Arizona Housing Market Faces Major Correction with Rising Inventory

Categories: Arizona Business NewsArizona State News

Overview of diverse homes representing the Arizona housing market.

News Summary

Arizona’s housing market is undergoing a significant correction, with over 27,000 homes for sale, the highest inventory in nearly a decade. As demand wanes, sellers are struggling to maintain property values amid rising mortgage rates, particularly affecting millennials and Gen Z buyers. Recent data shows a rise in cash transactions primarily among baby boomers, further complicating affordability for younger generations. Home prices in the Phoenix area have dropped, and concerns over declining rental unit availability raise alarms about future housing affordability issues, particularly for seniors.

Arizona is experiencing a significant correction in its housing market, with over 27,000 homes for sale, marking the highest inventory level in nearly a decade. This surge in available properties indicates that housing supply is now outpacing demand, leading to challenges for sellers trying to capitalize on their equity amidst recession concerns.

The current market conditions have led to a situation where sellers must lower their prices to avoid extended market times. While it is a buyer’s market in most areas of the Valley, many potential homeowners—particularly millennials and members of Generation Z—are facing challenges due to approximately 7% mortgage rates. This financial pressure is making homeownership increasingly difficult for younger generations, despite there being an array of homes available.

Data reveals that a significant portion of homes are being purchased with cash, with about 51% of transactions involving cash buyers, primarily from the baby boomer generation. This trend is further exacerbating the housing market for younger buyers who rely on financing options. Additionally, the average age of a first-time homebuyer in Arizona has now risen to a record high of 38 years.

Decline in Housing Prices

The market has shown signs of distress, with home prices in the Phoenix area declining by 6.9% since their peak in June 2022. Year-over-year statistics indicate a 1.3% decrease in home values for the Phoenix metropolitan area as of March. From June 2022 until now, average home prices dropped from $491,960 to $452,466, a change of 7.4%.

New listings in the Phoenix housing market are up 20% year-over-year, yet the demand remains insufficient to stabilize prices, contributing to fatigue among sellers. Home sales in March totaled 6,400, which is down 20% from the long-term average and 35% from the pandemic peak.

Concerns Over Space and Affordability

As housing prices rise, apartment sizes in the Valley appear to be decreasing. Over the past decade, the average apartment size in Phoenix has shrunk by 64 square feet. Notably, areas like Glendale and Tempe have reported reductions of 112 square feet and 135 square feet, respectively. This trend may reflect attempts by landlords to maintain profitability in a crowded rental market, which has seen significant shifts.

The issue of affordability continues to be a pressing concern, with only 25% of home sales falling in the under $300,000 price range. Given the current financial pressures, including rising interest rates, many potential homeowners are finding fewer options when searching for affordable housing. The crisis is highlighted further by the loss of 86% of rental units priced under $1,000 per month since 2011.

Future Implications

Experts warn that the ongoing housing crisis may have severe implications moving forward. Reports suggest that the number of unhoused seniors in Maricopa County may triple by 2030 if the issues surrounding housing affordability are not addressed. The rising rates of homelessness among older adults, fueled by a lack of affordable housing, reflect a broader issue that could impact the community in the years ahead.

The current Phoenix housing market serves as a reminder of the challenges faced by both buyers and sellers in an evolving economic landscape. With rising prices, increased inventory, and shifting demographics, the landscape of Arizona’s housing continues to adapt amid significant pressures.