Why Phoenix is expected to be a top real estate market to watch in 2022

Phoenix was named among the top metros for real estate prospects in 2022, according to the 2022 Emerging Trends in Real Estate report, done by the Urban Land Institute and PwC US.

Phoenix ranked third in the nation, behind Nashville and Raleigh/Durham, respectively. The rank was calculated looking at overall growth, homebuilding, affordability and job prospects. The 2022 ranking was the first time in more than a decade that Phoenix ranked in the top 10 for real estate prospects.

Phoenix was designated a “magnet” market, attracting both people and businesses more quickly than the U.S. average in terms of both population and jobs. Magnet markets were also the preferred markets for investors and homebuilders, based on rankings given for the report. Phoenix, Charlotte and Nashville were among the top magnet cities.

Phoenix ranked third overall for homebuilding prospects, following Raleigh/Durham and Tampa/St. Petersburg.

Phoenix and other “Super Sun Belt” markets, which include Dallas and Atlanta, were among the top growth markets for any of the subcategories.

“Moreover, their economic performance has been solid through thick and thin,” the report’s authors wrote. “Though every market lost jobs during the pandemic recession, recovery has been much quicker and more complete in the Super Sun Belt markets. By year-end 2021, these metro areas are projected to collectively regain nearly all their lost jobs, while the United States is expected to still be down almost 2%.”

Remote work a factor

Remote work, which became ubiquitous during the Covid-19 pandemic, has also added to Phoenix’s success.

“During the pandemic, workers were freed from an office base, prompting some exodus from the central districts of high-cost gateway metro areas,” the report’s authors wrote. However, there is some disagreement about whether the shift to secondary and tertiary markets is overblown, or whether the movement to markets like Phoenix, Miami and Austin from larger cities like Los Angeles and San Francisco will continue.

Those interviewed for the report also varied widely in how much they expect office demand to drop nationwide. About 60% of those surveyed for the report, which includes investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants, expected office space needs to drop by 5% or more, with about a quarter of respondents expecting needs to decline by 15% or more. The shift to secondary markets and suburbs has caused housing demand to increase faster in those areas than in markets that had been in high demand before the pandemic, also driving up home prices and rents faster than more urban markets.

“These moves are likely to increase further as firms make hybrid and remote work a permanent option, reinforcing migration patterns that pre-date the pandemic and favoring less dense and (still) more affordable suburbs, especially in Sunbelt markets,” the report’s authors wrote.

Nationally, housing affordability became worse during the pandemic, and prices and rents increased at some of the highest rates ever tracked. The trend has specifically affected fast growing markets like Phoenix, where the population growth has trended faster than the country as a whole.

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