Phoenix, AZ Real Estate Market Trends & Analysis [Updated 2021]

by Than Merrill | @ThanMerrill
Published on Mon, Jun 28 2021

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 addition to the generous amount of momentum real estate in Phoenix has carried over from 2020, several positive indicators look likely to act as a tailwind over the course of 2021. 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 pandemic than many of its national counterparts. When unemployment numbers spiked due to the pandemic, the city’s unemployment rate remained well below the national average and has actually recovered faster than many expected. As a result, it is not hard to imagine the Phoenix real estate market leading a national recovery.

Phoenix Real Estate Market 2021 Overview

  • Median Home Value: $340,341

  • Median List Price: $436,913

  • 1-Year Appreciation Rate: +24.6%

  • Forecasted 1-Year Appreciation Rate: +26.2%

  • Weeks Of Supply: 5.1 (-5.6 year over year)

  • New Listings: 1,952 (+7.2% year over year)

  • Active Listings: 10,703 (-41.14 % year over year)

  • Homes Sold: 2,128 (+23.9% year over year)

  • Median Days On Market: 21.10 (-17.90 year over year)

  • Median Rent: $1,603

  • Rental Vacancy Rate: 6.3% (+0.9% year over year)

  • Price-To-Rent Ratio: 17.69

  • Delinquency Rate: 4.2% (+1.6% year over year)

  • Unemployment Rate (Phoenix-Mesa-Glendale): 6.0% (latest estimate by the Bureau Of Labor Statistics)

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

  • Median Household Income: $57,459 (latest estimate by the U.S. Census Bureau)

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Phoenix housing market trends

Phoenix Real Estate Investing 2021

Arizona’s capital (and its surrounding metro area) 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 leaves new openings to capitalize on.

The Phoenix real estate market developed a reputation for catering to rehabbers over the last decade. Investors coveted real estate for various 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 too hard to pass on at the time, and investors cashed in.

However, it is worth noting 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 have tested new highs each month in 2021.

Few primary cities across the entire country matched the pace of appreciation in the Phoenix real estate market. According to Attom Data Solutions’ first-quarter 2021 U.S. Home Sales Report, only Seattle and Philadelphia can claim to have appreciated at the same rate as Phoenix real estate. “The largest annual increases in metro areas with a population of at least 1 million in the first quarter of 2021 were in Phoenix, AZ (up 20 percent); Seattle, WA (up 20 percent); Philadelphia, PA (up 20 percent); New York, NY (up 19 percent) and Buffalo, NY (up 19 percent),” said the report.

The increase in home values across Phoenix benefited local rehabbers who timed the market well. On average, profit margins on sales increased more than most other cities across the country as recently as the first quarter.

“Aside from Nashville, the biggest annual profit-margin increases in metro areas with a population of at least 1 million were in Columbus, OH (margin up from 38.6 percent to 60.6 percent); Baltimore, MD (up from 19.9 percent to 41.1 percent); Phoenix, AZ (up from 37.1 percent to 55.4 percent) and Seattle, WA (up from 66.7 percent to 83.3 percent),” said the latest Home Sales Report.

Still, prices have risen so much 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 impact of the Coronavirus on real estate 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 in response to the Coronavirus:

  • 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 May, the average rate on a 30-year fixed-rate loan was 2.96%, according to Freddie Mac. The start of 2021 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 increase monthly cash flow from operations. Perhaps even more importantly, rental property owners will be building equity in a physical asset with someone else’s money.

At 17.69, 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 several viable exit strategies at their disposal. Still, 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.

2021 Foreclosure Statistics In Phoenix

According to Attom Data Solutions’ Q1 2021 U.S. Foreclosure Market Report, a total of 33,699 U.S. properties received a foreclosure filing (default notices, scheduled auctions or bank repossessions) in the first quarter of this year. According to the latest research, nationwide foreclosures are up 9.0% from the last quarter of 2020 but down 78.0% from this time last year.

“The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. “But mortgage servicers have been able to begin foreclosure actions on vacant and abandoned properties, which benefits neighborhoods and communities. So it’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.”

