See the interactive graphs HERE.
Phoenix Real Estate Market at a Glance
Yikes! Phoenix home prices are up 9.5% over the last year (July to July). That’s a hot market! Kind of scary hot to me. Prices are up 17.8% since two years ago and 145% since prices bottomed out in May 2011.
On the other hand, Phoenix home prices are now only back to where they were at the top of the real estate bubble in 2006, 12 years ago. If you take into account inflation, however, Phoenix home prices are still 20% below the inflation-adjusted peak in 2005. See the graphic at the bottom of this post.
If the last few weeks we’ve seen stories about home price increases beginning to slow down in some the hottest real estate markets. Prices aren’t falling, they just aren’t increasing as fast.
In metro Phoenix, we don’t see any signs yet that home price increases are slowing down.
See full-size versions of all 3 graphics, here.
Supply
The number of homes for sale is down 11.3% over the last year and 19.4% over the last 2 years. We only have 2.4 months of inventory which is super tight. I think a 4 to 6 months supply of homes for sale in “normal.” Prices start to increase fast under 4 months of supply and now we’re way under 3 months of supply and months supply continues to shrink.
Demand
As the supply of homes for sale continues to decrease, the demand for homes continues to increase. The number of single-family detached homes sold in metro Phoenix increased 6.2% (July to July) despite the higher home prices. (Although, you could also make an argument that it’s “because” of the higher prices.)
2019 Predictions
This time of year we always see a seasonal slow down in home price increases. Look at the graph. The green price line kind of flattens out in the second half of the year, every year.
If, however, we see by the end of the fall that home prices in Phoenix have fallen, that is a strong sign to me that home price increases in 2019 will be smaller than in 2018. And if we see home prices actually increase by the end of the fall, that tells me that home price increases in 2019 are very likely to be even higher than in 2018.
The national economy is super strong and the number of people moving into Phoenix is finally strong again after tanking during the Great Recession. Homebuilders are not overbuilding anything like during the Great Real Estate Bubble so even if the U.S. enters an economic slowdown in the next couple of years, Phoenix housing prices will NOT freefall.
Las Vegas. Our sister housing bubble city, Las Vegas, is now the fastest appreciating city in the United States. According to the latest Case-Shiller data, Las Vegas home prices were up 12.6% over the previous year. Whatever is moving Las Vegas real estate prices is likely in play in Phoenix as well, to some degree. In the Great Real Estate Bubble, Las Vegas home prices took off about a year before Phoenix prices.
Story of a bust
In 2005, the groundwork for the bust was laid with large increases in the number of homes hitting the market (the pinkish line in the second graph), then slowing home sales in 2006 (blue line), and the 2 combined to create a skyrocketing supply of homes listed for sale from 2005 to 2007 (red line).
Notice that prices (green) had more or less leveled off for 2 years and didn’t start to fall until 2007 despite the incredible oversupply of homes for sale since 2006. As they say, home prices are “sticky” on the downside. Also, notice that prices were the last thing to change.
We haven’t yet seen supply loosen or demand weaken in metro Phoenix so, right now, the wave continues.
Sell at the top
All this means that if you want to sell at the top, you may be able to ride the wave for another high season (Jan-June) in 2019. If home price increases slow down in 2019, you might want to start planning your exit.
Phoenix has a large percentage of investor-owned homes. If a large number of them plan to sell at the top, that would be a problem. The top wouldn’t last 2 years like in the last cycle.
During the Great Real Estate Bubble, the conventional wisdom was that home prices never fall so the top lasted 2 years and investors had plenty of time to sell if they wanted to.
Now, however, people know home prices can actually fall, and fall fast, so I think the tide could turn far more quickly in this cycle even though any price declines will be MUCH smaller this time.
Now, what do you think? Leave a comment.
# # #
17 Responses to Phoenix Housing Market Predictions 2019
Agrees with my analysis. I briefly thought to sell a couple of my lowest returning rental properties, but, decided to let it ride till next year and think about it again!
Hey, roberto! Great to hear from you! And thanks for the comment!
Hi John,
I think it is hard to say what will happen next. I bought several homes in the Phoenix Metro area between 2010 and 2012. They have been doing well. Just in the past year in Gilbert two have gone up 20% (which is hard to believe). I think your analysis makes good sense, let’s see what happens over the next few months. One thing I noticed though is if you look at median income per city, then look the price of houses there, and what folks can qualify (based on debt ratios and lending standards) my take is there is room to run on the affordability side (even though there are a zillion articles saying the opposite). For now I am staying pat. Do you know the percent of properties owned by investors? My take is while it is a lot in comparison to previous years it is still relatively small compared to the overall size of the market. But agree, if investors start to sell, it could move the market more quickly this time around. What is your “guestimate” for the decrease in property prices when the downturn does come (whenever this is)? I enjoy your articles, please keep them coming. Steve
steven, Thanks for the comment.
