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Data: Cracks starting to form in Phoenix real estate market

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Posted at 4:48 PM, Jun 16, 2022
and last updated 2022-06-16 19:48:58-04

PHOENIX, AZ — The Valley of the sun’s real estate market is still hot, but cracks are starting to appear.

According to estimates by the real estate company Zillow, the average value of a phoenix area home is just above $476,000. The Phoenix metro has experienced a 29% growth in value of homes in this past year alone. Ten of the eleven markets tracked by Zillow in Arizona saw homes rise faster this last year than the national average rate of 21%.

It’s an explosive rise that may start cooling down soon. It all starts with the mortgage rate.

Freddie Mac, a mortgage benchmark due to their volume reported today that rates have jumped to 5.78%, the highest since the 2008 great recession. Historically, this is still relatively low. If you bought a house before 2010 your initial rate was probably higher. Higher rates, however, directly impact the buying power of most Americans. The general rule used by real estate analysts is a 1% rate hike removes 10% from the home value that a person can realistically afford.

Despite this, listing prices in the Phoenix metro have not slowed down. Zillow’s data now shows that the average listing in the Valley of the sun is over $500,000. Just five years ago it was a little over $330,000.

Listing data is where the cracks start to form. Price reductions have been rare in the past few years, but in the past few months, they have spiked to a market share of 9.8% which is just off the five-year high of 9.8% in late 2018.

Inventories are starting to rise as well. Home inventories rose 29% in eight months of last year. This year they have risen 21% in four months.

The state has also experienced a gradual rise in new housing permits since the Great Recession when they hit a low of just under 800 in one month. More new housing permits typically signal a growing market, but just this past month housing permits dropped by over 1,900, one of the largest drops since record keeping began.

Taken all together, none of this suggests a looming and rapid bust in home prices. It does indicate that rocketing home values in Arizona are most likely coming to an end.