In Phoenix, in particular, there is a growing concern over impeding foreclosures in higher-end neighborhoods. According to Ed Pinto, director of the American Enterprise Institute Housing Center, the imminent end of forbearance programs will most likely hurt homeowners in more expensive neighborhoods.

“What happens is the land prices go up, and when it comes under stress the land price goes back down. And that’s what causes the house prices to recede. So in Phoenix, what we think is going to happen in high-risk areas, is there will be an increase in foreclosures,” Pinto explains.

Real estate investors in Phoenix will most likely see an increase in foreclosures, much like everywhere else. However, Phoenix’s “boom or bust” reputation has many speculating that the biggest increases in foreclosures will appear in the city’s more expensive neighborhoods. Therefore, investors who position themselves well now may be able to help financially-strapped homeowners sooner rather than later.

2021 Median Home Values In Phoenix Metro Area

The median home value in the Phoenix real estate market has reached $340,341. At its current valuation, the median home value in Phoenix is higher than the $287,148 mark held by the national average. It is worth pointing out that today’s home values are the result of years of historical appreciation. The median home value in the Phoenix metro area, for example, dropped as low as $133,000 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 more than 150.0%, a feat few cities can even come close to matching. Over the same period of time, the national average increased about 55.0%. In the last year alone, Phoenix has been one of the country’s fastest appreciating markets.

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. There is too much demand for prices to decrease. In fact, forecasts are calling for a 26.2% increase in the coming year.

The Impact Of COVID-19 On The Phoenix Real Estate Market

More than a year into the pandemic, the impact of COVID-19 on the Phoenix housing market is becoming clear. For most of last 2020, fear and uncertainty brought down many of the city’s most important indicators. Nobody knew what to make of the new market in the wake of the Coronavirus. With 2020 officially behind us, it’s safe to assume we have a better idea of the impact COVID-19 will have on the Phoenix housing market.

The biggest impact we have seen is government intervention. In response to the pandemic, interest rates were dropped to spark buying activity. At the beginning of 2021, the average commitment rate on a 30-year fixed-rate mortgage from Freddie Mac sat well below 3.0%. Today’s rates are historically low and have already convinced many buyers to get off the fence. Homeowners and investors have shown up to take advantage of lower rates, and more are expected to do so with local unemployment improving.

Still, demand has easily outpaced supply in the first half of 2021. There aren’t enough homes to keep up with the steep level of competition. As a result, the lack of supply will continue to drive up prices, perhaps even for several more years.

Phoenix Real Estate Market: 2020 Summary

  • 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%)

Phoenix Real Estate Investing 2020

Phoenix housing market trends allowed the local investing community to enjoy a profitable 2020. In fact, few markets across the country could keep pace with trends occurring in Phoenix. Most notably, demand persisted in the face of rapid appreciation. The unique combination of rising prices and demand catalyzed activity.

It is important to note that the increase in activity also had a lot to do with tailwinds created by the pandemic. In particular, the Fed dropped interest rates to their lowest point ever in 2020. Low borrowing costs inspired buyers across the country to take action, and real estate in Phoenix became a beneficiary. Buyers couldn’t wait to take advantage of low borrowing costs, making it difficult for inventory to keep up. Competition increased, and home values continued to appreciate during one of the worst pandemics in recent history. Therein lies the true reason the Phoenix real estate investing community had a great 2020: demand persisted in the face of rising home values.

Market conditions in 2020 turned in favor of long-term investments instead of short-term exit strategies. Thanks to many of the indicators which emerged from the pandemic, rental properties became the preferred medium of investment.
Thanks to low borrowing costs, prospective landlords could simultaneously reduce mortgage obligations and increase monthly cash flow. These factors helped offset high acquisition costs and made building a rental property portfolio more attractive than ever. That’s not to say there weren’t rehabbing opportunities, but rather that indicators made rentals more appealing in 2020.

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 Phoenix housing market trajectory upwards. According to Phoenix real estate news, the median home price for the Valley of the Sun was above the national average. 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 rising. While homes in the region did not appreciate as fast as they were earlier this year, the outlook was encouraging at the time.

Since 2013, homes have 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 country’s hottest, 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.

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