet it. These will be the primary driving forces through the end of 2020 and into 2021.

Disclaimer: This story contains third-party predictions and forecasts for the Phoenix-area real estate market. Such views and projections are the equivalent of an educated guess and should be treated as such. The Home Buying Institute makes no claims or assertions about future housing conditions.