Will The Phoenix Housing Market Crash Again?

Phoenix, for more than a half-century, has exploded in terms of its population. From a population of a little over 100,000 in 1950, Phoenix’s population grew by 311.1% to 439,170 in 1960, and has kept rising ever since. The city’s population now stands at roughly 1,624,569, as of July 2021, according to the Census Bureau’s City and Town Population Totals: 2020-2021. This makes Phoenix, now, the fifth largest city in the United States. A considerable part of this growth over the years is due to Americans moving to Phoenix, rather than organic growth of the city’s population. What’s more, this 1.6 million population doesn’t include the sprawling suburbs that surround Arizona’s capital.

Over the past five years, the Phoenix housing market has experienced very healthy growth in activity, not to mention home prices. Using data from Redfin RDFN covering factors such as median sale price, number of home sales, number of new listings, available for-sale inventory, median days on market a home for sale spends, sales-to-list price ratio, and the percentage of active listings with price drops, and more, we analyzed what’s going on in the Phoenix housing market and where it’s likely headed.

Read on to find out key developments progressing in the Phoenix housing market.

Phoenix Housing Market: Overview

Looking at the data from Redfin, the Phoenix metro area housing market is displaying a mix of continued strength as well as some signs of weakening in activity, which is in contrast to many other major housing markets across the U.S. Like so many other housing markets during the pandemic, home prices in the Phoenix area witnessed a considerable rise beginning in 2021 and carrying over into the first part of 2022. However, the Phoenix housing market has continued to largely maintain its level of home prices, unlike other notable housing markets.

Looking first at the level of the metropolitan area, the Phoenix metro area has seen its home prices continue to rise, even from 2021 to 2022. Over the last five years, the median sale price in the Phoenix metro area has risen by 80.1%: From $249,900 in October 2017 to $450,000 in October 2022. Breaking this down more, home prices in the Phoenix metro area have slowed their growth but haven’t reversed it:

• October 2019 – October 2020: $288,623 – $339,900 | 17.8%
• October 2020 – October 2021: $339,900 – $425,000 | 25%
• October 2021 – October 2022: $425,000 – $450,000 | 5.9%

Year-over-year growth in the Phoenix metro area housing market has clearly slowed but has not experienced an outright decline. That being said, the slowing growth in home prices is reflected in other metrics sourced from Redfin. For example, available for-sale inventory in the Phoenix metro area has surged year-over-year: From 12,148 available homes in October 2021, up 73.2%, to 21,036 homes for sale in October 2022. The months of supply of homes in the Phoenix metro area has also increased dramatically over the same period: From 1.5 months of supply in October 2021, to 4.3 months of supply in October 2022, for a one-year increase of 186.7%.

The number of days a home for sale spends on the market before being bought up has also increased substantially year-over-year. Last year, in October 2021, the median number of days on market for a home in the Phoenix metro area was 28 days. A year later, in October 2022, that figure had grown by 85.7%, to a median number of days on market of 52. Another important metric of housing market activity, sales-to-list ratio — the ratio of the final sales price to the listed price of the home for sale — has also declined year-over-year. In October 2021, the sales-to-list price ratio in the Phoenix metro area was 100.8%, meaning that homes were selling for 0.8% above their listed price. Moving ahead a year, by October 2022, the sales-to-list price ratio had dropped to 97.3%, meaning that homes are now selling for almost 3% below their original list price.

Below is a table of some of these key metrics in the Phoenix metro area housing market over the years:

Phoenix Housing Market: Breaking Down the Core Cities

The Phoenix metro area is, of course, comprised of important core cities. These include cities such as Mesa, Glendale, Scottsdale, and others. While many of these cities’ housing markets have displayed similar general trends to the Phoenix metro area as a whole, many have diverged.

The majority of the core cities in the Phoenix metro area have experienced continued growth in home prices from October 2021 to October 2022. The exceptions include the following:

• Youngstown median sale price: $298,000 – $295,000 | -1%
• Tempe median sale price: $445,000 – $440,000 | -1.1%
• Sun City median sale price: $285,000 – $280,000 | -1.1%
• Wickenburg median sale price: $642,500 – $525,000 | -18.3%
• Carefree median sale price: $1,300,000 – $835,000 | -35.8%

Although most other core cities in the Phoenix metro area have seen their home prices grow from October 2021 to October 2022, the rate of growth has slowed compared to the previous one-year period, October 2020 to October 2021. Below is a table detailing the median sale price in select core cities of the Phoenix metro area, as well as the change in prices year-over-year:

Drops in home prices in the Phoenix metro area housing market have occurred mainly from 2021 to 2022, but it is a minority of core cities in the metro area. For example, in city of Phoenix housing market, home prices grew by 7.7% year-over-year: From $405,000 in October 2021 to $436,000 in October 2022. However, that annual growth is down sharply from the 24.6% annual growth from October 2020 to October 2021, when the median sale price in Phoenix rose from $325,000 to $405,000.

