Phoenix, AZ Real Estate Market Trends & Analysis [Updated 2020]

Jump To Another Year In The Phoenix Real Estate Market:

The Phoenix real estate market in Arizona has positioned itself very well to suit investors in what has turned out to be an unpredictable year. In addition to the generous amount of momentum real estate in Phoenix has carried over into 2020, a number of positive indicators look likely to act as a tailwind over the course of this year. Activity looks to remain strong, as high appreciation rates have not scared off buyers. Perhaps even more importantly, the local economy appears slightly more insulated from the current Coronavirus pandemic that many of its national counterparts. When unemployment numbers spiked in April, the city’s unemployment rate remained well below the national average, and has actually recovered faster. As a result, it’s not hard to imagine the Phoenix real estate market leading a national recovery sooner rather than later. Any disruption now appears to represent an opportunity for everyone participating in the market: buyers, sellers, and—especially—investors.

Phoenix Real Estate Market 2020 Overview

  • Median Home Value: $269,175

  • 1-Year Appreciation Rate: +8.0%

  • Median Home Value (1-Year Forecast): -0.3%

  • Median Rent Price: $1,475

  • Price-To-Rent Ratio: 15.20

  • Unemployment Rate: 8.3% (latest estimate by the Bureau Of Labor Statistics)

  • Population: 1,680,992 (latest estimate by the U.S. Census Bureau)

  • Median Household Income: $54,765 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 13.07%

  • Foreclosure Rate: 1 in every 9,607 (1.0%)

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Phoenix real estate investing

2020 Phoenix Real Estate Investing

The capital of Arizona has served local investors well for the better part of a decade, which begs the question: Is Phoenix a good real estate investment? The answer is simple: yes. Investors who know how to navigate today’s real estate landscape will find Phoenix has plenty of opportunities. If for nothing else, the current pandemic has disrupted daily routines and market indicators, which means there are new openings to capitalize on.

The Phoenix real estate market developed a reputation for catering to rehabbers over the course of the last recession. Real estate was coveted by rehabbers for a variety of reasons, not the least of which included a disproportionately high foreclosure rate and attractive profit margins. The lower home values resulting from the Great Recession were simply too hard to pass on at the time, and investors cashed in.

It is worth noting, however, that the local real estate market has come a long way since then. Coming off of nearly a decade’s worth of appreciation, home prices are much higher today, and the same attractive profit margins investors coveted in 2012 are harder to come by. In fact, real estate prices reached record highs as recently as the first quarter of this year.

According to Attom Data Solutions’ First-Quarter 2020 U.S. Home Sales Report, the Phoenix real estate market saw home prices reach record highs in the first part of this year. “Home prices in the first quarter of 2020 hit new peaks in 17 of the 108 metros (16 percent), including Los Angeles, CA; Phoenix, AZ; San Diego, CA; Orlando, FL and Portland, OR,” said the quarterly report.

Prices have risen so much over the last eight years that rehabbing has taken a back seat to what looks like the most attractive exit strategy: rental properties. To be clear, that’s not to say rehabbing isn’t a viable investment strategy anymore, but rather that the new landscape created in the wake of the Coronavirus and years of appreciation appears to favor passive income investors.

There are currently three things working on behalf of passive income investors in today’s marketplace, and they are all the result of what has happened over the course of 2020:

  • Interest rates on traditional loans are historically low

  • Years of cash flow can easily justify today’s higher acquisition costs

  • The price-to-rent ratio suggests high home prices will increase rental demand

As of June, the average rate on a 30-year fixed-rate loan was 3.16%, according to Freddie Mac. June also represented one of the lowest average mortgage rates ever, and the Fed announced its intentions to keep rates low for the foreseeable future. As a result, lower borrowing costs have brought down acquisition costs for those looking to add to their passive income portfolio. At their current rate, mortgage rates will save today’s buyers thousands of dollars, and real estate investors will be able to pad their bottomline.

Outside of today’s lower borrowing costs, the Phoenix real estate investing community should be able to capitalize on attractive cash flow opportunities. Let’s say, for example, an investor was able to acquire a home for $269,175 (the median home value) and put down $55,000 (about 20.0%) at signing. After accounting for things like a 3.16% interest rate, property taxes, and a few other costs, the monthly mortgage payment would come out to somewhere in the neighborhood of $1,337. In the event the investor was able to receive $1,475 a month in rent (the median rent price), they could come away with about $138 a month. Perhaps even more importantly, rental property owners will be building equity in a physical asset with someone else’s money. Each rental payment not only nets cash flow each month, but also pays down the principal on the mortgage.

