Okay I just updated the Phoenix Real Estate Market at a Glance graph and I’m kind of confused and kind of worried.
Last year I underestimated how much prices were going to increase this year. Last year I expected 2015 to be a “normal” year with price increases in the 3% to 4% range, max 5%. So far this year, however, the Phoenix median home price is up 8%.
If you look at my graph for inflation-adjusted home prices, it shows prices are now a little high, at least on an inflation-adjusted basis. Prices are where they were in 2004 which seems a little bit high to me.
Of Mice and Men
In recent months, I’ve been expecting that the higher home prices would start to bring in more homes for sale and that would dampen Phoenix home price increases. I thought we would see more supply by November. We haven’t.
Listings. The number of homes listed for sale in metro Phoenix is actually 12% LESS than it was at this time last year. I had expected it to be significantly more.
New listings. And we aren’t seeing more homes hit the market. The number of new listings hitting the market is only slightly above what it was a year ago at this time.
Months supply. The most telling number is the inventory of homes for sale. The months supply right now is 3.6 months. That’s kind of a tight supply but this slow time of year the inventory shouldn’t be so tight. Or at least, I didn’t expect it to be this tight.
I’m a little worried we could see strong home price increases next year which would make Phoenix homes even more expensive than in the early 2000s on an inflation-adjusted basis.
Interest Rate Drama Continues
Fed enters. But on the other hand, the general consensus is that the Fed will increase interest rates and that will cause mortgage interest rates to increase. Everyone expects the higher rates to slow down the real estate market. That’s where I get worried.
But… I remember during the summer of 2004 when the Fed started to increase interest rates (after dropping the Federal Funds rate from 6.5% in 2000 to 1% in 2003) that the real estate market just got crazier despite the rate increases. Maybe, in part, because of the rate increases.
It seemed that the increases in interest rates in 2004 and 2005 just made people more manic about buying homes ASAP before interest rates increased more. I imagine every loan officer in the United States was telling their clients, “Buy now before rates go higher!”
So I’m a little confused and a little worried and I really don’t have a good feel for the Phoenix real estate market in 2016… yet.
Phoenix Real Estate Market at a Glance
Note: When this post was written in November 2015, the graphs only had data through October 2015.
See previous posts in the Phoenix Real Estate Market at a Glance series.
3 Responses to 2016 Phoenix Real Estate Market (Non) Forecast
Hey John, interesting data… I think rates won’t increase too much, you’ve got China easing, Europe easing… and the US can’t swim against that tide too long without a real risk of pushing down economic activity due to currency appreciation. So, with 30 year rates still quite low, rents increasing strongly across the valley, I think you still have a pretty good buy versus rent metric going forward. I’ll predict home price appreciation of 5%+ for the next year. Longer term, when rates increase, you are going to have a whole bunch of people with low rate loans that can’t be duplicated again. So, that is an incentive to just keep the home longer. My $0.02! Have a great holiday!
Roberto, that’s a great point I hadn’t thought of, in a higher interest rate future, people with lower rates won’t want to move. Lowers supply and demand in a way.
This morning I’m thinking 5%+ would be the minimum. I’m thinking of 2004 when the Fed increased rates it just made people want to buy sooner before rates went up more. It was a different time but the increasing Fed rates in 2004 and 2005 just made people more manic about buying a home. So this morning I’m thinking we’ll get a bit of that “expectations” effect in 2016.
Great to hear from you!
Excellent data John. Thanks for sharing.
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