Prediction That Metro Phoenix Home Prices Would Fall 25% is Wrong

Article originally posted on AZ Central on October 2, 2023

Wall Street investment firm Goldman Sachs predicted metro Phoenix home prices would plummet 25% this year.

It was wrong.

The Phoenix-area median home price was $412,000 in early January when Goldman made the prediction. The median is now about $430,000.

That’s a more than 4% increase, and housing experts are expecting metro Phoenix home prices to tick up or remain steady for the rest of the year.

Now after giving many Valley homeowners a bad jolt early this year, Goldman has revised its forecast to U.S. prices climbing slightly this year.

Metro Phoenix’s top housing analysts disagreed with Goldman Sachs’ early 2023 forecast that also predicted a repeat of the housing bubble that burst in 2008.

Does Goldman Sachs “even actually remember 2008? It was the epicenter of what is referred to as the Great Recession,” said Tom Ruff, housing analyst with the Arizona Regional Multiple Listing Services’ Information Market.

At that time, he said, multiple factors that are not happening now caused a housing bubble to burst and a global financial crisis.

One of the biggest causes of the 2008-11 crash was Wall Street backing speculative home buying with subprime loans and then betting on those mortgages to fail. And many did as foreclosures hit records.

“Zero math supported a 25% price drop,” said Tina Tamboer, senior housing analyst with The Cromford Report. “It’s not a fantastic year for our housing market, but it’s not going down in flames like Goldman Sachs predicted.”

Why 2023 is not a fantastic year for housing

Metro Phoenix home sales are down about 1% in 2023 through August, compared to the same time frame last year. Sales started to fall fast during the summer of 2022 as interest rates shot up.

Many homeowners, those who could sell and buy another house outright, are staying put to avoid paying higher mortgage rates.

About 82% of U.S. homeowners feel “locked-in” by their current mortgage rate, according to Realtor.com.

The current 30-year mortgage interest rate is about 7.2%. The rate dropped to a very low 3% in late 2021. Before that, it had hovered around 4% since 2011.

Many metro Phoenix homeowners either bought since the crash of 2011 or refinanced to the historically low interest rates.

Investors, who were a big force in driving prices and sales up in 2021-22, have pulled back on purchasing Valley houses.

So far in 2023, homebuyers who plan on living in the house have been behind more than 75% of all Phoenix-area sales, according to Cromford. That’s up from an average of 63% during the frenzied 2021-22 homebuying period.

Investors and iBuyers like Opendoor have only accounted for 13.5% of all Valley home purchases this year. That’s down from 25% during the recent frenzy in home sales and prices.

Many buyers cannot afford higher interest rates and are on the sidelines.

Only 30% of the homes sold Valleywide in this year’s second quarter were affordable for households earning the area’s median income.

At the beginning of 2021, the share of homes for sale in the metro Phoenix area that were affordable for median-income households was more than double that — almost 63%, according to the Housing Opportunity Index from the National Association of Home Builders and Wells Fargo.

Why metro Phoenix home prices aren’t expected to dive

The Valley’s median home price is on track to dip slightly to $430,000 in September from $435,000 in August.

That’s partly because luxury home sales, which pull up the median, slowed as usual during the summer when deep-pocketed buyers are in cooler places.

But million-dollar home sales start to climb during the fall and are already ticking up.

Butch Leiber, broker and president of Phoenix Realtors’ board of directors, said more houses are selling for prices closer to the list price.

In August, almost 99% of the Valley houses to sell went for their list prices. In August 2022, the average was 98%.

Also, sellers are offering fewer concessions. When the housing market started cooling fast last summer, homeowners who needed to sell dropped prices and started offering to pay closing costs, make more repairs and give buyers other concessions.

The number of metro Phoenix house sellers who gave concessions including closing costs was down to 43% in September, reports Cromford. About 52% of Valley houses to sell in January of this year had seller concessions for buyers.

Seller concessions don’t typically pull down sales prices and are negotiated separately.

It’s a seller’s market in most parts of metro Phoenix.

“Expect to see more improvement in prices in the next three months,” said Tamboer. “We are in a weak but sustained seller’s market so we can expect home values to outperform inflation.”