With its year-round sunshine, lower cost of living, and breathtaking desert landscapes, Arizona continues to be a fan favorite when it comes to real estate. In fact, as the 14th most populous state, it has added more than 860,000 new residents in the past decade.
Whether you are already a resident of the Grand Canyon State or are considering moving into this beautiful state, it’s important to understand the Arizona housing market.
So let’s take a look at economic factors, trends, and regional indicators to determine where the Arizona real estate market is likely heading for quarter two and beyond.
Economic Factors Relating to the Arizona Real Estate Market
The real estate market is closely tied to the economy, as it is influenced by a variety of factors such as interest rates, job growth, inflation, and consumer confidence.
Mortgage Interest Rates in Arizona
At the writing of this article, the interest rates in Arizona are 6.28% for a 15-year fixed mortgage and 6.90% for a 30-year fixed mortgage. For context, a year ago the average 15-year fixed mortgage rate was around 5% and the 30-year fixed mortgage rate was around 6%.
Why is the mortgage interest rate important? Mortgage interest rates have a significant impact on the real estate market as they affect the cost of borrowing money to purchase a home.
When interest rates are low, it’s more affordable for individuals to take out mortgages, leading to increased demand for homes. This increase in demand can drive up home prices, as more buyers compete for limited inventory.
On the other hand, when interest rates are high, the cost of borrowing money increases, making it more difficult for buyers to afford homes. This can result in decreased demand for homes, leading to a decline in home prices.
High interest rates can also make it more challenging for existing homeowners to refinance their mortgages, which can limit their ability to invest in other areas of the economy.
Fluctuations in mortgage interest rates can significantly impact the real estate market, making it important for real estate professionals, investors, and homeowners to closely monitor these trends.
In Arizona, and across the country, interest rates have significantly impacted in the real estate market. The higher rates are blamed for the slower paced market.
Real estate professionals are seeing that potential buyers are nervous about obtaining mortgages that they consider unaffordable. Some realtors observe that interest rates are even more of a factor than the purchase price for many of their clients.
Job Growth in Arizona
Arizona added 100,000 jobs in 2022, with 86,000 being in metro Phoenix alone, and jobs continue to be added in 2023. Arizona’s pro-growth policies and tax structure continue to woo residents from other states.
However, high home prices, climbing interest rates, and high inflation are threatening to slow economic expansion as housing is significantly less affordable to younger home buyers. This includes millennials, those roughly 27-42, who now make up around 43% of home buyers and one-third of the nation’s workforce.
Impact of Inflation on Arizona
Inflation is having negative effects on the housing market nationwide and Arizona is no exception. Inflation is prohibitive because it has led to higher interest rates, making it more difficult and expensive for potential buyers to secure mortgages.
Higher inflation has also increased the cost of building materials and labor, making it more expensive to build new homes and leading to a decrease in the supply of available housing.
Also, as prices for goods and services have risen, buyers have less disposable income available to put towards a down payment or mortgage payment, further decreasing demand for homes.
As a result, inflation has contributed to decreased demand for homes, higher costs for builders and buyers, and an overall slowdown in the housing market.
Consumer Confidence in Arizona
The Conference Board Consumer Confidence Index® rose slightly to 104.2 in March, up from 103.4 in February. The Present Situation Index, which is based on how consumers perceive the current business and labor market conditions, decreased to 151.1 from 153.0 the month prior.
Meanwhile, the Expectations Index, which reflects consumers’ short-term outlook for income, business, and labor market conditions, increased to 73.0 from 70.4 in February.
However, this marks the twelfth time in thirteen months that the Expectations Index has remained below 80, a level that often signals an impending recession within the next year.
What does this mean for the Arizona real estate market? The numbers show that while consumer outlook is improving in the short term, consumers continue to be pessimistic about economic turbulence and continued inflation in the coming months.
This can deter potential home buyers and cause more sellers to stay put in their current homes amidst the uncertainty.
Current Arizona Housing Market Trends
According to Redfin, as of March, 2023, both home prices and number of homes sold were down in Arizona, while the number of homes for sale rose. Here are the year-over-year trends:
- Median sale price in March was $416,600, down 7.4% year-over-year.
- Number of homes sold was 9,649, down 27.3% year-over-year.
- Median days on market rose to 58, up 30 year-over-year.
- Sale-to-list ratio for the same timeframe was around 97%.
If you are looking to buy a home in Arizona, market conditions are more favorable for you than they were a year ago, since costs have come down in recent months, but this varies from region to region.
However, due to the demand for homes being so high and the limited number of homes available, it is still a seller’s market.
Here’s the data on housing supply year-over-year for the period ending in March, 2023:
- Number of homes for sale stood at 34,368, up 18.6% year-over-year.
- Newly listed homes was 9,966, down 28.1% year-over-year.
- In March there was a 2-month supply, up 1 month year-over-year.
Arizona housing demand data tells us how many homes likely received multiple offers, indicated by the sold above list price number. The increase in homes selling above list price shows that the housing market is competitive and bidding wars are commonplace. Lower or declining percentage of homes sold above list price tells us that the market is becoming less competitive.
If you are a home seller in Arizona, you still have the advantage due to a continuing influx of out-of-state buyers and the housing inventory shortage. Here are the current numbers:
- Homes sold above list price was 15.5%, down 36% year-over-year.
- Homes with price drops was 32.2%, up 19.8% year over year.
