Learn more about the housing market in Arizona

Every state is unique when it comes to the real estate market, and the AZ housing market is no exception. That’s why it’s critical to understand the market you live or operate in. Whether you’re renting, buying, or selling, it will impact many aspects of your life. 

Arizona Housing Market Overview 

Arizona has a historically buoyant housing market. The state’s favorable climate, lifestyle, and sunny desert neighborhoods have attracted movement into Phoenix and other Arizona cities from more expensive cities like Seattle, Los Angeles, and San Francisco. Property prices have increased year-over-year, reflecting the strong demand in the market. New buyers who are moving into those communities range from retirement-age seniors to young professionals. Single-family, suburban developments are most in demand, but condos and townhouses near urban centers are gaining popularity as well. 

Recent statistics reveal that major metropolitan housing markets like Phoenix, Tucson, Scottsdale, and Sedona are seeing substantial growth, while luxury properties in cities with the fastest-growing home prices like Paradise Valley and Cave Creek continue to inflate averages. The overall median home price in Arizona has grown almost 7% in the past year. 

However, as in many states, many residents of Arizona are facing a housing crisis. High interest rates and home prices have priced out many Arizonans who would otherwise be in the buying market. Experts say inventory must raise significantly before supply and demand can stabilize home prices. 

Fortunately for Arizona, inventory may indeed be on the rise. Arizona’s housing supply is trending up in 2024 as it is across the country, with many buyers hoping for a large enough increase to ease both prices and rents. In March of 2024, there were 11,556 newly listed homes in Arizona, up 14.1% since last year. But as we’ll see later in this article, new construction may be hindered by factors related to Arizona’s climate and geography. 

Arizona Real Estate Market Trends 

To understand the housing market Arizona operates within, it’s important to keep up with trends. Let’s look at some key ones in Arizona. 

Arizona housing market predictions indicate anticipated growth in select metropolitan areas. However, the forecast is complex and uneven across different regions within the state. Year-over-year growth rates vary, reflecting the diverse economic and demographic factors influencing each area. 

Note: These statistics are based on Redfin’s monthly housing data from April 2024. 

Median Home Price 

Arizona’s median sale price is $444,100, according to Redfin’s monthly housing market data from April 2023. This is a growth of about 6.7% since April of last year. However, median prices in larger cities like Phoenix, at nearly $460,000, and Mesa, at $465,000, are substantially higher, while prices have skyrocketed in cities like Scottsdale ($820,000) and Sedona ($1,200,000). High market values and rents have made housing unaffordable for many Arizona residents, many of whom are frustrated with the state of housing in expensive cities like Phoenix. 

Number of Homes Sold in April 2024 

8,729 homes were sold in Arizona in April of this year, down 10% from last year according to the Redfin dataset. This metric gives us a good picture of the current sales volume in Arizona. However, keep in mind that this number might be inflated compared to other months since nationally speaking, sales usually peak during the spring and summer months and slow in the winter. In fact, the National Association of Realtors (NAR) predicts that in February and March alone, sales activity increases by as much as 34% and prices by 3%. 

Median Days on Market (DOM) 

Days on market (DOM) is a measure of the average length of time a home remains listed on the market before being put under contract. A lower DOM signals a highly competitive seller’s market with more pressure on buyers to make higher offers and remove contingencies. A higher DOM signals a buyer’s market as sales are slower and sellers have less leverage. 

The current median days on market (DOM) in Arizona is 51 days. This is relatively average compared to other states, but the state’s limited inventory and rising prices indicate a seller’s market. 

New Supply Statistics 

Housing supply in Arizona is increasing, which could lead to more housing opportunities and ease the financial burden of renters and homeowners in the state. On average, there were about 9 new residential construction permits per 1,000 people in Arizona in 2021. Arizona is one of the states with more new housing supply in recent years, suggesting more availability of homes and an ease in prices could be coming to break up the seller’s market. 

Property Tax Rate 

The average property tax rate in Arizona is 0.63%, according to Rocket Mortgage. This places Arizona’s average property tax rate as the 12th lowest in the U.S. However, keep in mind that property taxes vary widely depending on the specific county of Arizona and the value of the home. 

