Let’s jump back a year. For fun I like to do Phoenix real estate market prediction articles and emails every January. In the beginning of 2015 I predicted the Phoenix real estate market would be up 4-5% in 2015 over 2014, with some areas having a 5-6% growth. A normal market, since the end of WWII is about 3%. My prediction fell just short. The appreciation in 2015 was just a hair short of 4%.
The indicators in early January of last year were pretty weak. The demand was fairly low and the market was pretty stagnate. The thing we had working for us was if you looked back at 7 years ago, and 4 years ago that was the start of the flood of foreclosures and short sales. So we expected those people, the industry calls them boomerang buyers, to come back into the market.
Interestingly, they started to come back into the market, but not nearly as much as we expected. We likely will see those groups come back into the market continuing for the next three years as rental prices go higher and as they can once again start to qualify for a mortgage again.
The good news is, the market received a boost from a group that we did not expect to hit the market as strong as they did. The millennials, who seemed to have been spooked away from homeownership because of the housing crash, decided they wanted a part of the american dream. The Phoenix real estate market saw them come in and by the end of the year they made up roughly 1/3 of all home buyers. So despite fairly weak indicators going into 2015, the market did pretty well for home owners.
One thing about the millennials, they are shopping for houses different than their parents are for sure.
Phoenix real estate market prediction for 2016
First you should remember, just like politics, all real estate is local. We are talking about the Phoenix market as a whole, but I think that areas like Chandler are going to have a much stronger 2016 than places like the west valley where demand does not seem as high in most communities right now.
Also this is a Phoenix real estate market prediction, I do not have a crystal ball that can be considered a guarantee. This is my best guess based on my experience and what I am seeing from my clients and what my business partners are seeing. There are some things we cannot predict. If there is a stock market crash or world economic collapse, or a natural disaster or anything like that, all bets go out the window. But assuming everything stays fairly normal in those areas here is what I expect.
First let’s look at the indicators as provided by MLS and the Cromford Report. Comparing where we are right now to where we were a year ago:
- Inventory is down. Down about 20%. Here is a recent article I did on Chandler housing inventory.
- The annual sales rate is up about 10%.
- Days on market is down about 10%.
- Contract ratio is up 29% over a year ago.
Our indicators are a lot stronger. We are entering 2016 a lot stronger than we were in 2015.
We are also starting to come into the busy season, so those factors are going to most likely improve over the next few months.
I see prices continuing to increase. I would expect a slightly better year this year than last year for home prices. I would not be surprised to see an average of 4.5-5.5% increase in value over the next year in the Phoenix market as a whole, and slightly better in some areas like Tempe and Chandler.
I expect new home sales to continue to be a larger part of the market. Phoenix is still one of the fastest growing cities in the United States. Our population grew an estimated 2.13% in 2015, up from 1.54% the year before. That may not sound like much, but that comes out another 110,000 people in Phoenix. So even if that is just another 10,000 families who may be interested in buying a house, we will need to continue building.
I believe February-April of this year will be a strong sellers market and then it will likely slow down and level out. So most of the growth in prices will be early in the year.
Now does that mean if you are buyer you should wait? No. When prices level out, they will likely level out higher than they are now. So there may be more competition earlier in the year, but prices will still be lower in most cases.
The wild card
Of course there is a wild card in all of this. Interest rates. We saw The Fed increase rates in December for the first time since there was a Bush in the White House. So far there has been very little effect on mortgage rates. The problem we see coming is The Fed has indicated they are likely to increase the rate another 1/4 every three months for the next year. That will likely lead to at least a small increase in mortgage rates. As rates go up, the purchase ability of home buyers goes down.
So there it is. I expect a really strong first 4-5 months this year, which will likely result in another above average year for home owners in 2016.
This is good news for people who may have purchased in the 2011-2013 time frame and are looking to drop their PMI insurance.
I have had two friends in the last three weeks ask me about the value of their home so they could consider dropping their PMI. If you want to know the value, please shoot me an email at Dean at phoenixrealestateguy.com and I will gladly help you out!