- Sale-to-list price was 97.8%, down 3.7% year-over-year.
Climbing home values and listing prices along with a limited inventory show that the housing market in Arizona is more favorable to sellers, a trend that will likely continue unless interest rates drop or there is a rise in inventory.
The real estate market in Arizona varies from region to region. Here are some interesting statistics for different metro areas according to Redfin.
The Phoenix real estate market is considered a strong seller’s market. Here is the data as of March, 2023:
- The median sale price was $410K, marking an 8.9% decrease from the previous year.
- On average, homes now take 52 days to sell, up 29 year-over-year.
- 1,716 homes sold in March, which is a decrease from the 2,413 homes sold during the same period last year.
Scottsdale is in a seller’s market, although it is more balanced than in some other areas of the state. Here is the data as of March, 2023:
- Median home price was $795K, a 2.5% decrease from the previous year.
- Homes sold in 55 days on average, a significant increase from the 22-day average from the previous year.
- 616 homes were sold, a decrease from the 807 homes sold during the same period last year.
Gilbert is in a strong seller’s market right now, with more people wanting to buy than homes available. Here’s the data as of March, 2023:
- Median home price was $525K, a 12.5% decrease from the previous year.
- It took around 61 days for homes to sell, which is a significant increase from the 23-day average from the previous year.
- 352 homes were sold, a decrease from the 474 homes sold during the same period last year.
Chandler is currently in a strong seller’s market, with the demand for homes being significantly greater than the supply. Here’s a look at the data in March, 2023:
- Median price of homes was $475K, a 12.0% decrease from the previous year.
- Homes were selling in about 51 days, a significant increase from the 21-day average from the previous year.
- There were 286 homes sold, a decrease from the 408 homes sold during the same period last year.
Mesa is in a seller’s market right now, with the demand outpacing the supply. Here is the data from March, 2023:
- The median sale price was $430K, a 7.5% decline year-over-year.
- Homes were selling in about 56 days on the market, up 35 days year-over-year.
- There were 691 homes sold, which is lower than the 862 homes sold during the same period last year.
Tucson is in a seller’s market, although it is more balanced than many other cities listed above. Here is data as of March, 2023:
- The median sale price was $315K, a 1.6% decrease from the previous year.
- On average, homes were selling in 56 days, a significant increase from the 34-day average from the previous year.
- There were 710 homes sold, a decrease from the 983 homes sold during the same period last year.
Currently the top ten most competitive cities, those where homes get the most multiple offers, are:
- Mountainaire, AZ
- Kachina Village, AZ
- Circle City, AZ
- Timberline-Fernwood, AZ
- Fort Valley, AZ
- Munds Park, AZ
- Picture Rocks, AZ
- Black Canyon City, AZ
- Flagstaff, AZ
- Golden Valley, AZ
Top ten Arizona metro areas with the fastest growing sales price:
- Eloy, AZ (48.3%)
- Show Low, AZ (21.7%)
- Sierra Vista, AZ (8.8%)
- Sahuarita, AZ (8.2%)
- Prescott Valley, AZ (7.3%)
- Marana, AZ (7.2%)
- Casas Adobes, AZ (6.3%)
- Gold Canyon, AZ (4.7%)
- Corona de Tucson, AZ (2.6%)
- Green Valley, AZ (1.4%)
Arizona’s Luxury Home Markets
The year-over-year rise in home values within the luxury housing market confirms the notion that the market is becoming increasingly popular.
For instance, in Paradise Valley, the average home price rose from $3.34 million in January 2022 to $4.04 million in January 2023.
Meanwhile, in Scottsdale, the rise was less dramatic, with the average home price increasing from $1.2 million in January 2022 to $1.39 million in January 2023.
Why the demand for luxury housing?
Arizona ranks third behind Florida and Texas for high earner migration.
This is partially due to the state’s proximity to California, where high earning Californians are migrating from big cities to enjoy lower taxes, cost of living, and housing costs.
This migration fuels a higher demand for luxury market homes, and that demand causes home prices to continue to rise because demand is so much greater than supply.
Zoning regulations and development limits make the market even tighter as building in some of these coveted areas is restricted.
Arizona is an appealing destination for high earners from an investment perspective.
This is because the state’s economy is constantly growing, and its real estate market is less volatile compared to other markets.
As a result, Arizona’s luxury housing market is considered a lucrative investment opportunity for high earners.
Forecast and Predictions
Arizona has seen steady growth over the past couple of years, and it looks that that growth will continue through 2023, which is good news for buyers, sellers, and investors.
As you have seen, Arizona’s metro areas continue to see rising home values and listing prices. This, coupled with limited inventory, point to Arizona’s housing market continuing to favor sellers.
Based on the numbers, this is a trend that will likely continue for the second quarter of 2023 and beyond. This could change if the inventory begins to rise faster than the demand or if interest rates decrease demand.
Arizona’s real estate market has fluctuated due to various economic factors, such as interest rates, job growth, inflation, and consumer confidence.
Whether you are an investor, buyer, or seller, you can move forward with confidence knowing that Arizona continues to experience a growth trend for the foreseeable future.
To get the most favorable outcome, hire a top Arizona real estate professional like Thomas Osterman to help you. His unsurpassed knowledge of the industry and the local markets give his clients the advantage going into real estate transactions. Call him today at (602) 405-4052!