PHOENIX (3TV/CBS 5) – Interest rates are sky high while overall affordability is at record lows in the valley. Now that the housing market is beginning to cool, a major investment firm is taking an ominous look at Phoenix’s housing market.
The New York Post first got Goldman Sachs’ memo, which said four US cities, including Phoenix, could experience a “seismic” crash like the Great Recession of 2008 in the coming year. The three other cities mentioned are San Jose, CA; San Diego, California; and Austin, TX. While most experts, including Goldman Sachs, agree that the housing market is starting to normalize after pandemic-driven demand, there is still a lot of uncertainty.
Arizona’s family received the report, which predicted that house prices would fall the most in 2023 and 2024 in the west, where many mortgage payments take up half or more of a monthly income. Cities like Chicago and Philadelphia should instead post gains, although they’re likely to be nominal when comparing earnings. A November consumer price index showed prices rose 12.1% year-on-year.
Fortunately, it’s not all bad news. Goldman Sachs calls for a “gradual return to affordability” as part of the report. Firm researchers say households should see higher incomes that outweigh any impact that high mortgage rates have on the housing market. “While higher mortgage rates weigh on affordability, we expect strong nominal income growth,” the report details. Right now, Metro Phoenix is struggling with the highest inflation rate of any developed area.
Earlier this month, Arizona Family spoke to the Arizona Association of Realtors, which said sellers are currently helping buyers buy down those high interest rates. Another thing to keep in mind is that primary residence mortgage interest is tax deductible. Another bargaining tool is knowing that homes are staying on the market significantly longer than they have been during the pandemic. Greater Phoenix home sales are down 45% from December 2021 to December 2022
Drops are also being seen by Valley homebuilders as long as they stay away from luxury markets. “There’s a lot of good business to be had with builders,” said Cromford Report’s Tina Tamboer. “But some areas like Phoenix, Chandler and Glendale are in balanced markets – still very good for buyers. Then you have the Northeast like Scottsdale, Fountain Hills, Cave Creek; these areas are still in seller’s markets. So the luxury markets are still doing very well.”
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