Why is there a housing shortage in Arizona?

Mar 11

Today is Saturday, April 29th and it is 10:52 pm. Today 300 new people moved to Arizona.

Tomorrow, April 30th, another 300 people will move to Arizona.

The day after tomorrow, May 1st, another 300 people will move to Arizona.

I’m sure you get the point by now… LOTS of people are moving to Arizona.

High Housing Demand

As you can see in the above section, Arizona is a hot-spot (in more ways than one) for people migrating from other states? As a Phoenix native, I’m not surprised… I’ve always believed that Arizona was America’s best kept secret. But the cat is now out of the bag. THOUSANDS of people are moving to Arizona every month. Between our moderate weather (that statement alone should tell you I’m writing this in April and not in August), beautiful scenery, business friendly atmosphere, and low cost of living (for now), Arizona is becoming the “place to be” to start a family, get a new job and buy a home.

This means that demand for housing is extremely high. After all, those 300 people that moved here today have to live somewhere, right?

The 2008 Market Crash

Just saying those words makes my skin crawl. If you were here in Arizona during the market crash of 08 I’m sure it does the same for you. But believe it or not, the 2008 market crash is one of the main factors of why our housing inventory is so low. Oh, the irony. In 2008 the crash was the cause of a MASSIVE uptick in inventory, leading to a crash. This time around the 2008 crash is causing a housing boom.

Why?

The simple answer is that builders stopped building homes overnight. Literally… one day they were doing whatever it is builders do on any given day, and the next day they got a phone call to not come to work and that operations were shutting down. After all, no builder wanted to build a home that was losing value every single day. But this caused major ripple effects that we are just now feeling.

The construction freeze meant that new home construction was placed far behind where it needed to be to stay up with the city’s growth. Just a few years of no construction put a serious strain on inventory, which we all felt in very real ways in 2020 and 2021 when money was basically free.

Crazy Low Interest Rates

I’m sure you are sick of hearing this… but rates were CRAZY low for a few years. I’m talking 2.5% low. That’s basically free money. The low rates caused a buying frenzy which caused even lower inventory which means the principle of supply and demand was stoked. Demand rose, supply shrank, prices rose.

But there is a little talked about impact of low interest rates that nobody is talking about.

The low interest rates of 2020 and 2021 were SO low, that anybody who has those rates doesn’t want to give them up at any cost. How would I know? Because I’m one of those people. Sure, moving to a bigger house would be nice. But it’s not worth the MASSIVE spike in monthly payment I would have to pay because of the comparatively high interest rate on my primary residence.

The fact of the matter is, people who locked in those low rates will not give them up at any cost. This means that tens of thousands of homes have potentially left the inventory pool for years, if not forever.

So added to the fact that builders stopped building, sellers, well…. stopped selling.