Phoenix has generally been considered one of the most affordable large metropolitan areas to live in the U.S., but the landscape is shifting significantly. Record demand fueled by the large millennial cohort entering prime home buying age, in-migration patterns from more expensive cities, and historically low interest rates are having a serious effect on housing costs in Phoenix.
Insatiable home demand that has resulted in falling supply and rising material and labor costs have pushed home prices in the metro Phoenix area to new heights. Home prices in the metro Phoenix area have increased dramatically over the past 12 months. Both new and resale median home prices are approaching $100,000-plus increases during this period of time. July new-home prices are 25% higher than they were in July of last year, while resale home prices are 27% higher over the same period.
Home buyers are still purchasing new and resale homes at record numbers even with the rising costs. Even as home prices are appreciating at a rapid rate, there appears to be ample demand in the marketplace today. There has been a slight pullback in demand for new homes over the past 30 days. New-home sales in the metro Phoenix area fell 16% from the previous month, though, when compared with historical numbers, demand is still high.
While there is demand today, every day of rising prices is another day a buyer is priced out of the market, which creates cause for concern in the latter half of this year. Home price appreciation is pushing entry-level buyers out of the market—a market that is fueled by entry-level buyers. This is just a “yellow flag” at this time, but there is a high likelihood that demand will soften later this year.
Conversely, significant in-migration and an expanding local economy suggest there should be optimism moving forward. Phoenix has ranked in the top 10 for in-migration for the past several years, and that is unlikely to change in the near term. With a limited level of supply, new metro Phoenix area residents need a place to call home, which is favorable for home builders and developers. According to June employment data, the metro Phoenix area unemployment rate sat at 6%, and 77% of the jobs lost in the COVID-19 recession have been recovered. On a national level, unemployment in June sat at 5.9% while 66% of jobs have been recovered, suggesting Phoenix is recovering better than the nation as a whole.
