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.

Fed Funds Rate graph

Click graph to enlarge.

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!”

Weak Conclusion

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.