All that goes up must come down, or at least this is what some are braced for given housing valuations in Phoenix have reached new heights. Specifically, home valuations have soared by 32 percent year over year between 2021 and 2022 alone. Though we can’t predict the future, we can take a glance at where we stand along with some of the markers experts have been watching.
According to Zillow, the coming year is slated to prove slightly less competitive for home buyers than it had been last year, though valuations are still expected to rise by an exorbitant 20 percent. Phoenix has also fallen from the second to the eighth hottest market nationwide, slipping below Tampa and other sought-after destinations in our nation’s Sun Belt.
But even with the rise in demand, many prospective home buyers, particularly those looking to buy their first home and lacking equity as a down payment, have opted for a wait-and-see approach while building a solid nest egg. Meanwhile new homeowners in Phoenix have embarked on a glut of home improvement projects due to the compromises made over the past year given tight competition and limited inventory from which to choose. The most popular renovations seem to be bathrooms and kitchens, but additions and home offices are also being contracted to accommodate today’s work from home environment.
Another marker to note is the available inventory or the number of homes not currently under contract. For Phoenix, homes under contract fell from 14,000 two years ago to just more than half of this a year ago and landing at 7,700 properties in April of this year. This means that supply and demand is still unbalanced but seems to be gradually equaling out. Still record low interest rates have driven real estate investors, flippers, and second-home buyers to scoop up inventory versus primary buyers who purchase a home as their main family residence.
To meet the current growth in demand, new housing development has been initiated nationwide. But the trajectory of new home construction at its current rate could lead to a new imbalance as more homes are built than are needed.
Experts are considering all of these factors along with the ramifications of hedge funds and institutional investors dropping out of the market and leaving immense inventory behind. Should this happen, they fall back to the pent-up demand of first-time and primary home buyers who are taking a wait-and-see approach while building up their nest egg. So even if excess inventory floods the market, some say the primary buyer demographic can provide a cushion or buffer that might stop or at least slow a potentially abrupt crash.