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Caitlin McKeague - Your Phoenix Real Estate Broker
How Much Have Home Prices Changes in 2 Years?
2024-01-17
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Photo byCaitlin McKeague
Let me take you back to 2 years ago…it was the start of 2022. We had just had an unexpectedly busy 2021 with soaring demand, increasing prices, and a flurry of activity. As 2022 unfolded, interest rates stood around 3.6%, with the median home price hovering at $435,000. The market was bustling, featuring multiple offers on homes and an overall sense of affordability due to the low-interest rates.
Then what happened? The landscape shifted as interest rates rose, affordability declined, and demand experienced a downturn. Contrary to expectations, the market did not witness significant price drops; instead, prices remained relatively stable, with some minor fluctuations. Despite concerns of an impending crash, the Cromford Report recently shared a surprising 2-year change in prices. And it’s pretty unbelievable to see!
Analyzing the annual average dollar per square foot for single-family detached homes over the last two years, Paradise Valley emerged as the leader with a remarkable 42% increase. On the other end, Arizona City, Sun City, Tonopah, and Sun City West, (particularly 55+ communities) saw the least growth. We also have a few cities that are on the outskirts of Phoenix. Places like Buckeye, Florence, and Queen Creek faced challenges, while New River, Waddell, and Anthem showcased higher growth.
If we look at the median change in the average dollar per square foot across all cities, it’s about 13.8% which is wild! This surge in home values and appreciation surpassed the typical rate seen in a balanced market, where appreciation aligns with inflation. In contrast, the last two years witnessed almost 7% per year, far exceeding the 2-3% seen each year in a “normal market.” So its no surprise that prices have increased very quickly over the last 2 years and many say we are due for a crash. The market cannot stay this way forever.
Not to give anyone Real Estate PTSD but there’s been rumblings of bidding wars erupting in 2024. Some listings have reportedly received over 30 offers, which indicates a highly competitive market. Realtors from various parts of the country shared their observations, citing bidding wars ranging from 20 to 30 offers, particularly in areas with strong job markets. Of course, this depends on the location and condition of the house.
In Phoenix, while multiple offer situations have been witnessed, the intensity hasn't reached these reported levels. Demand will hinge on mortgage rates, which, fortunately, remained stable in the 6.2 to 6.75% range in the previous week. This positive news translates into a $325 monthly savings for buyers compared to the peak rates in October.
Economic data, including a 3% rise in the Consumer Price Index (CPI) and an unexpected 0.1% fall in the Producer Price Index (PPI), influenced the market. Despite the Federal Reserve's optimistic outlook on rate cuts in 2024, some uncertainty persists, with warnings about potential risks to inflation progress.
We’ve been seeing a lot of strength in the SMI or the Cromford Market Index, which is really an indication of the future direction of prices in our market. It looks at supply and demand factors and I’ve got to tell you guys…it’s continued to be strong and has only gotten STRONGER! Phoenix is witnessing a shift towards a seller's market, with an overall increase in demand and a decrease in supply. While specific cities still exhibit buyer or balanced market conditions, the trend indicates a positive direction, offering potential advantages for sellers.
For those navigating the Phoenix real estate market, the evolving dynamics suggest the need for vigilance and strategic decision-making. Sellers may find this shift opportune, while buyers should brace themselves for potential bidding wars and heightened competition. The delicate balance in mortgage rates and inflation will continue to play a pivotal role in shaping the future trajectory of the Phoenix real estate market.
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