Looking Back to Spring Forward

D. Patrick-Lewis

Managing Broker

REALTOR® Realty Executives

2020 busted into the scene as a hot market and we were all feeling like 2020 would be our collective year. Then, COVID hit and it all turned to lava. Pre-COVID, the Phoenix area was already seeing multiple offers on most homes, then the pandemic, the lockdowns, and low interest rates really spiked interest in owning a home.

The Phoenix area continues to see low inventory levels and record monthly sales even later into 2020. With such an aggressive market, many people will inevitably draw comparisons to the boom, and later bust, that took place in the early 2000’s. While I understand the comparison and fear of a repeat event, it is not apples to apples. While there are many differences, there are two big differences to consider. Keep in mind that we’re seeing rental rates continue to rise, and they are some of the highest in the country. That means homeowners have options to stay afloat if they’re struggling to pay a mortgage! They could rent a room or the home for, in most cases, an amount equal to the mortgage or more. That was not the case in 2005, as rentals were very inexpensive back then.

The second biggest difference this time around is that most homeowners have equity in their homes. In fact, in 2018 Harvard estimated that 61% of homeowners had at least 50% equity in their homes. The number of homes in foreclosure has been the lowest it has been in close to 20 years. Couple that information with the buyer demand and overall low inventory, and you’ll find that any homes that come on the market are going to be swept up quickly. So those waiting for a drop in prices due to the “slew of foreclosures coming” are going to be greatly disappointed.

Another facet of this market is the investment in real estate. As I said earlier, our rental rates continue to climb. Phoenix’s average rental appreciate was double the national average and that trend is expected to continue. There’s a perfect storm of high rental rates, low interest rates, mixed with high demand that means investing in Phoenix housing should continue to be a strong investment. Consider the fact that prices are up 18% from two years ago and 145% from 2011 and there aren’t many other options out there that will give you that kind of return.

What to expect in 2021

NAR expects homes to appreciate by at least 4% next year nationally and most industry analysts agree. Arizona is poised for an even greater percentage of appreciation due to the high demand and low inventory that is expected to continue. This is due to an incredibly strong job market and the mass exodus from other larger metropolitan areas. Phoenix appreciated approximately 8% in 2020 and I expect the same for 2021.

The big X factor in 2021 is commercial real estate and the effect of COVID. There’s a growing trend of remote work and a decline in retail which will undoubtedly have an impact on the commercial market. Either way, I believe the Phoenix area has enough momentum and growth to balance the market pretty quickly.