Phoenix housing market: What will happen when mortgage rates drop

Phoenix's real estate market is on edge as would-be buyers and sellers impatiently wait for mortgage rates to cool .

Why it matters: Many Valley families are eager to hop back into the market , but they're waiting for a sign that it's stable after the chaotic pandemic-era price surges and subsequent rate hikes .

The big picture: Pending home sales this year through July were more than 8% lower than the same period last year, per Phoenix Realtors data.

• More than 17% of pending home sale contracts fell through during the first half of 2024, per Redfin. In many instances, that's because the buyer failed to secure a mortgage, according to the National Association of Exclusive Buyer Agents.

Meanwhile, roughly 36% of metro Phoenix houses for sale saw price cuts in May, per Redfin, as homeowners who need to sell try to entice buyers back to the market.

Zoom in: Phoenix Realtors board president Sheryl Bowden told Axios the market is still level-setting and she suspects inventory will increase to pre-pandemic norms and competition among buyers will grow, maybe as soon as next month's anticipated Federal Reserve rate drop .

• In July, sales were up nearly 7% in Phoenix compared to July 2023. Rates have already dropped to their lowest level in more than a year in anticipation of the Fed's action, and it's made buying more palatable, she said.

Reality check: Rates almost certainly won't return to the pandemic-era lows of 2.5% to 3%. That may keep homeowners locked into homes longer than usual, but eventually people will likely begrudgingly give up their low rates, Bowden said.

• "This is the new normal. If you want to change neighborhoods or upsize or downsize you have to just accept it," she said.

What we're watching: Many real estate agents, including Bowden, predict a bit of a "feeding frenzy" when rates do finally drop, because Phoenix still has a severe housing shortage .

• If everyone returns to the market at the same time, prices will probably increase and sellers will have their pick from multiple offers, she said.

The bottom line: Home prices have increased nearly 2% since last year. That's something buyers should consider when deciding whether waiting for the perfect interest rate is the best long-term financial move, Bowden said.

• "The prices have gone up quite a bit while you've been waiting," she said.