The example above accounts for median rent prices and home values, but the numbers really start to look attractive when investors factor in the local price-to-rent ratio. At 15.20, the city’s price-to-rent ratio suggests it may be more affordable to rent than to own. In fact, demand for rental properties is currently very high, as they are not only more affordable, but the presence of the Coronavirus has drastically reduced inventory. Even those who wish to buy a home in today’s market will be forced to rent, which will certainly drive up demand for rental properties. That said, the median numbers we were looking at earlier started to lean in favor of the Phoenix real estate investing community. As demand increases, competition will allow rental property owners to increase prices.

Investors are lucky to have a number of viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of a pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.

2020 Foreclosure Statistics In Phoenix

The Phoenix real estate market once represented the poster child of the foreclosure crisis, but a lot has changed since 2012. As home prices have increased for eight consecutive years, equity has returned to places many people thought it was gone forever. The increases in price has improved the local foreclosure rate, which now stands at a relatively healthy 1.0%. More specifically, one in every 9,607 homes is considered default, auction or bank owned. For context, the foreclosure rate in the United States is about 0.6%.

While higher than the national average, the city’s foreclosure rate has made a lot of improvements in recent history. As recently as June, “the number of properties that received a foreclosure filing in Phoenix, AZ was 38% lower than the previous month and 79% lower than the same time last year,” according to RealtyTrac. The month-over-month decline is particularly impressive, as the United States, as a whole, saw foreclosure filings increase by as much as 5.0% from May to June.

Investors looking to rehab deals should consider looking at the city’s foreclosure inventory. If for nothing else, distressed homes may often be acquired at a discounted price. With that in mind, the local real estate investing community should really consider visiting local auctions. Making up 97.5% of the city’s distressed inventory, auction homes are far and away the most abundant source of foreclosures.

To narrow the search down even further, here’s a list of the neighborhoods with the highest distribution of foreclosures:

  • 85031: 1 in every 2,242 homes is currently distressed

  • 85033: 1 in every 3,353 homes is currently distressed

  • 85009: 1 in every 7,195 homes is currently distressed

  • 85014: 1 in every 7,254 homes is currently distressed

  • 85008: 1 in every 7,959 homes is currently distressed

It needs to be noted, however, that the latest improvements to the foreclosure rate are already starting to appear short lived. The increase in the national average could indicate more foreclosures are coming on a more local level. The Coronavirus is, after all, expected to take a significant financial toll one homeowners, and perhaps even cause an influx in foreclosures in the coming months. While it is too soon to tell just how much foreclosures will increase, investors who line up financing and position themselves for success at this time could be in line for a busy second half of 2020.

2020 Median Home Prices In Phoenix

The median home value in Phoenix has reached a healthy $269,175. At its current valuation, the median home value in Phoenix is higher than the $248,857 mark held by the national average. It is worth pointing out that today’s home values are the result of years of historic appreciation. The median home value in Phoenix, for example, dropped as low as $109,000 towards the end of 2011 (when the Great Recession was at its worst).

Since then, however, real estate in Phoenix has made up a lot of ground. Thanks, primarily, to an improving national economy, positive sentiment, and (ironically) a distinct lack of available inventory, real estate has appreciated by as much as 146.9%, a feat few cities can even come close to matching. Over the same period of time, the national average increased a more modest 54.5%.

In nine year’s time, the median home value in the Phoenix real estate market came close to crippling that of the national average. In the first quarter of 2020 alone, Phoenix was one of the fastest appreciating housing markets across the country.

“Along with Milwaukee and New Orleans, other major metro areas with a population of at least 1 million and at least a 10 percent annual increase in home prices in the first quarter of 2020 were Virginia Beach, VA (up 13.0 percent); Phoenix, AZ (up 12.1 percent); Memphis, TN (up 11.5 percent); Columbus, OH (up 11.4 percent) and Charlotte, NC (up 10.7 percent),” according to the previously mentioned First-Quarter 2020 U.S. Home Sales Report issued by Attom Data Solutions.

