- The Phoenix MSA region’s real estate market has long term appeals
- But in the near-term, the surge in listings will weigh on prices
Long-term outlook: the Phoenix gravitational pull
Phoenix, AZ has long been a popular destination for people looking for better weather and for those looking to escape the extortionist housing prices and income taxes in the San Francisco Bay Area and the Big Apple. As such, Phoenix’s population is growing fast. Population in Maricopa County, the heart of the Phoenix-Mesa-Chandler metropolitan statistical area (MSA), increased by 3.9% between 2017-2021, much faster than the nation’s growth rate of 2.1% as well as Arizona’s 3.2% over the same period. Median household income has also risen much faster in Maricopa County compared to Arizona and the national average.
See ApexaVision’s real estate dashboard for data on county level income and population trends.
Phoenix real estate investment returned 100% in under six-years
As real estate investors, we love rising population and income – both fuels home price appreciation over the long term. Looking back, the median property price in the 85020 zip code (Sunny Slope neighborhood in North Phoenix) went from just under $400,000 in the beginning of 2017 to $480,000 in September 2022, according to Realtor.com data. That’s an increase of 20% over 5.75 years. 20% over 5.75 years doesn’t sound like a lot, until you consider the fact that most home buyers only puts down 20% for a down payment. In our example here, that translates into a 100% return for our make-believe home buyer – she plunks down a $80,000 (20%) for a $400,000 property in 2017. The property is now worth $480,000. She made $80,000 over her $80,000 down payment. ($480,000 current prices minus the $4000,000 she paid for back in 2017). That works out to about 17% per year on average. Not too shabby.
See ApexaVision’s real estate dashboard for data for zip code-level property price trends.
Short-term challenges weighing on the Phoenix housing market
While the positive macro trends of rising income and fast growing population will likely drive Phoenix MSA’s property prices in the long-term. However, we are seeing near-term headwinds, and rising mortgage rates is definitely one of them, hurting affordability. More importantly, the amount of listings in the Phoenix-Mesa-Chandler MSA region exploded in the past few months. Back in March 2022, the region only had 4,077 properties listed for sale. By September 2022 (a mere six-months later), active listings increased by 16,778 – an astonishing increase of 311%.
Higher inventory inadvertently translates into lower property prices. The MSA’s median property listed price peaked in May 2022 at just under $550,000. By September, it has slipped to $493,500 – a 10% drop.
While the long-term prospect for property investors remain attractive in the Phoenix area, we think there is a good chance prices will slide some more in the months ahead, especially if interest rates doesn’t come down from here. At the very least, would-be buyers should have more choices in the months ahead as long as the number of listings continue to rise. We think time is on the buyer’s side, at least for now. As a buyer, I would wait for active listings to start declining before making a purchase. No point catching falling knives with your hands.
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