Highlights from this real estate report:
- A housing forecast named Phoenix one of the strongest markets in the country.
- Current market dynamics in the area could sustain home prices in 2020.
- Steady population growth and limited housing supply are key factors.
- The Phoenix real estate market is stronger today than during the last recession.
- We forecast that home prices in Phoenix will slow down in 2020, but not decline.
Forecast: Phoenix One of the Strongest Housing Markets
In April, the property valuation company Veros Real Estate Solutions ranked Phoenix as one of the strongest housing markets over the next 12 months.
The company’s “pandemic forecast” evaluated current housing conditions in the nation’s 100 largest markets (metro areas). They analyzed a variety of factors relating to real estate supply and demand, and then ranked the metros based on individual strengths and weaknesses.
Phoenix was ranked among the strongest housing markets, according to the forecast issued by Veros.
To quote their April report:
“The ten [real estate] markets forecast to increase the most between Q1 2020 and Q1 2021 are primarily located in Washington, Arizona, and Idaho, with one outlier in Colorado. In the strongest markets, the defining factor is the very low housing supply, which forces prices to increase much more rapidly than in other markets.”
The table below shows the 10 strongest real estate markets through the first quarter of 2021, according to the Veros housing forecast. Note that Phoenix appears in the #6 position.
|Rank||Metropolitan Area||Q1 2020 – Q1 2021|
|1||Boise City-Nampa, ID||7.6%|
|3||Idaho Falls, ID||6.3%|
|4||Sierra Vista, AZ||5.8%|
|7||Colorado Springs, CO||4.9%|
Zillow Prediction: Phoenix Home Prices Will Level off
The research team at Zillow is a bit more pessimistic in their view of the Phoenix, Arizona estate market. They expect that home prices will flatline, and possibly dip slightly, over the next 12 months or so.
At the end of May, Zillow reported that the median home value for Phoenix had risen 8% over the past year. Looking forward, they predicted prices would decline by -0.3% over the next 12 months (into May 2021).
Given the current supply-and-demand situation within the Phoenix housing market, we feel Zillow’s forecast might be overly conservative. It’s entirely possible that home prices in Phoenix could weather the current economic storm, without any major decline.
House values in the area will likely rise more slowly over the coming months, due to higher unemployment and other economic issues. But at this point, it seems unlikely that prices will decline.
Recent forecasts for the Phoenix housing scene also suggest that the pricier end of the market could suffer more than the more affordable end. Home values for high-end luxury properties could take more of a hit, simply because there is a smaller pool of buyers for those properties.
In the lower end of the pricing spectrum, there are more buyers and more demand. So prices could hold up better within the entry-level / starter home range.
Things Are Different This Time Around
Most people who currently live in Phoenix remember the last housing market collapse. It was largely the result of reckless mortgage lending practices. Home prices in Phoenix dropped significantly during the Great Recession that followed.
But things are different this time around. In 2020, we have a unique situation where a public-health crisis has led to self-imposed economic restrictions. But the Phoenix real estate market was on solid footing going into this crisis.
The chart above offers some interesting perspective on all of this. It shows the home price index for the Phoenix-Mesa-Chandler metro area over the past few decades. The gray vertical bars represent previous economic recessions.
As you can see, home prices in the area actually held up during four of the last five recessions. The Great Recession (shown by the widest of the gray bars) was a unique situation. That was a case where a collapsing housing market spurred an economic recession.
This time around, conditions in the Phoenix real estate market are very different than they were in the mid 2000s. Back then, the local housing scene was overbuilt, overvalued and overheated. But we are not seeing the same conditions today.
There isn’t a huge surplus of homes today like there was back then. In fact inventory remains tight throughout the Phoenix housing market.
Population Growth Strengthening the Real Estate Market
Recent forecasts for the Phoenix real estate market are generally favorable, especially when compared to some other major metro areas across the U.S. And population growth has a lot to do with this.
The Phoenix metro area has experienced above-average population growth over the past decade or so. This area has long been a popular destination for retirees. That’s just one of the factors that accounts for its ongoing growth.
According to the latest data from the U.S. Census Bureau, Phoenix’s population grew by around 16% from 2010 to 2019. That was more than double the national growth rate for that same nine-year period. These trends support the housing market by bringing more buyers into the picture, thereby fueling demand.
Inventory Shortage Is Driving Competition
Phoenix housing market forecasts are also being influenced by tight inventory conditions. It’s a classic supply-and-demand imbalance scenario.
Population growth and other factors have increased housing demand in recent years. Meanwhile, the supply of homes for sale remains very limited across the Phoenix Metro area.
According to Mark Stapp, director of the Master Of Real Estate Development program at Arizona State University:
“We have very low inventory, which will keep the housing market from collapsing. It will take until early to mid-July to see the full impact [of COVID-19] on the market.”
Bottom line: Our prediction and general outlook for the Phoenix housing market is that home prices will rise more slowly during the second half of 2020. But given the current state of this market, we do not expect any serious price declines or a “crash” anytime soon.
Disclaimer: This article includes forecasts and predictions relating to the Phoenix, Arizona real estate market in 2020. Such projections are the equivalent of an educated guess and should be treated as such. MetroDepth makes no claims or assertions regarding the housing market or broader economy.