Phoenix has become one of the hottest real estate markets in recent years. With home prices and home equity values skyrocketing, Phoenix real estate presents lucrative investment opportunities. This article will analyze the key factors driving Phoenix’s real estate boom, provide data on home price and equity growth, and assess the outlook for real estate investors in Phoenix.
Phoenix home prices are surging at a record pace
According to the S&P CoreLogic Case-Shiller home price index, Phoenix home prices were up 32.6% year-over-year in October 2021. This represents the largest annual home price increase for Phoenix in over 30 years of data. Low mortgage rates, remote work trends, and a shortage of homes for sale have all contributed to staggering demand that has far outpaced supply. Bidding wars have become commonplace, with the typical Phoenix home selling for 110% of the asking price. With projected population growth and no signs of slowing demand, experts predict Phoenix home prices will continue rising at double-digit rates over the next few years.
Phoenix leads in home equity gains
Driven by surging home values, Phoenix homeowners have seen massive growth in home equity recently. According to Unison’s 2021 Home Equity Report, the median home equity in Phoenix grew 28.7% year-over-year. In dollar terms, this represented a median home equity increase of $42,000 for Phoenix homeowners. Nationwide, homeowners gained $2.7 trillion in home equity last year. The report named Phoenix as having the highest home equity growth out of the 50 largest U.S. metro areas in 2021. With Phoenix home values continuing to appreciate at record speeds, home equity gains are likely to remain substantial going forward.
Demand is skyrocketing while supply lags
The disconnect between housing demand and supply is the fundamental driver of Phoenix’s hot real estate market. On the demand side, thousands continue moving to Phoenix each month drawn by warm weather, low costs of living, and plentiful jobs. The ability to work remotely has opened up Phoenix to new groups of potential buyers across the country. At the same time, real estate developers have struggled to build new homes fast enough to keep up. Lack of construction workers, rising materials costs, and supply chain issues have constrained new housing inventory. With demand massively outweighing supply, bidding wars and housing shortages have persisted.
Phoenix offers high rental yields
For buy-and-hold real estate investors, Phoenix provides opportunity for substantial passive income. According to real estate data firm Yard, the average rental yield on investment property in Phoenix is over 9% as of 2022. This is significantly higher than yields in other major metro areas like Los Angeles (5.3%) and New York City (5.5%). Phoenix’s high rental yields are driven by surging rental demand coupled with relatively affordable home prices. Investors are flocking to Phoenix real estate because cash flow potential is high compared to many other markets.
With home values and equity surging, Phoenix has emerged as one of the most attractive real estate investment markets. Ongoing population and job growth coupled with a housing shortage will likely keep demand high. Phoenix real estate offers wealth building potential for homeowners and passive income potential for investors.