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Should You Invest in the Phoenix Housing Market in 2020?
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Should You Invest in the Phoenix Housing Market?

 

We’re seeing signs of Phoenix approaching a very hot market. Let’s get into the details of what’s to come.

Phoenix Real Estate Market Outlook

As the capital city of Arizona, its year-round warm weather isn’t the only thing Phoenix has going for it. The Phoenix housing market is well supported by a number of factors, which have both a direct and indirect effect.

Earlier this year, Forbes named Phoenix the fastest-growing city in the country according to this Census data. With a population of 1,660,272, its low cost of living, business-friendly environment, and strong job market will keep drawing more and more people into the city and beyond. Population growth plays such an important role in the level of real estate activity a housing market experiences which is why we’ve mentioned it from the very beginning of this blog.

Now let’s get into some of the other Phoenix real estate market trends expected to shape the market next year.

1) Job Growth in Advanced Industries

This is one of the main reasons why property investors should be looking at the Phoenix real estate market. The downturn in service-sector jobs like retail and construction as a result of the housing crash in 2008 really made way for the tech industry to flourish in Phoenix. Over a decade later, some of the hottest sectors are bioscience and healthcare, manufacturing, and business and financial services. Today these fields make up about 60 percent of the workforce in the Phoenix housing market. With experts predicting a mild recession to hit the US housing market, you can invest in Phoenix real estate confidently as the market is supported by a good concentration of these recession-resistant jobs.

This is a big factor behind the large migration to the Phoenix housing market. Since 2010, the city has welcomed 680,000 residents. You’ll be impressed to hear that the job market in Phoenix even got the attention of foreign professionals, with 180,000 of this addition to the population coming from outside the US. Both population and job growth are key factors making Phoenix rental properties a profitable real estate investment.

Related: Job Growth and Its Effects on the US Housing Market

2) Demand for Housing Outpacing the Supply 

The number of Phoenix houses for sale just never seems to be enough for the level of buyer demand in the real estate market. Recently, active listings in the Phoenix housing market have been consistently lower every month when compared to last year, making a tight housing inventory one of the biggest Phoenix real estate trends.

In August, new listings were down 9.2 percent compared to the same time last year. The same Phoenix housing market trends were apparent in July, where active listings were down 16.6 percent. Still, buyer demand remains high and properties are selling fast. Last month, 1,546 homes were sold in the Phoenix housing market and 2,140 in July, an 8.35 percent increase compared to 2018.

Related: Searching for Property in a Low-Inventory Real Estate Market: 6 Tips

3) Pressure on House Prices in Phoenix 

With the August supply 14 percent lower and contracts in escrow 15.5 percent higher, buyers need to be quick on their feet to find and close on an investment property in the Phoenix housing market. However, a tight inventory isn’t the only concern facing buyers looking to make a Phoenix real estate investment. You can only imagine the level of upward pressure on property prices as a result of such high buyer demand. Phoenix housing market predictions don’t include any flattening prices.

The average selling price in Phoenix is up 6 percent since last year and was $265,000 last month. The median home value in the Phoenix housing market is $242,400 which is 4.1 percent higher than last year. This Phoenix real estate market forecast projects that home prices will just continue rising.

With prices on the rise, many worry that a Phoenix housing bubble will hit. However, current mortgage underwriting standards and other factors eliminate the theory of a crash in the Phoenix housing market.

4) High-Performing Phoenix Investment Properties

To get an accurate Phoenix housing market forecast of what’s to come, you need data. Here are the most accurate and reliable stats provided by Mashvisor’s investment property calculator:

  • Median Property Price: $406,448
  • Price per Square Foot: $204
  • Average Days on Market: 72
  • Monthly Traditional Rental Income: $1,493
  • Traditional Cash on Cash Return: 1.1%
  • Monthly Airbnb Rental Income: $2,503
  • Airbnb Cash on Cash Return: 2.9%
  • Airbnb Occupancy Rate: 53%

Clearly, we’re seeing a difference in the level of investment property performance between the two rental strategies (traditional and Airbnb). Yes, the return metrics aren’t very high, but that’s only because these numbers are the citywide averages. A more thorough analysis will reveal different return levels based on each neighborhood. Still, Phoenix vacation rentals are more profitable on the city level so you might be initially inclined to go in that direction. But when discussing a potential investment in short term rentals anywhere, you need to ask about the latest news on Airbnb regulations.

5) Phoenix Airbnb Regulations

Is Airbnb legal in Phoenix? Yes. Arizona actually passed a law in 2017 which bans cities, towns, and counties from restricting and regulating short term rentals. Although, recently a new bill was passed which amended this legislation. It took effect on August 27, 2019, and while only slight regulation was proposed, short-term rental operators still need to abide by the new laws. If you’re planning on operating an Airbnb rental property in the Phoenix housing market, make sure to:

  • Hold a current transaction privilege tax (TPT) license
  • Pay tax under the Hotel/Motel classification. The city’s tax rate includes: non-transient hotel lodging tax rate of 2.3% and transient hotel lodging tax rate of 3% (tax return and payment are due on the 20th of the month)

Keep tabs on any changes to legislation or regulation on Airbnb Phoenix as new bills may be proposed throughout the year.

So, Should You Invest in Phoenix Real Estate?

Based on the outlook for the Phoenix housing market, investing in real estate in the city next year is a great idea. Even though prices are rising and inventory may be low, you can find a profitable investment property in Phoenix. However, you do need to know exactly where to invest because, as mentioned, you’ll find different return levels in each neighborhood.

The Best Markets for Real Estate Investment in Phoenix

Using data from our calculator, we’ve located the best neighborhoods in Phoenix. Take a look at the stats for each area:

North Mountain

  • Median Property Price: $330,219
  • Price per Square Foot: $177
  • Monthly Traditional Rental Income: $1,240
  • Traditional Cash on Cash Return: 1.1%
  • Monthly Airbnb Rental Income: $3,435
  • Airbnb Cash on Cash Return: 7.0%
  • Airbnb Occupancy Rate: 45%

Central City

  • Median Property Price: $280,497
  • Price per Square Foot: $210
  • Monthly Traditional Rental Income: $1,171
  • Traditional Cash on Cash Return: 1.5%
  • Monthly Airbnb Rental Income: $2,840
  • Airbnb Cash on Cash Return: 6.5%
  • Airbnb Occupancy Rate: 68%

South Mountain

  • Median Property Price: $283,113
  • Price per Square Foot: $166
  • Monthly Traditional Rental Income: $1,300
  • Traditional Cash on Cash Return: 1.5%
  • Monthly Airbnb Rental Income: $2,467
  • Airbnb Cash on Cash Return: 4.4%
  • Airbnb Occupancy Rate: 52%

You should invest in the Phoenix housing market, and the three neighborhoods listed above are a great place to start. To make your search easier, use our Property Finder tool.

Related: Where to Find Neighborhood Data for Real Estate Investing

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Heba Baker

Heba is Content Writer at Mashvisor with a BA in Business Administration. Most of all, she enjoys writing about the constantly changing markets in the US real estate industry. If not writing, Heba is exploring and learning.

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