Phoenix Home Sales Slow Amid Rising Prices and Down Payment Challenges
The U.S. housing market is feeling the pinch of an affordability crisis, and Phoenix is no exception. Recent data shows that higher mortgage rates and rising home prices are pushing potential buyers to the sidelines, impacting down payments and cooling off the once-hot market.
According to Realtor.com, the national average for down payments dropped slightly to 14.5% in Q3 2024, equating to a median of $30,300. While this is down from the previous quarter’s historic highs of 14.9% ($32,700), it’s still significantly above pre-pandemic levels. Back in 2019 and 2020, down payments averaged just 10.9%, according to Redfin.
For many Phoenix-area buyers, this reduction may seem like good news. But it’s still a tough market to navigate. Mortgage rates, while fluctuating below 7% recently, are far from the ultra-low rates seen early in the pandemic. With fewer buyers able to afford homes, competition is slowing, but that doesn’t mean prices are dropping.
The “Lock-In Effect” and Slowing Sales
A significant factor in the current slowdown is the “lock-in effect.” Many existing homeowners are hesitant to sell because over 50% of them have mortgage rates below 4%, according to Realtor.com. In fact, a whopping 86% have rates under 6%. Listing their homes would likely mean taking on a new mortgage at a much higher rate, discouraging many from putting their homes on the market.
This is one of the reasons existing home sales have continued to drop. In September 2024, sales fell 1% from the previous month, bringing the seasonally adjusted annual rate to just 3.84 million, according to the National Association of Realtors (NAR). That’s a 3.5% decline from the same time last year.
Rising Home Prices and Geographical Differences
Despite the slowdown in sales, home prices are still on the rise. The median price for an existing home in September reached $404,500—up 3% from a year ago. Interestingly, down payments as a percentage of purchase price are experiencing regional shifts. The Northeastern U.S. is seeing increases in places like Maine, Rhode Island, and New Jersey, while pandemic migration hotspots like Texas and Florida are witnessing declines.
In Phoenix, the Midwest and Northeast are often more affordable for those willing to move out of state, while homebuilding in the region hasn’t kept up with demand. The Sun Belt, which includes Arizona, has seen more homebuilding, easing some of the price pressures, but affordability remains a challenge.
Mortgage Rates and Buyer Hesitation
While it’s encouraging to see a small decline in down payments, it’s clear that the housing market remains difficult for many first-time buyers. Mortgage rates have hovered in the 6% range, with some dips below 7% since June, offering brief periods of relief. However, even with small rate drops, affordability remains a key challenge, particularly for buyers expecting rates to return to the 3-4% range seen early in the pandemic.
“Every drop in mortgage rates makes a difference for home shoppers,” says Danielle Hale, Chief Economist at Realtor.com, “but for many first-time buyers, the affordability challenge is likely to persist.”
For existing homeowners, there’s little motivation to list their homes, knowing that higher rates would likely result in a more expensive mortgage. This lack of inventory continues to drive prices upward, even as fewer homes are being sold.
Final Thoughts
The affordability crisis in Phoenix mirrors national trends, with rising mortgage rates and home prices sidelining potential buyers. While down payments have dipped slightly, they remain elevated compared to pre-pandemic levels. The “lock-in effect” is limiting home inventory, and with current owners unwilling to sell, supply shortages persist, pushing prices even higher. For buyers in Phoenix, navigating this market remains a challenge, though any drop in mortgage rates can offer some relief.