Congrats on your homes!
Percent of Homes Owned by Investors. Nationally, the number went from 13% (2005) to 16% (2014) and then flattened out at around 16%.
Locally, I couldn’t find the percentage currently owned by investors on The Cromford Report, although Mike shows the number of sales that went to investors (looking at “affidavit of value” (but they aren’t required for trustee sales (foreclosure auctions))). The percentage sold to investors is currently running around 12% and peaked at over 25% in 2011 and 2012 (again, doesn’t include trustee sales).
Hey, let’s try to talk Mike into following “Percentage of Sales BY Investors.” Might give a little heads up to changes in investor sentiment.
I don’t have a guesstimate of what would happen to Phoenix home prices in a downturn but I think it’s safe to say they won’t fall 60% like last time.
I see houses in Scottsdale going almost 40-60% higher than 2011-2012, I was talking to an investor recently, they project strategy is to sell soon since the market might fall? and they expect another decrease in property, what do you think?
I see prices falling in the Phoenix Arizona real estate market. With rising mortgage interest rates there will be a downward pricing market going into the year 2019. Many investors will lose money.
The problem’s of 2008 are nearly all in play here. The Federal Reserve blew another doozy of a bubble. ARM loans are more rare, but still present. I predict prices in Phoenix drop 35% over the next 2 years. If you live in your house just know your equity will get repriced…much lower. If you have investment properties get out of dodge right now. The speed of the decline will startle many people, but most investor owners know the drill by now I would think.
So as a first time homebuyer, do you recommend to wait to buy until the price go lower or the market crashes?
I don’t know what you should do. Certainly don’t buy a home unless it’s at least a 10-year home and you’re comfortable with the payments even if the value falls.
Keep an eye on listing counts to determine where prices are going. Listing counts continue to be historically low. Prices will continue to increase next year. You guys reference Mike Orr. He would say although raising rates put downward pressure on home prices, history shows that house prices tend to increase through periods of raising rates. That is because the fed is raising rates to combat excess inflation not all inflation.
Check out this post, https://arizonarealestatenotebook.com/should-phoenix-landlords-sell-or-hold/
Some well presented topics regarding the market in Metro Phoenix. If the Fed increases in a few days again and is intent on achieving or aiming for 3% plus rates then we will have a situation on our hands. Net inflows from investors has really slowed and they will be looking for an exit in the higher rate environment. Overall wage growth or productivity has not been supportive of the price appreciation of the last few years. We need to all remember that the GFC would have been much worse if it were not for intervention and bail outs which will likely not be offered again in the same way or scale. We achieve here in the USA GDP growth of less than 3% (when the recent boom from tax cuts evaporates). To achieve that we run deficits just at the federal level of more than $1 Trillion. This in itself equates to almost 5% of GDP which is matched by municipalities, states, corporate and personal debt increases. In short we create $2 Trillion annually in new debt to grow the GDP less than 3%. $2 Trillion is almost 10% of the economy which means we are actually already looking at some point a contraction of 10% in GDP which will spell maybe 60% in the real estate market since everything goes beyond the bottom in any real crash. We need to stop calling the economy strong. That is simply not true. Imagine we had to as a nation live within our means which we all need to individually?
Some prominent Wall Street types are worried the next recession will be usually long because the Fed doesn’t have a lot of room to play with interest rates and QE and the fiscal policy is running out of bullets too. Ray Dalio is kind of expecting the U.S. government borrowing will become so large that the U.S. dollar may lose its position as the exclusive reserve currency.
There will always be large macro happenings in the world to worry about but at the end of the day, over the long-term, house prices will eventually revert to a number in line with what it costs to build new. For me as an investor, it costs too much time / money to acquire a property with sufficient financing to simply hit the sell button every time I read a negative article. If I see a situation brewing like 2005-08 whereby banks are lending on stated income and offering teaser rates that quickly balloon upward, I may start looking for the exits.
As it sits now, Phoenix house listings are at historic lows, delinquency rates are the same. These are good leading indicators to near term price appreciation.
I don’t live in the state but I’m interested in investing in real estate in Gilbert or Phoenix. Any good recommendations for starter?
When is the best time to sell in Tempe, Arizona? I have a wonderful 2 bdrm, 2 full bathrm condominium on E. Southern Ave. that’s in excellent condition that I’ve been considering selling. I am continually getting calls and letters from interested buyers but I’ve never pursued it. Thanks.
This is a great time of year to sell! The high season goes through May and then slows down. Are you thinking of buying another place or is this a rental you own? Anyway, I know a real estate agent I trust who specializes in Tempe if you’re looking for an expert to talk to. Email me.
Comments are closed.