Is the Housing Market in Arizona Going to Crash? — Glendale Realtor

The most common question I get from people when I introduce myself as a real estate agent in Arizona is “How is the Arizona real estate market right now?”

I don’t blame people… after all, most of us are still traumatized by the real estate fall out from 2008 and 2009 when homes lost half of their value seemingly overnight.

The answer is pretty simple and it all boils down to supply and demand.

How is the Arizona Housing Market?

The Arizona Real Estate market is extremely robust. While inventory levels have risen significantly from the record lows of 2020 and 2021, invetory still remains significantly low. As we all learned in High School economics, markets depend on supply and demand.

The Bad News: Low Demand

We have all seen it in the news… interest rates are rising and rising quickly. As the federal reserve attempts to slow the run-away train we call inflation they are raising interest rates extremely quickly. Just over a year ago it was very common to get an interest rate of 3% or lower on a home purchase. As of today, you would be lucky to get an interest rate of 6.5%.

What does this mean?

It means if you were to buy a home today, your monthly payment would be significantly higher than what it would have been just a year or two ago.

Don’t believe me? Here’s how the math pencils out:

Scenerio 1:

A family goes to buy a home in Glendale, Arizona in 2021. The purchase price is $500,000 and they put 5% down as a down payment and their interest rate is just 2.5%. Their mortgage payment would be approx. $2,200 (Math Nerds: this is just an estimate… relax! I realize I left out a good portion of details for the sake of this example)

Scenario 2:

Fast forward two years and it is now 2023 and the feds are trying to rewind history and negate the consequences of printing trillions of dollars. Because of this, the federal reserve has raised interest rates significantly.

Now, in 2023, a different family goes to purchase a home in Glendale, Arizona of just $400,000 - 100,000 less than the family in 2021. They put 5% down, just like our other family, but their interest rate is 7.5%. How much is their payment?

$2,929

That’s over a $700 monthly increase on a SIGNIFICANTLY lower priced house.

As you can imagine, the higher interest rates has taken a HUGE amount of buyers out of the playing field— they simply can’t afford the monthly payment.

Less buyers being able to afford homes, means less demand.

This should mean that the Arizona Real Estate market is crashing… right?

Wrong.

The Good News - Low Supply

Supply can also be described as inventory. In short, inventory is how many homes are available for purchase in the Arizona market at any given time. At the time of this writing we are sitting at aprox. 15,000 homes available for sale in the Phoenix-Metro area. This is a very low number given the population of Arizona. Not to mention the amount of Millenials who are now settling down and wanting to start a family and purchase a home. This means that our supply is LOW. So yes, demand is low but so is supply. In order for the housing market to crash, either demand would have to shrink while supply grows, or demand and supply would have to rise in concert. Neither of these things are happening.

As we saw in the above section, demand is quite a bit lower than it was in the past few years, and inventory is relatively higher.

When will the Arizona Housing Market Crash?

In order for the Arizona housing market to crash the inventory would have to increase significantly. The increase in inventory would have to be beyond what we have ever seen ever before in history, including the 2008 market crash.

I’m not talking about the inventory just increasing from 15,000-25,000… that would hardly make a dent in the market or prices. All it would do is give potential buyers a few more potential listings to view.

I’m no economist so I’m not going to pretend to know how to do this math… but it is safe to say that the available inventory would have to at least quadruple for Arizona to see a housing market “crash” (and even at that rate I’m not convinced it would be a major crash more than just a small correction).

That means we would need to see an additional 45,000 homes hit the market overnight.

Is this possible? Anything is possible. Just ask everyone who lost their home due to foreclosure in 2008.

Is it feasible? Not at all. The vast majority of home owners have crazy low interest rates, which means they can not only afford their payment, they can afford it and have lots of extra disposable income at their enjoyment. Additionally, nobody wants to sell their home and lose their low interest rates. This means that not only is inventory low, there is no foreseeable future where we will see a max influx of inventory hit the Arizona Real Estate Market.

About Glendale Realtor - Daniel Pitner

I am a real estate agent in Glendale and I help buyers, sellers, and investors with all types of real estate needs and transactions. I was born and raised right here in Glendale, Arizona and I call it my home to this day. I know this area like the back of my hand. If you have any real estate questions about Glendale or the surrounding areas, I would love to chat!

How is the Arizona Real Estate Market?