Why Are Home Prices Still Going Up? | Phoenix Real Estate Market Update

Photo byCaitlin McKeague

The question of why home prices continue to rise is a common one, especially with many predictions of a market downturn in recent years. Despite varying opinions, the trend persists. Let's delve into the reasons behind this phenomenon and examine recent market data to shed light on the situation.

Analyzing Recent Market Data

Mortgage News Daily Insights

Recent reports from Mortgage News Daily highlight the resilience of home prices despite higher interest rates. The Case-Shiller Home Price Index, though delayed, reflects a 6.4% annual increase in February, up from 6% the previous month. Major cities like San Diego, Chicago, and Detroit witnessed significant appreciation, while Portland saw more modest growth at 2.2%.

Redfin's Observations

According to Redfin, for the first time in nearly two years, no major American metro area experienced falling home prices. The national median sales price reached a near-record $383,188, up 4.8% year-over-year. Despite rising mortgage rates, the median monthly housing payment surged by 15% year-over-year, indicating ongoing affordability challenges.

Cromford Report Insights

The Cromford Report's analysis of the Phoenix area's sales price per square foot reached an all-time high of $38.95. Anticipations of a price drop persist, but constrained supply remains a key factor preventing significant declines. Comparing historical inventory levels, it's evident that the current supply shortage is not unique to Phoenix but is a nationwide issue.

Supply and Demand Dynamics

Current Supply and Demand Balances

Examining the Cromford Market Index reveals a nuanced supply-demand scenario. While overall demand remains somewhat low, it's only 20% below normal. Supply, though low, is also not as dire as in previous years, sitting at about 28% below normal. This imbalance, though not extreme, still drives price increases, especially in cities with higher demand and limited inventory like Chandler.

Market Conditions Across Cities

Cities like Chandler are experiencing seller's markets due to high demand and limited supply, while areas with substantial new construction, such as Buckeye, offer more options, resulting in a buyer's market. The majority of major cities in the Phoenix area fall into the seller's market category, indicating ongoing price appreciation.

Overall Market Trends

Despite minor fluctuations, the combined average change in prices across major cities shows a positive trend, indicating consistent upward movement in home prices. However, certain areas like Cave Creek, Queen Creek, Maricopa, and Buckeye lean towards buyer's market conditions.

Economic Factors and Mortgage Trends

Federal Reserve's Stance

The recent Federal Reserve meeting yielded no surprises, with rates remaining steady. While future rate cuts remain uncertain, the Fed continues to monitor inflation and economic data closely.

Impact on Mortgage Rates

The latest jobs report, though weaker than expected, provided some relief for mortgage rates, which had been on the rise for five consecutive weeks. The slight decline in rates following the report underscores the intricate relationship between economic indicators and mortgage trends.

Alternative Financing Options

As affordability concerns persist, borrowers are increasingly turning to adjustable-rate mortgages (ARMs) to lower initial mortgage payments. Though offering lower rates initially, ARMs carry the risk of future rate adjustments, necessitating careful consideration by potential buyers.

Conclusion

Despite ongoing economic uncertainties and rising mortgage rates, the housing market continues to defy expectations, with home prices maintaining an upward trajectory. Constrained supply, coupled with steady demand, remains the primary driver of this trend. While certain areas may experience fluctuations, the overall market leans towards seller's market conditions. As the market evolves, staying informed and exploring alternative financing options can help navigate the dynamic landscape of real estate.

Additional Resources

For those considering selling or buying a home, resources are available to assess market conditions and explore options tailored to individual needs. Instant home value checks and comprehensive guides are accessible to assist in making informed decisions amidst a dynamic real estate landscape. Stay tuned for regular market updates to stay abreast of evolving trends and developments.