The Phoenix housing market is strong and expected to stay that way through 2019.
According to a report from Trulia titled Top 10 Markets and Neighborhoods to Watch in 2019, Phoenix is one of the top housing markets to watch this coming year. The real estate company examined the 100 largest US metropolitan areas based on job growth, vacancy rates, starter home affordability, and percentage of the population under age 35. All of these factors are favorable for real estate investors looking to buy rental properties for profits.
In this blog post, we break down the Phoenix housing market predictions and trends in 2019 that make it one of the best places to invest in real estate. So, without further ado, let’s jump right in.
Home Prices in Phoenix
Home prices in most of the US housing markets continue to see a rapid increase, and Phoenix home prices are no different. According to Zillow, the median price of a Phoenix real estate property is $237,700 ($167 median price per square foot). This shows that Phoenix home values have gone up 8.8% over the past year. There are no signs of a slowdown anywhere within the Phoenix metro area and Zillow further predicts prices will rise 4.6% in 2019.
In-migration, job growth, and growing demand from millennials are the main reasons for the increasing prices of the Phoenix housing market. So, while it’s a great place to live, not all residents in Phoenix can afford to own their home as wages are failing to keep pace with the rising cost of homeownership. As a result, many are turning to rental properties – which is the first reason why real estate investors should consider investing in residential rentals, especially multi-family real estate.
Home Sales and Inventory
Phoenix has 2.4 months of inventory which is super tight (experts believe a balanced real estate market has 4 to 6 months of supply of homes for sale). Moreover, home sales in the Phoenix housing market are down more than 11% compared to a year ago and down almost 20% over the past two years, according to a report from On Q Property Management, one of Arizona’s fastest growing property management and real estate firms.
In the real estate industry, this combination of increasing home prices and decreasing sales has an effect on the real estate rental market. Basically, it increases the demand for rental properties and rental units. As property prices continue to rise, many residents in the Phoenix real estate market are finding it extremely difficult to afford to own a home or qualify for a mortgage loan. As a result, they are left with only one choice, which is to rent. This makes the Phoenix housing market one of the best cities to invest in rental properties.
Phoenix Population Growth
If you already call Phoenix home, you know that it’s one of the best cities to live in the US. In addition to the abundant sunshine that Phoenix enjoys, the city is home to a thriving job market and a relatively low cost of living. There are plenty of opportunities for leisure activities, hobbies, and recreation. Phoenix is also home to some of the country’s best stadiums, shopping districts, and restaurants. According to a recent report by US News, the Phoenix housing market ranks in the top 20 best places to live as well as best place to retire!
Naturally, this had an effect on the city’s population. According to the same report by US News, The Greater Phoenix area has a combined population of 4.4 million with a median age of 36. This population is expected to grow further as the city continues to draw more millennials and retiring baby boomers. In fact, according to the PwC’s Emerging Trends in Real Estate 2019 Report, Phoenix continues to benefit from in-migration from higher-cost places like New York and Los Angeles, and its 2019 population growth rate is projected to be well above the national rate!
Residents, as well as real estate investors, also favor the Phoenix housing market over others due to its lower income taxes (43% lower than the national average). Moreover, Phoenix has a ratio of 1.3 of inbound vs. outbound searches on Trulia’s website. This means that more people are interested in moving to the city than those searching to move away. This population growth indicates that real estate investors can predict high demand for rental properties in the coming year.
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Economy and Job Growth
The economy in Phoenix is strong and projected to stay that way. The city enjoys a thriving job market which has risen by more than 3% in the past year. In 2019, the Phoenix real estate market is expected to see employment growth of at least twice the US rate. This is mainly due to the trend of companies relocating from more expensive locations to Phoenix thanks to its low cost of doing business, according to the Emerging Trends Report.
On Q Property Management agrees with this, as it states in its report that “more tech companies are relocating here than ever before…Phoenix is quickly becoming one of the more desirable locations for startups and entrepreneurs.” Furthermore, job growth over the next 10 years is expected to top 40% – which is much higher than the US national average – as these major employers are adding more jobs to the market. Thus, the Phoenix housing market is a perfect location for real estate investors looking for long-term investments with high returns.
Rising Interest and Rental Rates
Another trend in Phoenix (and other major cities in the US housing market, as a matter of fact) is the increase in interest rates. For a 30-year mortgage, the average interest rate has increased from less than 4% at the beginning of 2018 to over 4.4% at the present time. This trend combined with the increasing property prices is keeping the demand for rental properties strong in Phoenix because people simply can’t afford to own their home.
These two trends are causing rents to increase, as Phoenix now ranks 5th among major US cities with the fastest rising rental prices according to Trulia. Nonetheless, the Phoenix housing market still has lower rental rates than most of the major cities in the US, which is why it’s still an attractive destination for residents and businesses.
Due to the consistent population growth and job growth in the city, it’s expected that will continue to rise. This is another reason why Phoenix is one of the top places to invest in real estate rental properties for a high rental income and return on investment.
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Final Words on the Phoenix Housing Market
Going into 2019, investing in Phoenix, AZ projects an image of profitability for real estate investors. The combination of a strong economy and growing population results in high demand for rental properties, especially multi-family homes. The fact that home prices continue to rise and residents can’t afford to buy and own their homes further makes the Phoenix housing market a good option for real estate investors of rental properties in 2019 and beyond.
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