Forecast: The Phoenix Housing Market Could Cool Considerably in 2023
- Phoenix housing market forecasts for 2023 predict a cooling trend.
- Inventory has risen across the Phoenix metro area, benefiting buyers.
- The Phoenix real estate market of 2023 could begin to favor buyers.
- Home prices will likely rise more slowly, and could even level off or dip.
After nearly two years of frenzied sales activity and rapidly rising home prices, the housing market in Phoenix, Arizona is starting to cool down. That puts it in the same boat as many other cities across the U.S., all of which are experiencing a real estate slowdown in 2022.
The biggest changes within the Phoenix-Mesa-Scottsdale metro area have to due with inventory. After sinking to record-low levels over the past 18 months, real estate supply is now starting to rise — significantly.
We’re also seeing a rise in the number of price reductions across the Phoenix-area housing market. This means sellers are becoming more flexible when it comes to pricing their homes, negotiating with buyers, etc.
The Fastest ‘Growing’ Market in Terms of Inventory
Inventory growth has cooled the Phoenix real estate market more than any other factor. More homes have been coming onto the market lately, giving buyers more options and easing competition.
In fact, when compared to the nation’s 50 largest metropolitan area, the Phoenix housing market saw the biggest increase in property listings this summer.
According to an August 2022 report from Realtor.com:
“Relative to the national rate, active inventory grew at a faster annual pace (+41.0%) across the 50 largest U.S. metros in July, on average. Forty-five markets posted active listings gains, led by Phoenix (+158.7%), Austin, Texas (+154.5%) and Raleigh, N.C. (+137.5%).”
You read that right. The total number of active real estate listings within the Phoenix-Mesa-Scottsdale metro area rose by nearly 160% from July 2021 to July 2022. That’s a huge increase in the number of homes for sale. And it bodes well for those who are planning to buy a home later in 2022 or in 2023.
So that’s one prediction for the Phoenix real estate market in 2023. Home buyers should have more properties to choose from, compared to those who purchased over the past 18 months or so. Buyers could also enjoy a bit more negotiating leverage, which we’ll talk about next…
Sellers Are Starting to Drop Their Prices
For more evidence that the Phoenix, Arizona housing market is cooling down, we can look at the percentage of price reductions. These are homeowners who initially list their homes at one price, before lowering it due to a lack of offers.
According to the Realtor.com report cited earlier, nearly 43% of Phoenix-area homes listed for sale in July 2022 had a price reduction. That was 31.8% more reductions than a year earlier.
How does this influence the long-range outlook and forecast for the Phoenix real estate market?
For one thing, it shows there is less upward pressure on home prices, compared to a year ago. It also shows that sellers are getting the message about a market slowdown, and are trying to price their properties accordingly. Some of them, anyway.
For decades, the Phoenix metro area has been a hotspot for real estate investors. They serve as a kind of bellwether, indicating (through their actions) which way the market might be headed. Local housing analyst John Wake alluded to this for a July 2022 article on Fortune.com:
“Investors sometimes move in a herd. If Phoenix real estate isn’t the cool investment anymore in 2022, it could have a big and quick impact on home sales. If a lot of investors decide to sell…yikes. Live-in owners don’t sell just because they think it’s the top of the market or because prices are fading but investors will and we have a lot more investor-owned houses now than we used to.”
Translation: The Phoenix housing market could look a lot different in 2023 than it does right now. Inventory could surge and buyer demand could cool. In fact, we’re seeing the early signs of this right now, as mentioned throughout this article.
Let’s shift gears and tackle a question on the minds of many local home buyers, homeowners and real estate agents. Will home prices in the Phoenix area drop over the coming months, and into 2023?
Will Phoenix Home Prices Drop in 2023?
The chart below shows the house price index for the Phoenix-Mesa-Chandler metropolitan statistical area, going back to the 1970s. As you can see, home prices in the region usually trend upward at a gradual pace.
Over the past 40 years, the Phoenix real estate market has experienced two major “surges” in home prices. One started in 2005 and continued up until the U.S. housing market crash of 2008. The other price surge occurred shortly after the COVID pandemic began in the U.S.
In both cases, the house price trend line almost went vertical. You can see this in the chart above. This is what has some people wondering if Phoenix home prices will drop in 2023.
But much has changed since the last housing market crash. Back then, metro areas like Phoenix experienced a boom in home construction. There was also plenty of shaky mortgage loans, thanks to the reckless lending practices of the early to mid 2000s.
Today, neither one of those factors are in place. Mortgage lending standards are tighter, and there’s a shortage of homes instead of a surplus. So we probably won’t see a full-on housing market crash in the Phoenix area. The more likely scenario is that home prices will rise more slowly over the coming months, or perhaps decline slightly.
According to a 2022 study conducted by researchers at Florida Atlantic University and Florida International University:
“Four U.S. housing markets are overvalued by more than 60 percent, while 11 others are overvalued by more than 50 percent … Atlanta, Phoenix and Provo, Utah lead a contingent of communities overvalued by more than 50 percent.”
Phoenix Real Estate Forecast Extending Into 2023
Real estate forecasts and predictions are a tricky enterprise, especially in times like these when we are witnessing unprecedented market changes. (Who would’ve thought a global pandemic would end up turbo-charging the housing market?)
Bear this in mind, as we offer the following predictions for the Phoenix housing market in 2023:
- The Phoenix real estate scene will be much cooler in 2023 than it was during 2021.
- Sellers will have to be more flexible with their pricing, if they want to attract buyers.
- Buyers will likely have more properties to choose from, as supply continues to grow.
- Home prices will almost certainly slow down, and could even dip during 2023.
The bottom line to all of this is that the Phoenix market is starting to favor buyers more than it did during the past two years.
Could we see a buyer’s market in 2023? Believe it or not, that’s within the realm of possibility. But it would probably end up being a new kind of buyer’s market, in which house hunters enjoy more negotiating leverage in spite of tight supply conditions.
Disclaimer: This article includes forecasts for the Phoenix, Arizona real estate market in 2023. Those views are the equivalent of an educated guess and therefore far from certain. Readers should not make any financial decisions based solely on the information presented above.