The other day I was approached by a client/friend with a question about the current Real Estate market.
Friend: You said there is an inventory shortage, right?
Friend: Prices have gone up a lot over the past 2 years?
Me: Yes, maybe ~20% across greater Phoenix
Friend: Are we in another bubble? Don’t Phoenix prices generally follow the rate of inflation?
Me: No, no bubble, and yes, generally Phoenix prices follow the rate of inflation.
My friend then asks THE question: If all that’s true, then what’s going on? Why isn’t this a bubble?
In order to explain what I think is going on, I am going to reference data from our experts at the Cromford Report.
Let me point out three, very important things:
1. The market is still well below our highs of 2006 (~17% below)
2. If we track price/sq. ft starting in 2000, and then add to that the normal rate of inflation, we see an average increase in home values of 3%/year spread over the past 18 years which tracks quite nicely to our average inflation rate of 2-3%
3. Interest rates are about 1.3% lower than in 2005 (pre-bubble) and ~2% below 2006, so that even though the average home price/sq./ft is higher today (increased equity), today’s monthly payment is lower.
So, no bubble but rather the market is tracking to norms. We do expect a moderation in appreciation (probable) towards the end of this year into 2019, but that’s good news. A balanced market floats both the buyer’s and seller’s boats.
If you want to know more, especially if you are considering buying or selling, please reach out to your preferred Realtor. They are always your best, trusted advisor and will help keep you safe and investment sound.