The city of Carefree has experienced the most extreme changes in its home prices in recent years. From October 2020, the median sale price was $765,000. It then rose sharply, by 69.9%, to a median sale price of $1.3 million in October 2021. But a year later, by October 2022, the median sale price in Carefree declined by almost 36%, to $835,000.

The housing market in Phoenix has experienced a precipitous decline in the number of home sales since last year. In October 2021, there were 2,322 home sales, before dropping by 42.1%, to 1,345 home sales in October 2022. At the same time, available inventory in the Phoenix housing market rose by 57.1%: From 3,279 homes for sale in October 2021, to 5,152 homes for sale in October 2022. Not coincidentally, the months supply of homes in the Phoenix housing market also increased over the same period: From a months supply of 1.4 months in October 2021, to 3.8 months in October 2022. The Phoenix housing market has also seen a marked rise in the percentage of active listings with price drops. In October 2021, 23.3% of active listings in the Phoenix housing market experienced price drops. A year later, in October 2022, the percentage of active listings with price drops had risen to 52.5% — that’s an annual increase of 124.9%.

Phoenix Housing Market: Inventory and Days on Market

An increase in available for-sale inventory can be an indicator of how active a housing market is. When it comes to the Phoenix housing market, the small city of Tonopah has experienced the largest growth — 266.7% — in its housing inventory over the last year: From 3 homes for-sale, up to 11 homes for sale in October 2022. Looking at bigger cities than Tonopah, Avondale stands out the most. Its available for-sale inventory rose from 109 homes in October 2021 to 347 homes in October 2022, for an annual increase in inventory of 218.3%. The city of El Mirage also experienced a substantial increase in housing inventory over the same period: From 39 homes for sale in October 2021, to 101 homes for sale in October 2022 — a year-over-year increase of 159%.

In fact, the overwhelming majority of cities in the Phoenix metro area have experienced increases in their for-sale inventory over the last year. The table below details these increases:

Related to inventory is the months of supply of homes for sale. In the Phoenix housing market, this figure grew from 1.4 months of supply in October 2021 to 3.8 months of supply in October 2022. That makes the annual increase in the months of supply of homes in the Phoenix housing market 171.4%. However, many other housing markets in the Phoenix metro area have witnessed much larger annual growth from October 2021 to October 22:

• El Mirage, AZ: 0.7 months – 4 months | 471.4%
• Avondale, AZ: 1 month – 4.9 months | 390.0%
• Rio Verde, AZ: 1.8 months – 8 months | 344.4%
• Buckeye, AZ: 1.3 months – 5.4 months | 315.4%
• Surprise, AZ: 1.3 months – 5.2 months | 300%

The median number of days a home spends on the market before going off is another useful indicator of housing market activity. If the number of days on market is low, that typically means homes are getting bought up fast. If the number of days on market is high, then that usually means that the pace of home buying has slowed.

In the Phoenix housing market, the median number of days on market for a home in October 2021 was 28 days. A year later, by October 2022, the number of days on market had increased by 82.1%, to a median of 51 days on market. Across most of the Phoenix metro area’s core cities, the number of days on market of a home for sale has increased year-over-year from 2021 to 2022.

The Bottom Line: Will the Phoenix Housing Market Crash Again?

In regard to the question of, “will the Phoenix housing market crash again?”, an answer is difficult to put forward. The Phoenix housing market and the metro area’s core cities certainly seem to be experiencing a slowdown in activity. But that doesn’t necessarily entail a wholesale crash like that of the housing crash of the late-2000s. A soft landing is very possible, but if the U.S. economy enters a sharp downturn in 2023, a soft landing could turn into a crash. That being said, it’s hard to imagine a housing crash as bad as the one experienced roughly 15 years ago since no-income, no-job, no-asset mortgage loans aren’t being handed out left and right like they were back then.

If anything, the Phoenix housing market will likely experience a “return to normalcy.” The pandemic’s economic impact seriously distorted housing markets across the country. Before the rate hikes of 2022, housing markets all over the U.S., including the Phoenix housing market, experienced surging prices and demand. As mortgage rates have risen, the Phoenix housing market has witnessed a slowdown in activity. As of October 2022, the sales-to-list ratio in the Phoenix housing market and other core cities have dropped below 100%, meaning that homes are tending to sell for less than their original listed price. At the same time, the percentage of active listings with price drops has risen significantly in most cities comprising the Phoenix metro area housing market. For instance, in October 2021, the percentage of active listings with price drops in El Mirage was only 10.3%. A year later, in October 2022, that figure had blown up to 68.3% of active listings with price drops. The difference between a “return to normalcy” and an outright housing crash in the Phoenix housing market is heavily dependent on how bad of a recession (if it comes) the nation experiences in 2023.

This post first appeared on Forbes.com. To see the original, click here.