This week in Phoenix real estate…How can people afford these prices? That’s a good question, with home prices here in Phoenix continuing their meteoric rise and interest rates heading up as well.
The Housing Opportunity Index, HOI, published by the National Association of Homebuilders, pegged Phoenix at 51.2 for the 3rd quarter of 2021. Translated, this means that in Q3-2021, 51.2% of the homes were affordable to a family in Phoenix making the median income of $79,000. That’s just behind the national HOI of 56.6 but light years ahead of the Q32006 HOI of 26.6. We can only dream of the 2011 days when 89% of the homes were affordable.
That said, we all know prices have come up quite a it since September, roughly 7%. Interest rates are also heading upwards. I post Freddie Mac, a fairly conservative mortgage index that moves pretty slow. This week, the FM rate is 3.55% however, the average lender is now quoting conventional 30yr fixed rates in the 3.75-3.875% neighborhood. Many less than perfect loan scenarios will see rates over 4%. Mortgage-backed securities (MBS) that drive mortgage rates have been moderately weaker as of late, and this downward trend for MBS may result in higher mortgage rates. Not. Going. To. Help.
Bottom line: If that typical family wants to buy that typical house now, they’re going to need a bit more scratch.
The last time the HOI dipped below the normal range of 60-75, back in 2018, we saw a noticeable cooling in the market. Demand came down and the supply started to increase. Will that happen now? We’ll see. Demand has slightly declined since the beginning of 2022, but supply is stubbornly flat and still very low.
A trend to keep an eye on is rentals. Rental listings in the MLS are up 18% compared to a year ago. This may be the first sign of cooling. Investors have played a large role in hoarding inventory and driving up prices, but flatter rental rates and higher vacancy may put the brakes on these investor buying sprees. Definitely a trend to watch.
