It’s safe to say that 2021 was a wild ride when it comes to Phoenix real estate. The pandemic-fueled housing market changed a lot of things: skyrocketing home prices, increased competition between buyers, the speed of action necessary for buyers to snatch a property off the market and the reasons people are moving to new cities and buying homes. Demand was high and supply was low, resulting in a hyper-competitive market where more than 54 percent of homes sold above listing price. So, what’s in store for Phoenix real estate come 2022? Simply answered, a lot.
- Suburban migration to Phoenix Metro will continue. A study shows most recent homebuyers, approximately 62 percent, prefer to work remotely from their homes. Nearly half of the American workforce has switched to remote work after the pandemic. That means new homeowners will scan homes on the market for space, size and functionality to ensure they’re suitable for work/life balance. With that mindset, city dwellers who are struggling to live in places like New York City, San Francisco, Seattle and Washington D.C. are moving to more affordable areas like Phoenix and its suburbs. A new report shows Phoenix will be one of the top three emerging real estate markets in 2022, which comes as no surprise with the number of new residents moving to Maricopa County.
- Expect second homes for AirBNB/VRBO and rental properties to continue to rise. If you want to invest in rental property, the time is now. According to recent data from the Cromford Report, rental rates rose 6 percent across the country this past September. However, Phoenix showed the highest rental rate increase – at 14 percent year over year. Cromford analysts say there are more people wanting to rent than there are units available, leading to increased investor demand and competition for properties.
- Expect more inventory on the market at the beginning of the year. Phoenix desperately needs new housing inventory and supply simply can’t keep up with demand. Traditionally, there are 40 percent fewer homes listed in December than January. Even though housing inventory is slowly improving, new home development isn’t coming online fast enough thanks in part to lingering supply chain issues and skilled labor shortages. Low inventory is a major reason home prices have been shooting up over the past year. Simply put, the Phoenix area does not have enough homes for the demand associated with the growth in population.
- Interest rates will remain low but start to increase. Mortgage rates had been at a historic low, motivating a flurry of homeowners to refinance their homes, which is now slowing down as rates begin to rise. The 30-year fixed-rate mortgage (FRM), which is the popular choice for most homeowners, is at its highest level since April, teetering around 3.45 percent. The Mortgage Bankers Association is forecasting that the average 30-year fixed mortgage rate will hit 3.7 percent by the third quarter of 2022, and 4 percent by the end of 2022.
- Luxury housing will continue to be in demand. We’re seeing a much higher demand for new-construction homes, especially those in high-end Phoenix suburbs. The analysts at the Cromford Report note that the higher-priced areas of the Northeast Valley, specifically Paradise Valley, are seeing a higher spike of interest than usual. Paradise Valley offers sweeping views of the Valley from secluded resort-style homes nestled along cliffsides, luxury golf courses, boutique shops and destination attractions. As remote work continues to become the norm, along with snowbirds who routinely flock down here (and are now staying longer), the luxurious suburbs that surround Phoenix (and interior enclaves such as PV) can expect to see top dollar for their properties.
- Millennial buyers will continue to be very active. This age group is the driving force of the U.S. housing market because millennials are aging up. That’s right. The “lost” generation is rising as the new homebuyers. In 2021, millennials applied for more mortgages than any other generation. More than half of home purchase mortgage applications (51 percent) were submitted by those between the ages of 26 and 41. This shouldn’t be too surprising as millennials have proven to be savvy investors who have or who are hitting their professional and financial strides. They’re also starting or thinking of starting families, which creates a need as opposed to a want for a more suitable home.
- Don’t expect home prices to drop. Cromford data shows November’s monthly median sales price was $415,000 versus $332,000 last year – that’s a 25 percent increase. Demand is still very high, and supply is low. There is nothing in the data that says over the course of the next year that enough new homes will be built to balance out the demand. So, home prices will continue to rise through 2022.
- Expect the suburbs to remain hot as many people continue to work from home or in a hybrid model. That means office spaces and backyards will be at the top of home buyers’ wish lists. The decentralization of the workforce is making the suburbs more appealing. Some people are going to the office two days a week, while some aren’t going back. People don’t have to worry about where they live anymore. Suburbs are more affordable and there is no more worrying about time spent on roads; they can be choosy about where they live.
It’s clear that the market will continue to move on a similar track in 2022 that we saw in 2021, with many of the issues and consumer needs carrying over from year-to-year. These are interesting times, and we take into consideration the pandemic-induced socio-economic and environmental factors that are shaking up the market in ways they haven’t before. If you’re thinking of jumping into real estate, be sure to find a trusted agent who can help you navigate this fast-paced and dynamic market.