How did Phoenix’s Property Market get so Hot? And what’s Next?

12:33 PM, Nov 10, 2021
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Phoenix residents who have watched home values skyrocket in their area over the past few years may be wondering how or why this happened.

Phoenix was among the cities most impacted by a number of housing market trends that began before the pandemic but were supercharged once COVID-19 hit. Those trends included a desire of Americans to move toward relative affordability, a surge of demand for sunny locales, and a more active, older generation of home buyers with a lifetime of equity and savings to pour into their next home.

On top of being particularly affected by these pre-pandemic demand drivers, Phoenix was pushed by the wave of demand that hit the entire housing market with the global outbreak of COVID-19. Many people accelerated their plans to move, as historically low interest rates meant an opportunity to score much lower monthly mortgage payments. The option of remote work for many people meant cutting the tether of living within easy commute distance to the office, which opened up a host of new places to call home. Housing preferences changed, too, as people sought out larger homes, luxury kitchens and big yards.

Rising from the ashes of the Great Recession

By the time the pandemic struck the U.S., Phoenix was already in the middle of a long-term upswing in property values. The metro was hit extremely hard by the Great Recession, with property values falling faster than the national average from early 2007 through 2011, dipping below the U.S. median home value. Then values rebounded fast, rising extremely quickly into 2014, before settling down at a pace slightly faster than the U.S. average. The strong growth in Phoenix continued even as the national market slowed in 2018-19 driven in part by some of the booming job growth, showing that it was a focus of persistent housing demand.

Drawn by affordability, sunny weather

One reason behind Phoenix’s surge in housing demand is its appeal to folks looking for a more affordable place to live. A Zillow study of interstate moving data from northAmerican Van Lines found that across the U.S., people relocated to ZIP codes where property values were, on average, $33,000 lower than where those people had moved from in 2020, breaking with past trends. But this move to affordability was well established and even more striking in Phoenix. From 2016 through 2020, people who relocated to Phoenix from out of state moved to ZIP codes where property values were nearly $56,000 lower than where those people had moved from.

People are also moving to sunnier locales. Another Zillow study of that same moving data found the top -five metros for net in-migration in 2020 were all in the Sun Belt, and Phoenix was among them. The top origin cities for interstate movers coming to Phoenix were wintry Chicago, expensive Los Angeles and Seattle, which is both expensive and cloudy. The U.S. Census Bureau’s 2020 Population Estimates Program data shows Sun Belt metros occupying all of the top 10 spots for net in-migration among the 35 largest cities.

Older house hunters winning out

Although a wave of millennials are entering the prime home-buying ages of their early 30s, a recent Zillow study found they are losing out to baby boomers and older shoppers. This is because these older home buyers are more active in the market than previous generations at the same age, and they carry a lifetime of savings and equity from previously owned homes to use for down payments. Heavy competition from these two largest generations is helping to push up prices for homes. In ultra competitive home shopping markets, where bidding wars are common, those with cash or large down payments tend to win out.

The study found that Phoenix was among the major metros most impacted by age demographics for home buyers. The median age of home buyers rose from 40 in 2009 to 49 in 2019 — the second-highest jump among the 50 largest U.S. metros — while the share of buyers age 60 or older is the third highest, and the median buyer age of 49 is the fourth highest.

What to expect in 2022

As with much of the country, there are signs emerging that the Phoenix housing market may be slowing ever so slightly. Quarterly home value growth has finally fallen over the past two months after a year of near-constant acceleration. Among the 100 largest U.S. metros, that slowdown has taken Phoenix from the fifth hottest metro market in July down to the 10th in September.

While Phoenix homes continue to be a relative bargain compared to those in many other metros in the western region, rising prices during the pandemic — the typical Phoenix home now costs over $100,000 more than it did in March 2020 —- appears to be causing some affordability seekers to look elsewhere. Amid that price deceleration across the Phoenix area, a few more-affordable western metros have jumped ahead and are now seeing faster quarterly home value appreciation, including Show Low and Payson, Arizona. That’s a sign of what’s likely to come in 2022 and beyond.

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