Will the Phoenix housing market crash in 2021? Probably not. Low inventory and strong demand (fueled by population growth) have kept home prices moving north over the past year. And we expect to see more of the same in 2021.
Here are three reasons why the Phoenix, Arizona real estate market probably won’t crash in 2021.
Three Reasons Why the Phoenix Housing Market Won’t Crash in 2021
Above-average population growth. Very low supply levels. And positive forecasts from real estate researchers.
Those are just a few of the reasons why the Phoenix housing market won’t “crash” in 2021 or experience any kind of major downturn. Let’s take a closer look at these three factors.
1. Phoenix’s population continues to grow at a rapid pace.
The population across the Phoenix metro area continues to grow steadily from one year to the next. According to the U.S. Census Bureau, the population within the city of Phoenix itself rose by 16.2% from 2010 to 2019. That was more than double the national growth rate during that same nine-year period.
Population growth tends to increase demand for housing on both the purchase and rental side. And that’s one reason why we won’t see a real estate market crash in Phoenix anytime soon. There are just too many home buyers entering the market in 2021, increasing demand and propping up prices.
According to a recent population study by conducted by researchers at Freddie Mac, Phoenix is one of the fastest growing cities in the country. To quote that report:
“As previously discussed, the fastest growing cities (in absolute terms) are mostly concentrated in the Southern and Western states. Phoenix, AZ, Houston, TX, San Antonio, TX, Los Angeles, CA, and Austin, TX are among the top ten urban areas that have experienced the most population increases.”
The bottom line here is that the Phoenix real estate market is getting a steady influx of home buyers from other parts of the state, and also from across the country. This has increased demand at a time when housing inventory remains low. And it’s one of the top reasons why the real estate market in Phoenix won’t crash in 2021.
2. Housing market inventory remains very low.
Planning to buy a house in the Phoenix area during 2021? Better get in line.
There are plenty of buyers in this market right now, but not enough homes for sale to satisfy demand. For years, this imbalance between supply and demand has put sustained upward pressure on home prices across the Phoenix metro area. It will likely continue throughout 2021 as well.
At the end of 2020, the Phoenix area had about a one-month supply of homes for sale. That was below the national average during that same month, and miles below what’s considered to be a balanced real estate market.
Tight inventory conditions have put sellers into the driver’s seat. Like many cities across the country, the Phoenix housing market currently favors sellers over buyers when it comes to negotiating ability. It’s a seller’s market, in terms of inventory levels. And it will probably stay that way for the foreseeable future.
One of the conditions that often lead to a real estate market downturn or crash is an excess of supply. We saw this back in the mid to late 2000’s, when there was a real estate construction boom in Arizona and many other parts of the country.
Today, however, the Phoenix real estate market is experiencing the exact opposite — there’s not enough inventory.
Additionally, mortgage default and foreclosure rates are currently well below where they were during the last housing market crash. Aside from the aforementioned supply shortage, the Phoenix real estate market is actually quite stable right now.
3. Home prices are predicted to continue rising.
Home prices in the area are expected to continue climbing for the foreseeable future. That’s the general consensus among a number of industry analysts and economists.
In December, the research team at Realtor.com published a forecast for the U.S. real estate market extending through 2021. They also made predictions for individual cities across the country.
For Phoenix, Arizona, they predicted that home sales would rise by 11.4% in 2021. They also predicted that the median home price in the area would rise by around 7% during 2021. No “crash” in that forecast.
Similarly, the real estate data company Zillow offered a positive (and strong) forecast for this market. In January, they said that home values within the Phoenix-Mesa-Scottsdale metro area “have gone up 15.3% over the past year and Zillow predicts they will rise 10.4% in the next year.”
If a picture is worth a thousand words, the chart above speaks volumes. It shows the median home value for the Phoenix-Mesa-Scottsdale metro area, going back about ten years. As you can see, prices have been following a steady upward trajectory for most of that time. Zillow’s forecast is shown in the green shaded area on the right. No crash expected here, either.
Disclaimer: This article explains why the Phoenix, Arizona real estate market probably won’t crash in 2021 or anytime soon. This assessment is based on ever-changing conditions. No one can predict future housing or economic trends with complete accuracy. This report is the equivalent of an educated guess and should be treated as such.