The Phoenix real estate market soared to historic heights in 2021, but while 2022 is expected to remain strong, the local real estate market will show signs of cooling next year. The Phoenix real estate market was up in several common metrics and defied almost all expectations for most of the year. We took our pulse of the real estate market and assembled our predictions for our 2022 Phoenix real estate housing market forecast.
The Phoenix housing market led the nation in home price appreciation for the 28th consecutive month through September at 33.1% according to the S & P Core Logic Case-Shiller Indices. Home price growth is expected to continue in 2022 but the rate of appreciation will slow in the new year compared to 2021. Nationwide, home price growth was a robust 19.5% in September according to the index which is a strong number by itself, but in comparison it shows how hot the Phoenix market has been this whole year.
National Housing Market Predictions
We try to follow a number of experts in real estate to get a feel for how others see the real estate market developing in 2022. And while there are a variety of opinions on how aggressively the market will continue to grow in 2022, the housing market predictions from one company to another are largely similar.
Zillow updated their 2022 housing market forecast to predict home prices would grow by 11% in 2022 which is down from 19.5% in 2021. Sellers will continue to have the upper hand in most major real estate markets across the country. And the “sun belt surge” of people moving to warmer, more suburban climates will continue in 2022.
Realtor.com in their 2022 housing market forecast predicts that home prices in Phoenix will increase by 6.8% in 2022 which is slower than the frenzy we saw in 2021. The factors slowing price growth in 2022 according to Realtor.com are there are not enough homes for sale for buyers to purchase, and mortgage rates will start to rise in 2022 which will help to cool off the over-heated real estate market.
Redfin predicts that home price growth nationally will slow to 3% in 2022 mostly because mortgage rates will tick up slightly higher which will slow down the competition for houses and over-bidding on each home and make housing more attainable by slowing down the market.
Redfins Chief Economist Daryl Fairweather writes “by winter (2022), higher mortgage rates along with already high home prices will likely slow annual price growth down to around 3%, which represents a steep drop from the record 24% increase posted in May 2021. If annual price appreciation falls to 3%, it would only be the second time it will have fallen so low since the end of the housing crash in March 2012. This low price growth will likely discourage speculators from entering the market and allow more first-time buyers to have a chance at winning a home”.
Phoenix Housing Market Predictions
Inventory will Remain Low
We have a national shortage of homes available for sale, whether new build or resale homes, and this shortage is just as much of a problem in the Phoenix housing market. The expectation is that more sellers will list their homes for sale as the year goes on since COVID has been with us for two years now, and people have mostly accepted their new way of life.
And that means for some, they love where they live and have no plans to move, and for others, they have waited long enough for COVID to end (whatever that means) and now they are ready to move on to their next family chapter, and if that means they thought about selling their home recently this may now be the time.
For buyers, inventory may be slightly higher, but the competition will be fierce for each listing and buyers will need to bring their “A” game to the purchase table. Even with more listings there will be a line of buyers in 2022 waiting to buy each home for sale that is located in a desirable neighborhood.
Home Price Growth Expected to Slow
With Phoenix leading the nation in home price growth for much of 2021 it is hard to imagine home prices rising much higher in 2022. Depending on whether you are a buyer or a seller and which way you side on this phenomenon, home prices will most certainly increase in 2022 in the Phoenix real estate market according to almost all forecasters. The good news for buyers is they will not increase as much in 2022 as they did in 2021.
The Phoenix housing market moved at a breakneck pace in 2021, hardly sustainable at that pace for any length of time much less for more than a year. But we will still see strong price growth in Phoenix because so many currently living out of state will still plan to move here and shop for a house once they arrive.
As mentioned earlier, Realtor.com forecasts home prices in Phoenix will rise 6.8% in 2022 with the market remaining strong for most of the year. In a vote for those debating whether to buy a home in 2022, Realtor.com forecasts Rents on a national level will increase by 7.1% which is higher than the forecasted home price appreciation rates in many markets across the country. If this forecast holds true and rents will increase faster than home prices, it will be more attractive to buy a home in many markets vs rent.
Affordable and Entry Level Homes Will Remain Ultra-Competitive
The $250,000 to $300,000 starter home in Phoenix used to be easy to find when browsing Phoenix real estate listings. Unfortunately, this starter home is much less common now, and in a large number of areas the sub-$300K priced home is a thing of the past.
The new starter home in the Phoenix area is the $325K to $350K home and those homes have so much competition when they come on the market they are being over-bid to ridiculous levels. One of the housing market predictions I am most confident of is the affordable and entry level homes at the sub $350,000 level will become harder and harder to find, and they will draw a trove of buyers when any such listings come on the market in 2022.
Potential buyers in this price range will have to remain diligent to be prepared to make an offer when a home in this price range comes on the market. Buyers will need to work closely with their lender to make their mortgage pre-qualification as solid as possible and remain active in the real estate market to be familiar with neighborhoods and prices so you are knowledgeable about these areas when a new home listing comes on the market.
Mortgage Interest Rates Will Rise in 2022
The Federal Reserve has decided to reduce it’s bond purchases gradually which will start to push mortgage rates up over time. The Fed so far has said this will happen at a measured pace so as not to bring any shock to the economy. But mortgage rates have started to increase slightly and I see that continuing in to the new year.
The downside of this is higher mortgage rates will make it harder for some to qualify to buy a home. Higher mortgage rates mean higher monthly mortgage payments and that means some people will not be able to qualify for the higher mortgage payment.
If there is an upside to higher mortgage rates, it will slow home price appreciation and reduce competition for homes since less people will qualify to buy. That will mean less over-bidding for homes and more qualified buyers will actually have a chance of getting their offer accepted when trying to buy a home.
The 2022 Phoenix real estate market will be a challenge for many because it remains strong and competitive in many ways. But with slower home price growth and higher mortgage rates, those two factors will help to cool the market down and will facilitate some deserving families the opportunity to buy a home. 2022 in my opinion will be a good time to buy a home in the Phoenix housing market, but finding success in the local market will come to those that are active participants in creating their own success.
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