Priced out: What will Fed rate hike do to Phoenix housing market?

Posted at 5:32 PM, Mar 17, 2022
and last updated 2022-04-27 09:25:51-04

PHOENIX — When the Federal Reserve increases rates, what they are actually doing is changing the benchmark rate that banks use to lend money to each other on a nightly basis. Rate increases are inevitably passed on to consumers directly through loans that use variable rates like credit cards and student loans.

Even with today’s rate increase, they remain historically low. Since the 1950s, the Federal Reserve effective rate went as high as 19% in the early part of the 1980s. Since then, however, the rate has been on a long march to under 1%. The country has only experienced 13 months of federal reserve rates over 5% since 2001.

So how might a rate hike impact the Phoenix housing market?

Luis Cordova, an economist with Rounds Consulting, said that a change in rates will likely have a minimal impact since other market conditions are out of balance. “It should slow down demand a bit. But to be honest, we have such an imbalance with low inventory that it is not going to do much.” Cordova said.

The Phoenix housing market has an inventory problem. According to publicly available data from Redfin, housing inventory statewide, and by extension, Phoenix, is at the lowest available number of houses in ten years.

Data pulled Thursday from ARMLS, the housing database most realtors use, show that there are 8,380 active listings in Phoenix. Listings are top-heavy, with the average property for sale at $810,000. Meanwhile, 9,088 homes were sold at an average sale price of $578,665.

These two numbers, new listings, and sales, make up the formula for monthly housing supply, an indicator housing analysts use to measure the competitiveness of a market.

Six months of supply is considered a balanced market. According to data from the real estate firm Redfin, the monthly housing supply for Phoenix has not been above two months in ten years.

While a Federal Reserve interest rate hike may eventually impact mortgage rates, the data shows that inventory in Arizona has a much bigger impact on the price of homes.