Phoenix, Arizona, one of the hottest housing markets of the last two years, is starting to cool off. This is good news for home buyers who are considering a purchase in the near future, because it means prices are rising more slowly.
Here’s what you need to know about the Phoenix real estate market, as we approach the summer home-buying season.
Phoenix Housing Market Then and Now
Phoenix was one of the cities hit hardest by the foreclosure crisis and housing collapse of 2007 – 2008. In the early to mid 2000s, rampant speculation drove home prices upward at an unsustainable rate. The bubble finally broke in 2007, sending home prices into free fall.
A few years after the collapse, investors swooped into the Phoenix real estate market to gobble up homes at rock-bottom prices. They knew the market had hit bottom and was about to start rising again. So they bought homes at super low prices and, in many cases, held onto them for a year or two while prices rose.
This drove inventory down — way down. A couple of years ago, there was a serious inventory shortage in the Phoenix housing market. “Regular” home buyers were competing fiercely for limited supply. Bidding wars were common. Sellers were getting multiple offers within days of listing their homes for sale. Home prices rose rapidly.
The Phoenix real estate market has cooled considerably over the last few months. While home prices are still well below their bubble peaks, they are leveling off nonetheless. House values are rising at a normal (read “sustainable”) pace once more. This is good for home buyers, and good for the Phoenix real estate market as a whole. After all, we’ve seen the results of unsustainable price growth.
Market Cooling in Numbers
On March 31, 2015, S&P Dow Jones Indices released the latest results from their widely cited home price index. According to the report, home prices in the Phoenix metro area rose only 2.6% from January 2014 to January 2015. I say “only” because just a few years ago, house values in Phoenix were rising by double digits year over year.
How much has the Phoenix real estate market cooled? Consider the following. Here are the annual changes in home prices for this metro area, for the last three years. The most recent change is shown in green:
- January 2012 – January 2013: +23%
- January 2013 – January 2014: +13.8%
- January 2014 – January 2015: +2.6%
Prices were rising faster a few years ago because they had farther to rise (following the tremendous plummet that occurred from 2007 to 2011). But the price cooling also speaks to the current supply-and-demand situation in Phoenix, which is more balanced today than it was over the last few years. In other words, there are more homes on the market today, so buyers aren’t having to compete as fiercely as they did in the past.
But supply is still below demand. Phoenix is by no means a buyers’ market. There is currently high demand for housing in the area, and this will likely strengthen as summer rolls around. Meanwhile, housing supply is still tight by historical standards. So we can probably expect prices to continue rising through the end of 2015 and beyond (though nothing like what we saw in 2012 or 2013).
A Home Price Prediction for Phoenix
Housing economists have predicted additional gains for this metro area over the next few months. But those gains will likely be more modest compared to the last few years.
The real estate data company Zillow recently issued a 12-month prediction / outlook for the Phoenix real estate market. Their economists expect prices to rise by around 3.6% over the next 12 months.
The bottom line: Home buyers should have an easier time finding houses to purchase this summer, compared to the previous two summers. But it’s certainly not a buyers’ market. The worst of the inventory crunch is over. There’s a better balance of supply and demand. The Phoenix real estate market has cooled from the white-hot days of a few years ago … but it’s still pretty warm.