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Phoenix Market Update: Housing Boom Poster Child is not Insulated from Recent Market Uncertainty

Over the last couple of years the Phoenix Metropolitan Area was amongst the most demanded real estate markets in the country.

Executive Summary

  • Real estate prices in Phoenix have registered MoM contractions from historic highs since June, 2022. Prices declined 2.6 and 2.4 percent in the months of August and September to its current level of $256 per square feet.
  • Despite the decrease in prices, the region is still 108 percent more expensive in September, 2022 than at the beginning of the pandemic where the median price per square foot was $123.
  • iBuyers hold over $1 billion in home equity across the entire Phoenix MSA and cities with high ibuying activity have registered larger price increases than the rest of the metropolitan area with increases of 44% in Phoenix, 43% in Mesa and 35% in Gilbert since January of 2021.
  • The demand for real estate has created market volatility which has been exacerbated by macroeconomic conditions such as raising interest rates and diminished economic outlook.

Phoenix prices decline but remain historically high

Over the last couple of years the Phoenix Metropolitan Area was amongst the most demanded real estate markets in the country, with an average MoM growth of 3.3 percent. And while the demand was sustained the region did not escape the general downturn in real estate markets across the country given current macroeconomic conditions such as mortgage rates at their highest levels in 20 years.

Our most recent data indicates that during August and September price per square foot (PPSF) declined 2.6 and 2.4 percent on a MoM basis. Despite these price corrections real estate prices continue to be at historically high levels, almost 108 percent higher than at the beginning of the pandemic.

source: Parcllabs.com

The vertiginous growth rate has not been accompanied by a similar expansion in the income available for the median household. For example  the price to income ratio, a commonly used metric to assess the affordability of a particular region was 4.88 in 2021, compared to 5.61 in 2021. The rapid acceleration can be in part explained by an increase in speculative investment in the region, particularly iBuying and house flipping activities

iBuyers and Home Flippers are Impacting the Phoenix Residential Real Estate Market

Phoenix has been an attractive market for non traditional buyers, most notably iBuyers and flippers. iBuyers are companies, such as Opendoor, that use technology to make instant offers on homes in an attempt to turn a profit. Home flips, as defined by Parcl Labs, are when properties are held for less than a year and sell for at least a 20% profit. In fact, Phoenix was amongst the most important markets for iBuying activity over the last couple of years.

Top iBuyers hold over $1 billion in home equity across the entire Phoenix MSA. For context this vastly surpasses iBuyer activity in other major markets, such as Miami ($40 million) and San Francisco ($144 million). The top three cities with the most iBuying activity in the Phoenix MSA are Phoenix City ($286 million), Mesa ($117 million), and Gilbert ($88 million). These top iBuying cities have also seen higher increases in prices than other cities in the metro area. For example, since January of 2021 PPSF has increased 38% across the Metropolitan area while favorites of iBuying activity have registered increases of 44% in Phoenix, 43% in Mesa and 35% in Gilbert.

source: Parcllabs.com

Home flipping continues to be prevalent

House flipping, defined as holding properties for less than a year and selling for at least a 20% profit, increased during the pandemic, from a 3.6% flip rate from 2017-2019 to 4.2% during the 2020-2022 period across the entire metro. Some of the cities with the highest increase in PPSF were also some of the places with the highest concentration of house flipping activity. Since 1/1/2021, PPSF has increased 38% across the Phoenix MSA, vs. a massive 59% increase in Youngtown, 24% in Sun Lakes and 32.5% in Sun City.

Phoenix Real Estate is Changing rapidly

Phoenix saw major home price appreciation through 2020-2022. However the changing economic conditions are also rapidly changing the real estate market in the city, with price declines on a MoM basis over the last 3 months.

Traditional data sources fail to depict the wide variation across cities in this region and also utilize 3 times less data than our Parcl Labs estimates.  Our goal is to empower users with the highest quality data and insights to ensure real estate decisions are driven by correct, accurate, and real-time data.

Contact us to see how we can work together! Be sure to also follow Parcl Labs on Twitter for more real estate insights and updates. You can register here for early access to our API and start getting insight into your markets well ahead of others.

Disclaimer: The material contained on this website is provided for educational and informational purposes only, without any express or implied warranty of any kind. The information on this website does not constitute the provision of investment, tax, legal or other professional advice. No reliance may be placed for any purpose on the information and opinions contained herein or their accuracy or completeness, and nothing contained herein may be relied upon in making any investment decision.

Jason Lewris

Co-Founder

Jason leads the data team at Parcl Labs. Jason brings his experience from Microsoft and Deloitte where he worked on international data standardization and machine learning problems at scale.