In 2017, the Phoenix real estate market was definitely a seller’s market.
With a low inventory and an increasing demand of the new generation of homebuyers, the Phoenix real estate market was a seller’s market in 2017, leading home prices to rise, while the supply was still suffering from a shortage.
So, what will the Phoenix real estate market look like in 2018? Will we see a rise in supply and a turn of the market into a buyer’s market? Or will 2018 just be another year of supply shortage and rising prices?
Related: Should You Invest in Phoenix Real Estate in 2018?
Phoenix Real Estate Market Predictions for 2018
With that being said, here are the predictions for the Phoenix real estate market in 2018:
Lack of Listings
The most notable aspect of the current Phoenix real estate market is the shortage of supply, especially of real estate properties that are priced around $200,000. This shortage of supply in the Phoenix real estate market has been around for years, and the inventory has been falling on a yearly basis ever since 2011. However, we’re just starting to see a rise in the supply of high-end homes and luxury real estate in the area. This increase is expected to make its way down to lower-end homes during 2018.
Part of the problem comes from homeowners who purchased their homes 5-10 years ago. These homeowners are holding their real estate properties to make the most out of the low interest rates on their mortgages which they bought in the past. These homeowners can easily sell their homes in the market; however, they won’t list their properties for sale unless they find new homes to purchase.
On the other hand, new real estate developers in the area are slowly raising the level of home supply in the Phoenix real estate market. It is expected that during the first half of 2018 and up until the popular spring buying season in Phoenix, the demand will still be too high for the supply to catch up. However, it is possible that in the second half of 2018 we will be able to see the buyers’ demand cool off and the market’s supply increase.
Find the best active listings of investment properties in Phoenix right now!
Interest Rates to Rise
The Phoenix real estate market has always been known for its low interest rates. However, central banks have been increasing the interest rates for years. In fact, central banks have increased the interest rates on mortgages five-fold times since 2015, and it is expected that they will increase the interest rates even further by three-fold in 2018.
While a 30-year fixed mortgage can still be obtained for around 4% for top tier buyers, it is estimated that by June 2018 the interest rates will rise by a minimum of 0.25%, with slightly lower chances that they might rise by 0.50%. To put this into perspective, a 30-year mortgage of $400,000 with an increase of 0.50% interest rate will result in an additional $41,148 over its duration of 30 years.
So, will this rise in interest rates be balanced out with an increase in supply? Will this result in bigger advantages to home buyers, or will this keep the Phoenix real estate market a seller’s market?
Related: All You Need to Know About Rental Property Mortgage Rates in One Place
Suburban Development
The urban city centers of the Phoenix real estate market are becoming less affordable than ever before. Urban areas such as Central Corridor and Arcadia, for example, have seen a significant increase in prices. While many buyers want to go back to these markets, the high prices have simply made these markets too restricted for real estate investors due to the drastic prices in these areas. This led many homebuyers to head to the suburbs to find more affordable homes.
Additionally, this increase in prices in urban areas is coupled with a decrease in supply due to the limited areas for development and the zoning restrictions in central areas.
Real estate developers in the Phoenix real estate market are aiming towards the suburbs and are building new homes there to meet the demands for quality housing in areas that are more affordable than the urban city centers. This means that in 2018, we are expecting to witness further developments in the suburbs and a rise in the supply of real estate properties in them, which might work in the favor of buyers.
Find the best real estate properties for investing in the suburbs of Phoenix right now!
Millennials’ Role in the Market
In 2018, the Phoenix real estate market is still expected to present challenges for millennials and first-time homebuyers. While the largest generation in the US history is reaching the age where they become active buyers in the market, the rising interest rates might prevent many of these potential homebuyers from making the move. The bad news for these buyers is that the interest rates, if they rise, are not expected to go back down for several years ahead.
These millennials are expected to make up 43% of homebuyers in 2018. However, if they want to buy real estate properties they need to do it in the first half of 2018, before the interest rates grow. Otherwise, buying real estate properties might become less affordable for many of these potential buyers.
Related: How Can Millennials Buy Real Estate Properties in Pricey Cities?
Phoenix Real Estate Market Performance 2018
Now that we’ve had a look at the predictions for the Phoenix real estate market in 2018, let’s take a look at some numbers to get a better understanding of the market’s performance so far in comparison to 2017. The number of single-family homes listed and sold has increased when compared with the same period of 2017. In January 2018, the number of single-family homes sold was 1,063, which is 3.6% higher than it was in January 2017. Meanwhile, the number of single-family homes listed for sale in January 2018 was 1,863, which is 2.6% higher than it was in January 2017.
Additionally, the average single-family home sold in 75 days on average in January 2018, which is 2.7% higher than what it was in January 2017. Single-family homes in the Phoenix real estate market sold for an average of $305,049 in January 2018, a noticeable increase of 9.6% from January 2017. Meanwhile, the median home price was %250,000, which is 10.4% higher than it was for the same period in 2017.
The average price per square footage in the Phoenix real estate market in January 2018 was $161, with the lowest priced sale being $45,000 and the highest priced sale being $4,100,000.
Related: Here Is the US Real Estate Market Forecast for the Beginning of 2018
To Sum Up
Based on this data and the predictions for the Phoenix real estate market in 2018, we can see that the sales prices are still increasing, while the shortage of supply remains. The Phoenix real estate market is still largely a seller’s market. But, according to the predictions, there’s a high chance that the market might see a transition into a buyer’s market in the second half of 2018 and after the highly active spring season. But will this increase in home supply drive prices down and make it more affordable for homebuyers to buy real estate properties in central areas? Or will this lead to further developments in the suburbs and the expansion of urban areas into the more affordable suburbs? And how will the increase in interest rates affect the market? All of this remains to be seen in 2018.
In the meantime, make sure to check out investment properties that are listed for sale in the Phoenix real estate market using Mashvisor’s data to find investment properties that are projected to be profitable and that have high rates of return.