As you are reading this, 300 people are moving to Arizona, as they do each day. Arizona is the fifth fastestgrowing state in the country with a population of 7.35 million residents. Maricopa Country is again the fastest-growing county in the nation with a population of 4.6 million residents and is now the fourth largest county in the United States behind Los Angeles County, Calif., Cook County, Ill., and Harris County, Texas.
While our population continues to grow each year, the Great Recession took a toll on residential construction in our state. Very little new construction came to market between 2010-2020 — and not enough housing was built to accommodate the ongoing growth. Esteemed Valley economist Elliott Pollack explains it best, “The first decade of this century, we overbuilt in both single-family homes and apartments. The second decade of this century we way underbuilt and we are now at a situation where the vacancy rates for both single-family housing and for apartments are as low as they have ever been.”
This lack of housing supply combined with pandemic migration drove the rapid increase in housing values and rental rates over the past few years. But this growth was not a flash in the pan.
We get constant questions about a market crash and it is true that prices have been leveling out and homes have been sitting on the market longer in the last few months. The rapid increase in interest rates softened the overheated market and we needed the break but it has not solved the root issue of our housing problem.
Here are four reasons why we will continue to have supply challenges and consequently long-term price growth both in property values and rental rates:
The Phoenix Metro Area and surrounding areas have done an incredible job attracting future forward economic growth. Our unemployment rate is down to 3.7 percent and more employment opportunities continue to develop as companies grow and relocate to the Valley. The growing workforce will need housing and, due to affordability challenges, many will have to drive further out to find what they want/need. Expect to see continued growth in markets like San Tan Valley, Florence, Coolidge, and Casa Grande.
Millennials are the largest adult cohort in the world and at ages 27 to 42 they are in prime home-buying age. Many millennials entered the housing market late due to the recession and student debt. Gen Z is right on their tails and unlike Millennials they are very focused on purchasing real estate. They have a rosier picture of the housing market having seen significant real estate appreciation in the last decade. They will all be competing with Baby Boomers who will have cash in hand for a second home or to downsize. The demand for housing will remain strong.
According to CoreLogic, in 2021 corporations purchased 31 percent of single-family homes in Arizona. While that large investment waned in 2022 as cheap money dried up, investors are rapidly coming back. In April, Blackstone announced that they just created their largest-ever private equity real estate fund. The over $30 billion fund is pivoting away from traditional office and mall investment and focusing 80 percent of its investments in logistics, rental housing, hospitality, lab office, and data centers.
And aside from Blackstone, the smaller investors are back to sending endless text messages, voicemails, and emails once again as they look for off-market deals they can rent or flip. Investors will contribute to our housing supply challenges which will lead to increasing prices over time.
Interest rates have come down and while they are not as much of a deterrent to buyers, they do deter sellers. When a homeowner is sitting on a 3 percent rate in a house that they bought at lower market pricing three or more years ago, their motivation to trade that house for one that is more expensive at a higher rate is very low. The lack of normal movement in housing stock will also continue to challenge supply.
The low point in property values was back in November and December of 2022 and now we are back to seeing more multiple offers, appraisal waivers, non-refundable earnest money, and post-possession agreements in the marketplace. The market is not what it was in 2021 and early 2022, but it is still strong. In fact, as we were writing this article in mid-April, there were only 7,600 single family homes on the market in all of Maricopa County. May and June are some of the busier months in real estate each year as people strive to relocate before the next school season begins. Because inventory is tight, we expect to see more competition in the market, especially for desirable locations and properties.
The market nuances are changing every week and so if you are looking to buy or sell, please give us a call at (480) 568-8680 for a complimentary real estate consultation. We have our pulse on Valley real estate and are here to help you get the best deal in today’s market.
John and Natascha Karadsheh are co-owners of KOR Properties, a boutique real estate brokerage serving the Valley of the Sun. John is the Designated Broker of KOR Properties and has been a Multi-Million Dollar producing agent for over 20 years. He is an Accredited Buyers Representative (ABR) and Certified Residential Specialist (CRS), and serves on the Arizona Regional MLS (ARMLS) Rules & Policies Committee, ARMLS Appeals Committee, and the West and Southeast Realtors of the Valley Professional Standards Committee. Natascha is a Multi-Million Dollar Producer and Accredited Buyers Representative (ABR). She is the Founder of Mesa Food Truck Fridays, a Member and Past-Chair of the City of Mesa Economic Development Advisory Board, and on the Board of Directors of the Greater Phoenix Economic Council.