The Phoenix area has been one of the hottest real estate markets in the country. High demand for housing and limited inventory caused the buying frenzy this past year. Recently though the Phoenix housing market has begun to cool off somewhat. Although home prices in Phoenix continue to rise, albeit at a slower pace than before, some sellers are reducing the price of their homes. This can seem confusing and make it difficult to know what’s going on.
Getting the Terminology Right
- Appreciation is when home prices increase.
- Depreciation is when home prices decrease.
- Deceleration is when home prices continue to appreciate, but at a slower or more moderate pace.
Experts agree that what we’re experiencing today is deceleration. Home prices continue to appreciate, just not at the break-neck pace they have in recent years.
Home Prices Continue to Rise…Just at a Slower Pace
According to Zillow’s home value index, property values in the Phoenix metro area grew by 22.1% from July 2021 to July 2022 compared to 30% from July 2020 to July 2021. The forecast says that home prices will continue to rise, just at a slower pace, for the foreseeable future.*
The overriding reason for this deceleration is the rise in interest rates. This is an attempt by the Federal Reserve to fight inflation. How does this work? Put simply, if it’s more expensive to borrow money or carry a balance on a credit card, people will start spending less. When spending declines, demand for goods and services will drop which will cause inflation to fall.
Phoenix is the 5th largest city in the nation and continues to grow. New residents are drawn here by its strong economy, good job market, relatively low cost of living, economic opportunity, and cultural attractions. As Phoenix continues to grow, the demand for housing will remain unchanged into the foreseeable future. However price appreciation will continue to decelerate, eventually leading to a more balanced market.
Contact the Donnelly Group
If you have questions about home prices in Phoenix, and/or the metro area housing market and how best to navigate it as a home buyer or seller, the Donnelly Group has the expertise and experience to help you. Please don’t hesitate to contact our team at 480-792-9700 or by email.