Phoenix Housing Market Forecast: Struggles to Meet Demand, but What About Water?
Once burdened by the collapse following the 2007-08 financial crisis, Phoenix has turned its housing market into one of the nation’s most vibrant economic recoveries. But in 2024, the fast-paced growth of the Valley of the Sun is met with pressing challenges, including the availability of fresh water for the city’s expanding population.
Phoenix, Arizona’s capital and the fifth-largest city in the U.S., is a booming hub for tech, manufacturing, bioscience, and business services. While these sectors drive population growth and real estate demand, Phoenix faces major concerns about balancing this growth with limited water resources and a rising homeless population.
The Housing Rebound and 2024 Projections.
From mid-2020 to mid-2022, Phoenix home prices skyrocketed alongside other U.S. markets due to historically low mortgage rates. As interest rates climbed, the market cooled off. However, it has shown signs of stabilization, giving buyers some leverage for negotiating price cuts and sales incentives. According to the U.S. News Housing Market Index, Phoenix’s market is starting to level out, signaling a potentially good time for prospective buyers to act.
Key Market Trends in 2022 and Early 2023.
At the start of 2022, Phoenix saw a surge in new single-family home permits, reaching a peak of 3,841 in the first quarter—the highest since 2006. However, by early 2023, the number of permits fell sharply, reflecting a 63% year-over-year decline. Similarly, multifamily permits peaked mid-2022 before steadily declining into early 2023, reflecting a softening in developer demand.
Is Phoenix a Seller's Market?
The housing supply in Phoenix was as low as 0.99 months in early 2022. As more sellers entered the market, supply peaked in November, then leveled out at around 4.1 months by January 2023—indicative of a slight seller’s market. Year-over-year, inventory increased by 2.71 months, more than double what it was in January 2022.
Despite inventory increases, experts like Butch Leiber, president of the Phoenix Board of Realtors, note that the supply is still insufficient for meeting demand. As a result, buyers may face stiff competition, especially in desirable areas close to employment hubs.
Water Concerns: An Underlying Risk.
A critical concern for Phoenix is water scarcity. Arizona’s groundwater law mandates developers secure 100-year water certificates, but some smaller developments avoid this rule, which could strain the already tight water supply. Renters might not face this directly, but investors should be cautious when buying in unincorporated areas where water availability could be a risk.
Rising Vacancy Rates and Renters’ Advantage.
Phoenix’s rental market has seen significant shifts, with the vacancy rate increasing to 7.0% by late 2022. This rise—coupled with higher than national average vacancies—could allow renters more room to negotiate. The addition of new apartments and single-family rental units has created a more competitive market, helping drive rental prices down.
Will Mortgage Rates and Inflation Slow the Market?
One of the biggest challenges facing the housing market in 2024 is fluctuating mortgage rates. While inflation is cooling, rates are still high enough to keep some potential buyers on the sidelines. Mortgage applications remain down 36% compared to last year, limiting overall market activity.
What Does 2024 Hold for Phoenix?
While the Phoenix real estate market has moderated from its peak, buyers and sellers can expect more stabilization as the year progresses. Median home prices, which fell 4.5% year-over-year in January, are still well above the national average. The high prices are making it more difficult for first-time buyers, with only 38% of homes priced below $400,000.
For those looking to buy a new home, builders are increasingly offering price cuts and mortgage rate incentives. According to Steven Hensley from Zonda Advisory, homes priced under $450,000 are in high demand. Builders have an opportunity to take advantage of the lack of resale inventory and capture market share with newly built homes, especially for buyers looking for certainty on pricing and financing options.
Water, Jobs, and Future Growth
Phoenix’s economy continues to power forward, with low unemployment rates and significant job creation. In 2022 alone, 74,300 jobs were added, particularly in the construction, mining, and manufacturing sectors. This strong economic foundation supports ongoing housing demand.
However, long-term sustainability is a growing concern. Water access, particularly in fringe areas, poses a challenge for both new developments and existing communities. Developers are now prioritizing land with secured water rights, especially in regions like Chandler and Goodyear, where home demand remains robust.
A Market of Opportunity and Caution
The Phoenix housing market remains one of the most resilient in the country, but prospective buyers should weigh the potential risks tied to water scarcity and higher mortgage rates. As the region continues to grow and evolve, smart investments will depend on understanding local water regulations and market dynamics.
With over 10,000 new single-family homes projected for development from February through June, Phoenix shows no signs of slowing down. However, for those seeking stability and long-term value, focusing on well-established areas with guaranteed water resources might offer the safest bets.
