In our annual forecast article published here in January of 2021, we stated that, “Waiting is not going to benefit potential buyers this year.” This statement rang truer than we could have ever imagined over the past 12 months.
Last year, we predicted that inventory would be tight and interest rates would be historically low, but the incredible demand exceeded everyone’s expectations. The real estate frenzy of 2021 resulted in the highest number of units sold since 2005 and price appreciation that is expected to reach 30 percent by the end of the year. In that process, 29 percent of buyers paid over list price, and 90 percent of homes sold within 30 days. So, what can we expect in 2022? See our predictions below.
DEMAND WILL CONTINUE TO EXCEED SUPPLY
According to Realtor.com, in 2022 more than 45 million millennials will be between the ages of 26 and 35, and in their prime homebuying age. However, as of mid December, there were only 339,000 single-family homes on the market in the entire United States. If you look at this statistic alone, you can understand that we have an inventory challenge that will be around for many years to come. In Arizona, that crunch has been compounded by the increasing numbers of people moving to our state. Result: Continuation of the seller’s market, bidding wars, rising values, and more new home permits.
PRICES WILL CONTINUE TO RISE
Because so many buyers are expected to enter the market, prices will continue to rise due to a lack of inventory. Several local economists are expecting that we will see a 7 to 9 percent appreciation this year, but we anticipate that it will be closer to 10 to 12 percent.
We still have many buyers who did not have the opportunity to buy in 2021, and they will now be competing with
another new crop of buyers coming to market.
Result: Affordability issues will exclude many from the opportunity of achieving homeownership. Locals looking to move will face increasing competition.
INTEREST RATES WILL RISE
In 2022, the U.S. Government’s voracious appetite for mortgage-backed securities kept interest rates low. However, rising inflation has now led the government to taper those purchases — which is already leading to higher interest rates. Additionally, the Fed has indicated that there will be three interest rate hikes this year. By the end of 2022, we anticipate that mortgage rates will be hovering around 4 percent.
Result: Buyers will get less for their money or will be priced out of the market. Refinances will decline and people with low rates in place will have less incentive to sell
SPRAWLING GROWTH — “DRIVE TO QUALIFY”
Limited inventory and rising prices in Metro Phoenix will continue to motivate homebuilders and buyers to go further afield to find their next opportunities. D.R. Horton Inc. and Brookfield Residential Properties just purchased 2,783 acres in Pinal County for $245.5 million and they are planning to develop a master planned community with 10,000 homes. Lennar Homes is planning to have 13 active communities in Pinal County within the next year and another 3 to 4 new communities in Casa Grande in the next 18 months.
Meanwhile, homebuilders have purchased thousands of acres near the massive new Taiwanese Semiconductor Manufacturing Co. plant which is under construction at the I-17 and the Loop 303.
LUXURY LIVING
The pandemic has definitely changed the way we live and work, and that has motivated homebuyers to seek more expansive properties. As work from home continues into 2022 for many companies, the home office with a strong internet connection has become as necessary as a kitchen.
Arizona’s economic expansion has also come with an influx of out-of-state buyers who have a strong appetite for luxury property. Part of the attraction is the amount of value that our luxury properties offer compared to more expensive markets in Washington, California, and Illinois.
Result: A greater demand for 5000+ square-foot homes. A willingness to fully renovate older luxury properties. More luxury focused entertainment, retail, and restaurants in the Valley.
EXPLOSIVE ECONOMIC GROWTH
The Arizona economy is hot — not just in the real estate arena, but across sectors. Businesses are flocking to the Valley in search of new opportunities and an environment that is real estate, tax, and regulatory friendly. It is anticipated that Arizona will create more than 700,000 new jobs in the next decade.
“Our economy’s momentum continues to accelerate. Arizona has emerged as the destination for key high-tech, high-wage industries like semiconductors, electric vehicle manufacturing, startups, and more,” said Governor Doug Ducey. “Over the next decade, Arizona will remain a leader in the U.S. for people, businesses, and jobs moving to our state.”
It has been a great year for Arizona as a whole and our property values, and the positive news is expected to continue for 2022. If you are thinking of buying, selling, relocating, or remodeling, please give us a call for a complimentary consultation. We are here to help make the process as seamless as possible for you and help you build a strong real estate strategy to succeed in this competitive environment.
John and Natascha Karadsheh are co-owners of KOR Properties, a boutique real estate brokerage serving the Valley of the Sun, and the creators and founding sponsors of Mesa Food Truck Fridays.
John has been a Multi-Million Dollar producing agent for over 19 years and is an Accredited Buyers Representative (ABR) and Certified Residential Specialist (CRS), a member of the Arizona Regional MLS Rules & Policies Committee & Appeals Committee, and the West and Southeast Realtors of the Valley Professional Standards Committee.
Natascha is an Associate Broker, a Multi-Million Dollar Producer, Founder of Mesa Food Truck Fridays, Member and Past-Chair of the City of Mesa Economic Development Advisory Board and serves on the Board of Directors of the Greater Phoenix Economic Council.
You can reach John at (602) 615-0843 and Natascha at (602) 909-4995, or visit their website: KORProperties.com.