Well, we made it to 2021. But there is still a lot of uncertainty out there due to the coronavirus pandemic and economic slowdown.
As a result, we’ve begun to publish reports to address common questions and concerns among home buyers nationwide. We call them “Micro Market Reports.”
Today, we will zero in on the Phoenix real estate market by answering a very common question: Will Phoenix home prices go down in 2021?
The short answer: In light of current real estate trends in the area, it is highly unlikely that home prices in Phoenix will go down during 2021. The more likely scenario is that house values in the area will continue rising from month to month, due to strong demand and short supply.
Of course, that’s just a prediction based on current trends. So you probably shouldn’t “bank” on it. Just know that it would take a lot to get Phoenix home prices to reverse course at this stage. They rose steadily throughout the pandemic, and we see no reason why that would change anytime soon.
That’s the short version. Now, let’s take a more in-depth look at current real estate and home-price trends within the Phoenix, Arizona metro area.
Here’s Why Phoenix Home Prices Won’t Go Down in 2021
The population of Phoenix has grown over the past decade, and that increases demand for housing on both the rental and purchase side.
But this growth comes at a time when housing inventory remains very limited in the area.
So we have a classic supply-and-demand imbalance. There are plenty of folks looking for a home to purchase in the Phoenix area, but not enough inventory to match that demand.
This is actually a common trend across the country right now. Local housing markets nationwide are suffering from chronically low inventory levels. It’s been an issue for the past few years, and we see it stretching through 2021 as well.
You don’t have to be an economist to understand the dynamic at work here. There’s a lot of demand for homes among buyers, but very limited inventory. This is why prices rose so much during 2020. It’s also the number-one reason why Phoenix home prices probably won’t go down in 2021.
A Look Back, and a Look Ahead
According to the real estate information company Zillow, the median home value in Phoenix, Arizona rose by around 15% over the past year or so. (This was reported in mid-January 2021.) Looking forward, the company’s research team predicts that home prices in the area will rise by 11% or 12% over the next year.
It would take a lot to shake the Phoenix real estate market off its current trajectory. This housing market has handled everything the coronavirus pandemic could throw at it, including job losses resulting from shutdown orders. Despite all of those challenges, home prices in Phoenix continued to climb throughout 2020.
Researchers from Realtor.com also reported significant price increases in the Phoenix area. According to a January 7 report from Realtor.com, the median listing price in the area rose by more than 10% over the previous 12 months. This means sellers are asking more for their properties today than they were a year ago.
So we are seeing increases in both listing and sale prices, across the Phoenix metro area.
Given all of these past and current trends, the most probable scenario is that home prices in Phoenix will continue to rise throughout 2021. Or at least for the foreseeable future. That’s the forecast being issued by housing analysts and economists, as of early 2021.
Tight Supply Conditions Force Buyers to Make Bigger Offers
Want to buy a home in the Phoenix area in 2021? Better make a strong offer.
Tight supply conditions have increased competition among buyers in the area, leading to bigger and bigger offer amounts. The same is true for many other major cities across the U.S. But the inventory situation is particularly tight in and around Phoenix, Arizona.
According to the January 2021 Realtor.com report mentioned earlier, the total number of active real estate listings in Phoenix dropped by -49.5% from December 2019 to December 2020. In other words, the number of homes for sale shrink by roughly half during a one-year period.
That is a significant rate of inventory reduction, and it forces buyers to compete even more fiercely than they were one or two years ago. This leads to bigger purchase offers, bigger sale prices, and steady home-price appreciation over time.
A recent industry report showed that the Phoenix metro area had about a 1.3-month supply of homes for sale at the end of 2020. That’s well below what is considered to be a balanced market. These conditions have put sellers into the driver seat, when it comes to price negotiations.
Meanwhile, the city’s population continues to grow at a steady pace. According to the U.S. Census Bureau, the population of Phoenix, Arizona grew by more than 16% from 2010 to 2019.
So we have a situation where more and more home buyers are entering the market, at a time when there’s not nearly enough inventory to go around. This is why Phoenix home prices most likely will not go down during 2021.
It also sends a clear message to home buyers. If you’re planning to buy a house in the Phoenix area sometime in 2021, you’ll want to make a strong initial offer based on recent sales trends. It’s probably not a good time to “lowball” the seller or nitpick over minor issues.
Disclaimer: This article includes real estate data and forecasts provided by third parties not associated with the publisher. LoanLimits.org makes no claims or assertions about future home prices in Phoenix or elsewhere in the U.S.