Foreclosure Rate in Q1 of 2024 

In the first quarter of 2024, 1 in every 1,918 homes experienced a foreclosure filing (according to recent data from ATTOM). Based on this data, Arizona’s foreclosure rate is about average compared to other states. 

Hottest Local Markets in Arizona 

Arizona has several hot urban markets. Here are three of the most noteworthy: 

1. Phoenix Metro Area

As the most populous city in Arizona, Phoenix has the widest range of opportunities for investors. All types of real estate are available here, making many types of leasing possible. The city sees lots of visitors throughout the year, increasing demand for short-term rentals close to Phoenix’s many culinary, artistic, retail, and recreation amenities. However, Phoenix is also seeing an influx of population growth from expensive cities along the west coast as well as areas like Chicago and Dallas, leading to higher demand for long-term rental housing as well. The city’s overall upward trajectory, steady economic development, and rising home values make it a strong city for investing in 2024. 

2. Tucson

Tucson is the second most populous city in Arizona. Home to both Saguaro National Park and University of Arizona, Tucson sees a steady volume of students, tourists, vacationers, and young professionals each year. New job opportunities in the city are attracting people from out of state, leading to the need for more long-term rentals in the city. Additionally, rental prices are increasing, making Tucson a fortuitous spot for investors. 

3. Scottsdale

Scottsdale is known for some of the best luxury homes and communities in Arizona. Wealthier homebuyers are interested in buying here. Scottsdale is also known for its abundance of vacation properties, situated near large golf courses and other attractions for seasonal renters. A seller’s market reigns here, which makes it a good city for real estate appreciation and future profits. 

Economic Factors Impacting the Arizona Housing Market 

Arizona’s market is influenced by both macroeconomic trends as well as more granular economic factors specific to the state. 

Mortgage Rates 

High mortgage rates are a continuing challenge for would-be homeowners in the U.S. Arizona’s average rates for 30-year mortgages in May of 2024 are about the same as the national average, 7.23%. Higher interest rates deter borrowing and discourage those who already own homes from putting their homes on the market. Many homeowners report feeling “locked in” to their current homes, as it is unlikely they will secure a mortgage rates low as their current one on their next property. Prospective buyers in Arizona should monitor mortgage rates in the coming months for a better understanding of how they impact the housing market. 

Inflation and Cost of Living 

Mortgage rates are tied to inflation, another massive contributing factor to the affordability of housing and the state of housing markets in general. Inflation has increased the cost of living for many across the U.S., including in Arizona. This means fewer people can truly afford to limit housing costs to less than 30% of their monthly income.  

Population Changes and Demographics 

Intraregional migration within the U.S. is another factor contributing to Arizona’s housing market. Arizona was considered a “migration powerhouse” in 2022, welcoming the fourth highest number of out-of-state buyers in the country. The state’s net migration in that year was 77,000, and this trend appears to be continuing into this year. Most of Arizona’s new residents from February and March of 2024 moved from Washington, California, and Texas. 

As new job seekers enter the Arizona market, rents and prices are affected. A recent study found that a 9% increase in population due to migration correlated with an 8-11% increase in rents, applying to many U.S. housing markets. There seems to be a strong correlation between migration and housing prices especially for climate migration, which could certainly continue to be the case for Arizona. 

Other Factors for Arizona: Water Scarcity 

In Arizona, water scarcity is a major factor influencing the state’s housing market. As described by a recent article from TIME, 41% of Arizona’s water supply comes from pumping groundwater. Unfortunately, groundwater supply has been shrinking, raising the question of whether Arizona should continue building new homes that are dependent on outside water sources. In fact, developers in some cities are struggling to gain approval to build new homes simply due to a lack of groundwater to support those new neighborhoods. This is a significant concern, especially considering our above discussion of how much intraregional migration the state has seen in recent years. 

Arizona is exploring several water solutions, but scarcity continues to impact the housing market. On one hand, the Arizona housing market needs new inventory to ease prices; on the other, new homes can’t be built until the state can verify that they will have sustainable access to water. 

In the meantime, water scarcity will increase utility bills, which means homeowners will have less money to spend on mortgages and banks may enforce stricter lending policies for those in regions with expensive imported water. 

Arizona Housing Market Forecast 

The Arizona housing market is sensitive to dozens of factors, which are being closely monitored by real estate analysts and homeowners across the country.  

