Many people worry about the state of the current real estate market. However, there’s a lot to be grateful for. Here are the top five reasons why the housing market will remain robust in 2025.
Price Hikes Are Leveling Off
As the chart above shows, price increases have leveled off in 2024. The average Phoenix metro area home price skyrocketed by 43%, from $35,600 in the beginning of 2021 to a peak of $502,910 in the latter half of 2022. Since then, prices have stabilized. (Source: Federal Reserve Bank of St. Louis, “All-Transactions House Price Index for Phoenix MSA.” November 26 ,2024.
This increase was caused by a post-pandemic exuberance in home-buying. Once the Fed start raising interest rates in 2022, home prices dropped a bit before rising at a more sustainable level.
Interest Rates Are a Whole Point Lower Than Last Year At This Time
Current 30-year fixed mortgage interest rates are 7.03%, compared to last year when they were coming off of a peak of 8.03%, according to Mortgage News Daily. That increases the purchasing power of homebuyers.
Rates Will Continue to Be Predictable
The rapid increase in interest rates in 2022 caught homebuyers and sellers off guard. Between pent up demand caused by the pandemic, and the interest rate shock, housing prices became volatile.
The Fed has announced it will slowly move its benchmark fed funds rate toward its target of 2% by 2026. That means mortgage rates, which are loosely tied to the fed funds rate, will remain stable, allowing supply, demand and prices to stabilize.
The Phoenix Economy Is Strong
Buying a home remains a solid investment in the Phoenix metro area. That’s because job growth is strong, and is forecasted to remain that way.
The number of jobs increased 1.8% in the past year, as of September 2024. Unemployment was only 3.4%, compared to 4.1% nationally for the month. (U.S. Bureau of Labor Statistics. “Economy at a Glance, Phoenix-Mesa-Glendale.”)
Arizona jobs are forecast to increase by 1.2 million during the next thirty years, rising at an average of 1.0% per year. Phoenix jobs account for around 80% of that gain. That far outpaces U.S. jobs which are forecast to rise by only 0.3% per year. (Source: University of Arizona, Eller College of Management, “Arizona Economic Outlook.” September 4, 2024.
Demand for Homes Will Remain Robust
Phoenix continues to be a rapidly growing market, and will remain that way. The Phoenix metro area grew 1.27% in 2024, to 4.7 million. By 2055, the population is expected to almost double to 7.6 million residents. Most of the increase is net in-migration from higher-cost areas like California. (Source: NCH Stats, “What Is the Population of Phoenix in 2024?” October 23, 2024.)
What It Means to You
Owning a home in the Phoenix area will continue to be a great investment for the foreseeable future. The strong jobs market means hopeful homebuyers can earn enough to save up for that downpayment.
