Outlook: Here’s Why the Phoenix Housing Market Probably Won’t ‘Crash’ in 2020

A recent forecast for the Phoenix, Arizona real estate market predicted that home prices would continue rising through 2020. And that’s not surprising. Based on the current supply-and-demand situation in the area, it seems unlikely that the Phoenix real estate market will crash anytime soon.

With that being said, this market will probably experience a lower level of home-price appreciation in 2020, compared to the gains of 2018 and 2019.

Phoenix Housing Market Continues to Climb in 2020

Concerns about an economic recession in the U.S. seem to have eased for now. But there are still some weak spots within the nation’s real estate markets. In some U.S. cities, home prices are currently dropping after years of steady gains. (Much of Silicon Valley falls into this boat.)

These “pockets of depreciation” have some home buyers and homeowners concerned that the real estate market could crash in the near future. But that seems unlikely.

The more likely scenario is that some overpriced housing markets will level off or dip, while the bulk of U.S. cities experience additional home-price gains throughout 2020. Phoenix is one of those housing markets where the conditions are right for continued home-price gains.

According to the real estate information company Zillow, the median home price within the Phoenix real estate market rose by about 6% over the past year. (That’s based on their proprietary assessment of house prices.) The median price in this market was around $260,000 as of January 2020. Looking forward, the company’s economists have predicted that the median home value for Phoenix would rise by 3.5% over the next year.

House values are driven by many factors. But there are two dominant trends that stand out within the Phoenix real estate market. They are a growing population and a limited supply of real estate inventory. These two factors account for the ongoing rise in home values, and the positive forecasts for the Phoenix real estate market in 2020.

Significant Population Growth Over the Past Decade

During 2018 and 2019, Arizona was one of the top three states in the nation for population growth. Only Texas and Florida outpaced it, in terms of year-over-year growth. Population growth is particularly high within the Phoenix metro area.

According to data provided by the U.S. Census Bureau, the population for the city of Phoenix rose by nearly 15% from 2010 to 2019. That’s well above the nation’s growth rate for that same timeframe.

Population growth increases demand for housing on both the purchase and rental side. With all other things being equal, steady population growth tends to put upward pressure on home prices. And that’s exactly what we are seeing within the Phoenix real estate market, as we enter 2020.

Low Inventory Makes the Market Competitive

This steady population growth comes at a time when the supply of homes is still relatively low.

Like many cities across the country, the number of homes currently listed for sale in Phoenix falls short of buyer demand. This supply-and-demand imbalance is largely why home prices continue to rise within the Phoenix housing market (and why the latest forecasts suggest a continued rise).

According to the national real estate brokerage Redfin, the Phoenix-area housing market had about a two-month supply of homes for sale at the end of 2019. That was well below the national average of three-months supply during that same timeframe, and significantly lower than what’s considered to be a “balanced” real estate market.

These conditions will present a challenge for some home buyers in 2020, particularly those shopping at the lower end of the price spectrum.

Still a Seller’s Market in Phoenix

Given the supply-and-demand picture outlined above, it probably comes as no surprise that Phoenix is still considered to be a seller’s market. For the most part, anyway.

In recent comments made to Forbes, Zillow research analyst Jeff Tucker said:

“For several years — from, say, 2015 to the beginning of 2018 — it was essentially a seller’s market almost across the board. Whereas now, it’s still a selle’s market in Phoenix, but certainly not in Chicago, for instance.”

Competition can vary up and down the pricing spectrum. Generally speaking, competition among buyers is most fierce in the lower price range, for so-called starter homes. Such is the case in Phoenix. Inventory is lowest (and competition highest) at the more affordable end of the housing market.

This is true for the surrounding area as well. In Scottsdale, for example, local real estate professionals are reporting a skewed level of competition that varies by price point.

According to Sindy Ready of the Scottsdale Area Association of REALTORS®:

“For the most part it is a seller’s market … The exception would be in some of the higher price ranges where home owners continue to compete with new custom building on premium lots in north Scottsdale.”

Delinquency Rate Shows How This Market Has Improved

The Phoenix, Arizona real estate market suffered greatly during the last housing crash (and the economic recession that followed it). So it’s only natural for home buyers and homeowners in the area to have concerns about a repeat of that crash.

But the Phoenix housing market of today is much different than it was twelve or so years ago, when the last downturn occurred. For one thing, the mortgage delinquency rate for the area has declined sharply.

The chart below was created by the Consumer Financial Protection Bureau (CFPB). It shows mortgage delinquency rates for the Phoenix-Mesa-Scottsdale metro area compared to the nation as a whole. Specifically, it shows the percentage of mortgages that were at least 90 days past-due. That’s known as a “serious delinquency” in industry jargon.

This chart spans from January 2008 to early summer 2019.


Mortgage delinquencies Phoenix
Chart: Phoenix mortgage delinquencies vs. U.S. | Source: CFPB

As you can see from this chart, Phoenix-area homeowners used to have a much higher delinquency rate on their mortgages than the nation as a whole. This was especially true in the wake of the last housing crash and subsequent recession.

But that has changed. Today, the Phoenix metro area has a lower-than-average delinquency rate, as shown on the far right side of the chart (summer 2019).

This shows that homeowners in the area are doing a much better job keeping up with their mortgages, compared to the past. This trend makes it less likely that the Phoenix housing market will experience a major downturn or crash in 2020. Real estate conditions in the area have stabilized and improved since the last downturn.

A Good Time to Buy In Phoenix?

This brings us to the big question on the minds of many homebuyers in the area. Will 2020 be a good year to buy a home in Phoenix?

Obviously, there are some personal considerations that need to made. But from a market perspective, 2020 is shaping up to be a good year to buy a home in Phoenix.

We’ve already talked about home prices. With house values continuing to rise in the area, home buyers who postpone their purchases until later in 2020 will probably end up paying more for house. That’s the reality of the current housing market. And it will likely motivate some buyers into action.

While home-price appreciation appears to be slowing a bit in the Phoenix area, most forecasters agree that prices will continue to climb for the foreseeable future.

Low mortgage rates are another strong incentive for home buyers who are considering a purchase. According to the weekly survey conducted by Freddie Mac, the average rate for a 30-year fixed mortgage loan is still hovering well below 4%. Rates have been within that range for quite some time now. But they could start to inch upward in 2020.

The bottom line is that mortgage rates are currently favorable and home prices will likely continue to rise in the area. So 2020 might be a good time to buy a home in Phoenix. In fact, a strong argument could be made for doing it sooner rather than later.

Disclaimer: This report contains third-party forecasts for the Phoenix real estate market extending through 2020. Such predictions are the equivalent of an educated guess and should be treated as such. The publishers of this website make no assertions or claims about future housing market conditions.