In general, housing market predictions for Arizona are positive, with many analysts predicting continued growth for the market. Major cities and metropolitan areas like Phoenix will likely continue to see year-over-year growth. New jobs will continue to lead to population growth and increased net migration to the state. Residents and prospective homeowners will continue to monitor high interest rates throughout the rest of the coming year. 

Likelihood of Arizona Housing Market Crash  

Many would-be buyers have this question: When will the housing market crash in Arizona? 

Given the factors illustrated above, many investors and analysts are concerned about the sustainability of Arizona’s housing market at its current state. Last year, NAR predicted Arizona’s housing prices and sales to drop substantially for the Phoenix-Mesa-Scottsdale area. Instead, home prices have continued to rise. 

Some experts are pessimistic about Arizona’s housing market’s future. Others predict a drop in prices (especially in markets like Phoenix) soon, but not a large market crash. In order to see prices drop substantially, we would need to see changes in inflation rate, cost of living, housing inventory, and interest rates. 

These factors and others will continue to affect the Arizona market, which investors and analysts will keep monitoring to track both national and regional trends impacting the region. 

Forecast for The U.S. Housing Market 

Now that we’ve looked at Arizona’s housing market, let’s zoom out a little bit. What about the U.S. housing market? What do you need to keep an eye on in the coming years? 

The United States’s current median existing-home sale price is around $384,500 per the National Association of Realtors. The inventory, though, remains low. A balanced market typically has a 5-to-6-month supply, but the current figure is 2.9. 

We’re currently in a seller’s market with buyers looking at continued rising house prices. The same trend can be seen with renters. Housing continues to appreciate, in general.  

Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research, National Association of Realtors, believes the housing market will appreciate 15 to 25% over the next five years. He thinks that the seller’s market will continue because housing inventory will remain low. In five years, however, he predicts a more balanced market, in which neither party has a built-in advantage. Thus, the market will shift to a case-by-case basis to determine what kinds of deals people can get. 

Hybrid work also impacts the housing market. This shift in work culture means suburbia will continue to grow. States like Texas, the Carolinas, Tennessee, and Florida should see continual growth. 

The number of single-family homes built decreased over the past couple years while the number of multi-family homes increased due to lower prices and a demand for affordable housing. Higher mortgage rates and inflation (affecting price of materials) were the main causes.  

Arizona Rental Market 

The rental and buying market are obviously closely linked. When home prices fall, landlords are more likely to buy properties to rent out. Home prices and rental prices are correlated as well because a hot market means prices rise.  

Rents were more unaffordable than ever in 2021 and 2022. In 2022, 22.4 million households paying rent said it was unaffordable, which is the highest that figure has ever been, according to a January report from the Joint Center for Housing Studies at Harvard University. The study found that half of all renters in the United States spent over 30% of their income on rent and utilities.  

The markets cooled in 2023, though, due to new units and decelerating demand. But a serious problem persists: Rent increases are still outpacing income gains.  

Moreover, high interest rates are keeping borrowing and transaction activity down. Over half the banks surveyed by the Federal Reserve reported that demand for multifamily loans decreased year-over-year. 

The pandemic caused a housing disparity that isn’t going away anytime soon. Unaffordable housing is a serious issue across America. Whether high rents or low income is the main cause doesn’t change the fact that this problem is widespread.  

Arizona’s current rental market is influenced by all of these trends. Unaffordability extends from high home prices to high rental rates, including in major Arizona rental markets like Phoenix and Tuscan. Below are just a few of the current trends for Arizona’s rental market based on data pulled from Zillow: 

Arizona Rental Market Key Trends 

• Median rent: $2,135 (note: This is $35 higher than the national median) 
• Month-over-month rent change: +$15 
• Year-over-year rent change: -$65 
• Available rentals: 15,210 

Conclusion 

The Arizona housing market in 2024 is marked by a blend of stability and growth, making it crucial for potential buyers and sellers to stay informed about market trends. Whether you’re looking to purchase a home soon or sell your property in Arizona, the macro- and micro- economic trends outlined above will affect your decision-making. Market dynamics like changes in home prices, inventory levels, and interest rates will continue to be critical for stakeholders in Arizona real estate.