Is The Phoenix Real Estate Market In Trouble? | Phoenix Real Estate Market Update

Photo byCaitlin McKeague

As the real estate landscape shifts, many are asking: Is Phoenix still a hot market, or are we seeing signs of trouble? In this update, we'll delve into recent trends affecting Phoenix, including its popularity among movers, the rental market, and housing inventory. Plus, we’ll explore the latest mortgage rate trends and their impact on affordability.

Phoenix's Changing Popularity

Phoenix, once a top destination for movers, no longer makes the list of the most popular markets in the U.S. According to recent data, cities in the South, Northeast, and Midwest are currently leading the pack. Notable mentions include Columbus, OH; Knoxville, TN; and Pittsburgh, PA. The West Coast, including Phoenix, is noticeably absent from these lists.

While this shift may seem concerning, it’s part of a broader trend. Phoenix's real estate appeal appears to be waning as other markets gain traction.

Phoenix Joins the Trillion-Dollar Metro Club

In another significant development, Phoenix has recently joined the ranks of the trillion-dollar metros, where the total home value exceeds $1 trillion. According to a Redfin report, the total value of U.S. homes has surged to $49.6 trillion, with Phoenix being one of the new additions to this exclusive list.

However, Phoenix does not feature in the lists of metros with the fastest or slowest growing home values. Over the past year, the city's home values increased by $52 billion. Despite this, the high home values exacerbate affordability challenges in the region.

Rental Market Dynamics

The rental market is experiencing substantial growth, with the renter population increasing three times faster than the homeowner population. Rising home buying costs have driven more people to rent rather than buy. Nationally, the number of renter households grew by 1.9% in the second quarter of 2024, marking one of the largest gains in recent years.

In Phoenix, rental rates are currently more affordable than mortgage rates, which have surged significantly since the pandemic. Nationally, asking rents have increased by 23% compared to pre-pandemic levels, while mortgage payments have surged by 90%.

Renting vs. Buying in Arizona Cities

Here’s a snapshot of the rent versus buy situation in various Arizona cities:

• Phoenix: Average mortgage payment is $2,557, while rent is $739.
• Tucson: Average mortgage payment is $1,983, with rent at $1,540.
• Mesa: Mortgage payment averages $2,692, and rent is $1,708.
• Chandler: Average mortgage payment is $3,163, while rent is $2,335.
• Scottsdale: Mortgage payment is $4,491, with rent at $2,135.

These figures illustrate that renting is generally more affordable than buying in most Arizona cities. For potential investors, understanding this rent versus mortgage dynamic is crucial for evaluating rental property profitability.

Current Trends in Phoenix Metro

The Cromford Market Index (CMI), which measures market balance, currently stands at 99.7, indicating a balanced market. The supply index has slightly decreased, while demand remains stable. Cities like Fountain Hills and Chandler are experiencing stronger seller's markets, while others like Paradise Valley and Tempe are balanced.

Mortgage Rate Impacts

Recent declines in mortgage rates have increased buyers' purchasing power. According to Redfin, buyers have gained nearly $30,000 in purchasing power over the past month due to lower mortgage rates. Current rates are the lowest we’ve seen since April 2023, but there are speculations that rates might decrease further.

Mortgage rates are anticipated to move in anticipation of the Federal Reserve’s decisions rather than in direct response to them. Upcoming inflation reports will be crucial in shaping future rate adjustments.

Inventory Insights

Inventory levels in Phoenix have been stable, with around 16,000 active listings. While this is higher than previous years, it remains steady without significant spikes. This stability suggests a balanced market, with no immediate concerns of oversupply.

For sellers, understanding local inventory trends is essential. High inventory can shift the market toward buyers, potentially affecting home prices.

Conclusion

Phoenix's real estate market is navigating through shifting dynamics. While the city’s popularity among movers may have declined, its status as a trillion-dollar metro reflects a significant, albeit challenging, milestone. The rental market continues to grow, driven by high home buying costs, and mortgage rate trends are enhancing buyers' purchasing power.

For more detailed data on the Phoenix market, including inventory by ZIP code, and to access the latest mortgage calculators, please refer to the links below.

Sources:

• Redfin News on U.S. Housing Market
• Cromford Report on Phoenix Market Trends

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