How Much Have Home Prices Changes in 2 Years?

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.

Check out the video to learn more!