It is not a bubble, but a boom. That is how a long-time economist in Arizona describes the rising real estate prices we are experiencing in the Phoenix metro area.
Valley home prices are up by approximately 18% from May of 2020, when the COVID-19 pandemic took a foothold in Arizona, according to Elliot Pollack with Elliot D. Pollack & Company.
According to the real estate consultant, we are down to an eight-day supply of housing when it’s usually a six-month supply. That is the lowest inventory he has ever seen.
As of May 14, just over 5,000 homes were listed in the Phoenix metro area with a median list price of $345,900, according to a property-listing database.
“The housing ‘boom’ really started with COVID,” Pollack said. “Most homebuilders didn’t expect it. Most people did not expect it. People found themselves with enough cash for down payments, getting married, in apartments that they didn’t want to be in and saying it’s time to do something.”
Real estate website Zillow lists the typical home value in Phoenix at $328,883, a 21.6% increase over the past year. The figures are based on data through April 20.
The drastic increase in home values can also be seen in recent months. In March, the average home price in the Phoenix metro area sat around $323,000, according to Zillow. That figure in February was $316,000 and in January, $311,000.
In Zillow’s latest market report, the Phoenix residential real estate market recorded the highest annual growth in both home values and typical rent, among the nation’s largest metros. Some of the reasons it lists are extremely low mortgage rates, changing demographics and pandemic trends.
Pollack finds the amount of supply has significantly diminished and the supply that homebuilders have in subdivisions for immediate sale is nearly nothing.
“A couple of hundred units in a city of five million people, that’s insane,” Pollack said. “It is a seller’s market across the spectrum of prices. You have huge demand with diminishing supply and that’s causing what we have.”
Pollack said it will take years for homebuilders to catch up with demand. He estimates the greater Phoenix region is about 25,000 homes short when it comes to single-family housing. He is emphatic that this is not the bubble that was seen from 2005 to 2008.
“You had people buying homes that they never closed on,” Pollack said.
Between 2004 and 2006, there was an average of 60,000 homes being built each year in the Phoenix-metro area, according to statistics compiled by Pollack.
“There was maybe demand for 35,000 or 40,000 homes and a huge supply was built up,” he said.
The following decade saw that excess supply liquidated with more people buying than selling.
Pollack believes millennials—anyone born between 1981 and 1996—entered the housing market as they got good jobs and had begun piling up cash.
“They were entering their 30’s and starting to have kids and needed housing and there wasn’t much of a supply,” Pollack said. “Prices are skyrocketing and there’s no end in sight.”
Realtor.com predicts the Phoenix real estate market will jump even higher this year – 11.4% over 2020 – and a 5.7% increase nationally.
Despite a global pandemic still in the picture, it’s expected home sales will go up another 7%, but mortgage rates will too, estimated at 3.4% more by the end of the year, according to the website.
Finding a home is challenging, to say the least, a battleground of head-to-head competition with other buyers.
Pollack said you need to be the first person inside of a home when it comes on the market, be prequalified, and have the funds available.
He added if you’re planning on buying a new home, don’t wait. Interest rates are very low now but that will almost certainly change.
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