Housing Market Expected to Remain Strong for Years

Lack of inventory driving demand, cities seeking housing solutions.

Arizona’s real estate market remains “ridiculously hot,” says Arizona Association of Realtors President Gary Nelson. “We are seeing tremendous increases in home values ​​in the last two years, increasing about 25% year over year in localized markets and about a 12% to 13% per-year increase in median home prices.”

A lack of inventory, Millennials and investors are playing a huge role in the home-buying frenzy, say the experts, especially in scenic tourism destinations.

Flagstaff, Sedona, Prescott and parts of Scottsdale are experiencing the biggest spike in the cost of homes, says Nelson, a longtime realtor and delegated-associate broker with Realty Executives in Flagstaff. He describes a typical real estate scenario like this: “A property recently listed in Flagstaff was built in 1975. It was a three bedroom, two bath, two-car garage, single level house, nicely updated, 1,740-square-feet. It comes on the market at $650,000. There were 11 showings and seven offers, with bidding up over $800,000.”

Better Homes and Gardens Real Estate Bloomtree Realty CEO Nick Malouff has similar stories. He says Hillcrest, inside Forest Trails on the west side of Prescott, was built and sold two years ago in the high $600,000s. “Now, it would probably go in the high $800s – a $200,000 increase in two years.”

A home in Prescott’s Tenney Ranch sold for $589,000 in 2016. “It just went on the market for $1.2 million,” said Malouff. “This is what’s happened in pricing. And it’s not just new homes. An older home in Timber Ridge, built in the late ’80s, was bought in 2015 for $289,000. It just sold for $639,000.”

Those looking for a 2,500-square-foot home might expect to pay a million dollars, if not more, in desirable areas, says Nelson.

In the North Scottsdale community of Terravita, a 2,400-square-foot home sold in February for $1,335,000. “The house had just sold for $1.1 million four months previous and the new owners did nothing to increase its worth,” stated a report from the Scott Gaertner Group.

It’s largely because of supply and demand, says Nelson. “Right now, we’re looking at maybe a one- to two-month supply in most parts of Arizona. In the higher elevations, there’s less than a month’s supply of [available] real estate at any one time.”

Currently, there are fewer houses on the market than there were last year, plus Arizona continues to feel the impact from The Great Recession when new construction nearly slowed to a halt.

“Builders have been unable to get product out of the ground quick enough. It’s taking about twice as long to build a home as it did a few years ago,” said Malouff. “The pandemic caused more stress and strain on labor and materials. Builders are fighting for the same crews, and the cost of lumber and other commodities are all up.”

So, millennials have arrived on the scene.

“We didn’t think about the impact of that generation and that’s really what we’re seeing on a national level,” said Nelson. “The Millennial generation is as big as the Baby Boomers and we just did not plan for that many people entering the real estate market with new construction and building. The top end of the Millennial generation is about 40 years old.”

In addition, short-term rentals have become a “market disrupter,” says Wickenburg Deputy Town Manager and Economic Development Director Tim Suan. “The short-term vacation market, including VRBOs, Airbnbs and turnkeys, only gained real popularity since 2015. What Uber did to the transportation industry is the same thing as what these short-term rentals are doing to the lodging industry as well as the housing market. Now, beautiful destinations such as the city of Page have hundreds of these short-term rentals in the community taking up housing stock. Just imagine that 25% or 30% of housing in your community is just completely disappearing from the market in such a short amount of time!”

Meanwhile, interest rates are expected to hover around 4% to 5% this year.

All of this has complicated efforts to provide affordable housing in Arizona communities, which is impacting small businesses’ ability to attract and retain workers. Thus, the Arizona Association for Economic Development (AAED) calls affordable housing the No. 1 concern facing Arizona cities.

Suan, who has held leadership roles with AAED, cites the Verde Valley region as a model for collaboration moving toward a sustainable solution. “Camp Verde, Cottonwood, Jerome and Sedona have formally partnered to address housing with shared resources. For example, Cottonwood and Sedona are both small communities but they partnered to hire a housing manager, which otherwise they wouldn’t be able to do on their own. With that housing manager, they are able to lead the implementation of some of their housing initiatives.”

In addition, Cottonwood has a housing assistance program and Camp Verde has an inclusionary zoning plan to allow for more dense housing, he says. “They’ve even attracted a low-income, housing tax credit program developer inside the community.”

At the same time, Wickenburg is creating a deed restriction program to keep homes affordable in perpetuity and Flagstaff is managing affordable rental units. “The city funds a home-buyer assistance program,” said Suan about Flagstaff. “They work closely with organizations like Housing Solutions of Northern Arizona to offer even more housing solutions.”

While the sizzling real estate market shows no signs of cooling, Nelson expects a strong sellers’ market for at least the next three years. “We don’t see that there’s a change in the market. We don’t feel that there’s a bubble and there won’t all of a sudden be an influx of inventory.”

However, he does not believe there will be as much of a spike in median home prices this year. “This is a good thing. We need to slow down, that’s for sure.” FBN

By Bonnie Stevens, FBN

For more about Arizona’s housing market, visit Zonie Living: Business, Adventure and Leadership with Bonnie Stevens at

https://starworldwidenetworks.com/episodes/lack-of-inventory-driving-real-estate-market-communities-seeking-housing-solutions-video.

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