The Phoenix, Arizona (Phoenix metro area) real estate market has been through some of the most significant ups and downs in the country over the last several years. In June 2006, at the apex of the bubble, the median home price across the greater Phoenix area reached a high of $280,000, with an average price per square foot of $192. After the crash in 2007-2008, the Phoenix market bottomed out at $81 per square foot in early 2009, and then hit another bottom in early 2011, at $79 per square foot. 2012 and 2013 saw the pendulum swing quickly back in the other direction, and by the end of 2013 the average was up to $125 per square foot, a milestone not seen since the ramp-up to the bubble in 2004.
In 2014, there was finally a slowdown in the drastic swings. The market remained relatively flat for most of the year, and ended the year at an average sales price of $131 per square foot, slightly higher than the end of 2013. Interestingly, the Cromford Report, which tracks pricing in the Phoenix real estate market (www.cromfordreport.com), listed both supply AND demand as “below normal” for much of the year, ending the year with the Supply Index and Demand Index both approximately 80% of normal. (If BOTH supply and demand are below normal for an extended period, does that make it a new normal?)
After 2014 failed to pick much of a direction, it left both investors and owner occupant home buyers wondering what 2015 might bring.
Although real estate markets are always unpredictable, should I go out on a limb and offer my predictions? Probably not, but I will anyway. Here are my predictions:
1) Short Term Prediction (1-2 years): Moderate Price Increases
2) Long Term Prediction (3+ Years): Drastic Price Increases
These predictions are based primarily on the Federal Reserve, and their penchant for low interest rates. In October 2014, when the Fed finally (supposedly) ended “quantitative easing” (that’s where they create money out of thin air and inject it into the economy by buying government bonds), they still voted to keep interest rates near ZERO percent (0%). If that continues, I don’t see how demand in the Phoenix metro area can go anywhere but up. It’s Phoenix. The weather is nice. People like to move here. Short term, demand should increase, and if supply remains low to normal, we should see some moderate price gains.
Long term, the Fed still isn’t going to let the interest rates go up. Why? Because the United States government has a debt of somewhere in the neighborhood of 18 trillion dollars, and it has to borrow money to pay the interest on that debt, and if it had to borrow at market interest rates, it would go bankrupt! So the Fed will continue keeping the interest rates artificially low, and continue to inject massive amounts of new currency into the economy. The only possible result of this course of action is higher inflation, which will cause the predicted drastic price increases. Obviously that doesn’t mean the values are increasing, just the prices. But long term, there doesn’t appear to be any alternative to high inflation and high real estate prices in the country as a whole. Phoenix generally follows the national trends, but with even higher highs, and lower lows. So with the U.S. headed for long term inflation and price increases, Phoenix will probably experience the same thing, but with even more drastic price increases.
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