Local neighborhoods have seen drastic increases in home values in a relatively short period of time. As perhaps the largest beneficiaries of Phoenix’s latest success, here’s a list of the city’s most expensive neighborhoods (according to NeighborhoodScout):

  • Skyline Heights / The Pointe

  • E Camelback Rd / N 44th St

  • N 44th St / E Mcdonald Dr

  • N Central Ave / W Northern Ave

  • N 56th St / E Lone Mountain Rd

  • E Camelback Rd / N 56th St

  • E Indian School Rd / N 50th Pl

  • Links Point / Orangetree Estates

  • E Camelback Rd / N 32nd Pl

  • Doubletree Canyon / Firebrand Ranch

Many neighborhoods appear to have fared well over the course of the pandemic, as indicated by the relative strength of the local market. Of particular importance, however, is how the Phoenix housing market is expected to fare moving forward. The pandemic has a lot of people asking the same question: Will the Phoenix housing market crash? The most likely answer is no, the Phoenix housing market isn’t expected to crash. In fact, Phoenix could come out of this situation stronger than when it went in. While there isn’t a single market that isn’t forecasting drops in home values, Phoenix appears as if it will drop less than the national average. While many are expecting the national average to drop by about 1.5% over the next year, Phoenix home values are expecting a 0.3% decline. All things considered, the current Phoenix real estate market outlook appears positive. The short-term forecast may leave something to be desired, but it’s just that: short term. Over the course of a year, pent-up demand and a strong economy should move things forward.

The stronger valuations may be due to the local economy. Unemployment, in particular, appears to have fared slightly better than the national average. Prospective buyers will most likely be able to return to the Phoenix housing market before most other cities across the country.

Phoenix Real Estate Market: 2016 Summary

  • Median Home Price: $223,100

  • 1-Year Appreciation Rate: 8.2%

  • 3-Year Appreciation Rate: 32.0%

  • Unemployment Rate: 4.5%

  • 1-Year Job Growth Rate: 3.6%

  • Population: 1,600,000

  • Median Household Income: $50,068

Phoenix Real Estate Investing 2016

For homebuyers and investors alike, there wasn’t much to dislike about the Phoenix real estate market in 2016. Home prices were outpacing the national average, while a slew of other factors—employment, home affordability and new housing construction rates—drove the trajectory of the Phoenix housing market upwards. The median home price for the Valley of the Sun was above the national average, according to Phoenix real estate news. That said, the Phoenix real estate market was as enticing as ever for seasoned buyers, investors and first-time homebuyers at the time.

The housing market thrived during the conditions of 2016, thanks to several critical indicators. Along with growing home prices and appreciation rates, the local housing market was enjoying an improved economy. The unemployment rate was 4.5%, a decline of 0.8% from the previous year, and 0.5% better than the national average. To top things off, the job growth rate was 3.6% during the first quarter.

Another component driving the Phoenix housing market in 2016 was home affordability. While historically strong, the ratio of income paid to monthly mortgage payments in the first quarter of 2016 was 11.6%, which was better than its historical average. Believe it or not, the housing market was more affordable than most markets in the nation at the time.

Phoenix Real Estate Market: 2014 Summary

  • Current Median Home Price: $198,600

  • 1-Year Appreciation Rate: 8.3%

  • 3-Year Appreciation Rate: 72.7%

  • Unemployment Rate: 6.5%

  • 1-Year Job Growth Rate: 2.1%

  • Population: 1.5 Million

  • Percent Of Underwater Homes: 22.2%

  • Median Income: $51,847

  • Active Listings: 24,904

Phoenix Real Estate Investing 2014

Among the cities most battered by the Great Recession, the Phoenix housing market was one of the first to snap back in 2011. Real estate investing, in particular, could attest to the rebound at the time, and the trend continued into 2014. The Arizona city had a median home price of $198,600, which was less than the national average of $212,267, but prices were on the rise. While homes in the region were not appreciating as fast as they were earlier this year, the outlook was encouraging at the time.

Since 2013, homes appreciated nearly twice as fast as the rest of the country, 8.3% and 4.6% respectively. Perhaps even more encouragingly, however, is the fact that homes in this region appreciated by as much as 72.7% in the previous three years, whereas the national average was 25.8% over the same period.

Phoenix Real Estate Market Summary

The Phoenix real estate market is perhaps one of the hottest in the country, despite all of the obstacles presented by the current pandemic. In fact, the disruption created in the wake of the Coronavirus looks like it currently represents a new opportunity for long-term investors. While rehabbing remains an attractive exit strategy in Phoenix, building a rental property portfolio looks to be more advantageous at the moment.

*The information contained herein was pulled from third party sites. Although this information was found from sources believed to be reliable, FortuneBuilders Inc. makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. Any reliance on this information is at your own risk. All information presented should be independently verified. FortuneBuilders Inc. assumes no liability for any damages whatsoever, including any direct, indirect, punitive, exemplary, incidental, special, or consequential damages arising out of or in any way connected with your use of the information presented.
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