Arizona Housing Affordability Sinks to Lowest Level in History

Housing affordability in the United States sank to its lowest level in index history in the third quarter of 2023. This applied for housing affordability in two Arizona metropolitan areas as well. The fourth quarter of 2022 was the low point for affordability in most Arizona metropolitan areas; however, Lake Havasu City-Kingman and Tucson both experienced even lower affordability in the third quarter of 2023.

Arizona housing affordability

The share of homes sold in the third quarter that were affordable to families earning the median income for those areas were: 56.9% in Sierra Vista-Douglas, 42.9% in Yuma, 37.5% in Lake Havasu City-Kingman, 33.8% in Tucson, 27.5% in Flagstaff, 24.9% in Phoenix, and 20.9% in Prescott Valley-Prescott. Only three Arizona metro areas (Sierra Vista, Yuma, and Lake Havasu) had higher affordability than the nation, and all three were among the top 12 areas for affordability within the West region. The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index indicated only 37.4% of new and existing homes sold in the third quarter were affordable to families earning the U.S. median income. NAHB pointed to rising interest rates as the primary factor for decreased affordability. 

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U.S. house prices rose 2.6% over the year in August, up from 1.0% in July based on the S&P CoreLogic Case-Shiller Indices October 31 release. Phoenix and Las Vegas both improved over last month, but are still at the bottom of the 20 city-composite when it comes to year-over-year price changes at -3.9% and -4.9%, respectively. They were among seven cities with lower prices over the year in August, all of which were located in the West or Southwest. Chicago had the highest price gain over the year for the fourth month in a row at 5.0%, followed by New York (5.0%) and Detroit (4.8%). 

During the third quarter of 2023, Phoenix saw a 3.5% increase in the Employment Cost Index (ECI) for private industry workers, indicating a slower rate of compensation growth compared to the previous quarter’s 3.9% increase. In this same period, the national average for total compensation growth stood at 4.3%, positioning Phoenix’s ECI slightly below the U.S. average. When compared with other major metropolitan areas, Phoenix’s ECI increase appeared comparatively moderate. For example, metros such as Miami-Fort Lauderdale-Port St. Lucie, Philadelphia-Reading-Camden, and Washington-Baltimore-Arlington showed significantly higher compensation growth rates of 5.2%. New York-Newark and Los Angeles maintained growth in line with the national trend, registering ECI values of 4.7% and 4.6%, respectively. In contrast, metros like San Jose-San Francisco-Oakland and Dallas-Fort Worth demonstrated more restrained compensation growth, similar to Phoenix, with ECI figures of 3.3% and 3.6%, respectively.

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