House prices in Phoenix, Arizona, have been dropping for two consecutive months, as one of the hottest housing markets appears to begin cooling down.
According to Moody’s Analytics, Phoenix is one of the top five urban areas with the most overvalued homes across the entire U.S., with homes in the city priced 57.5 percent above their fundamental value.
Home prices were rising in 2021, when lack of inventory drove potential homebuyers to bidding wars that squeezed many out of the market. Between January and October 2021, the median sale prices for a home in Phoenix rose from $325,000 to $404,300 according to real estate website Redfin—a 24.4 percent increase.
In February, the number of listings in Phoenix fell to a record low, according to the Arizona Regional Multiple Listing Service. A month later, in March, house prices were up to $462,500—a 28.5 percent home price increase year-on-year from March 2021. In May they had climbed up to $465,000, according to Redfin.
House prices have now started declining as a combination of lack of supply, rising home prices and high interest rates has made the market unaffordable for many aspiring buyers.
As demand drops, house prices are also finally cooling down, even though over all they remain extremely overvalued. According to Redfin, prices dropped from $465,000 in May to $460,000 in June.
From June to July, the average home value in Phoenix fell by 2.8 percent to $440,000, says Redfin, though they were still 11.6 percent higher than in 2021.
This trend of decelerated growth on a year-on-year basis and of moderate decline on a month-to-month basis is expected to continue in the months ahead and into the next year, according to analysts.
What is great news for homebuyers struggling with rising costs is bad news for homeowners looking to sell their properties. Moody’s Analytics has recently updated its forecast for 2023 from an initially expected flatlining of house prices to a decrease of 5 percent on average across the U.S..
But Moody’s Analytics chief economist Mark Zandi told Newsweek that homebuyers will still need to be patient and wait for affordable homes to come around, as a general lack of supply remains within the market and homeowners are likely wait for better times to sell their properties.
“Mortgage rates are high, house prices remain high—they haven’t come down in a big way yet, and there’s no inventory. Sellers don’t want to sell—they put the homes on the market and they are waiting,” Zandi said.
“The more desirable properties are pulled off the market. Most sellers don’t have a pressing need to sell right now—they can wait for a while, not forever. There are life events that force people to sell, but generally people have a little bit of flexibility when they actually have to sell their home. I think the inventories are going to get a lot better six months from now, or 12 months from now, in those markets,” he added.
But for now, homebuyers are better off waiting for prices to continue dropping.
“I think it’s time to be patient if you’re a buyer. You’ll get a much better opportunity to buy a home six, 12, 18, 24, 36 months from now, depending on where you are, what you’re looking for,” said Zandi.
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