Has Phoenix's housing market gone cold? This real estate expert doesn't think so

There are indications that metro Phoenix's housing market is slowing down a bit.

Zillow says the average Phoenix home price is down more than 2.5% over the past year. Redfin has similar data.

And Phoenix New Times recently reported on a study from a construction researcher that showed several Valley cities were among the coldest real estate markets in the United States.

Mark Stapp, director of the masters in real estate program at Arizona State University, joined The Show to talk about it.

Full conversation

MARK BRODIE: Mark, good morning. Good to see you again.

MARK STAPP: Good to be here. Thank you.

BRODIE: ... Is the Valley a cold real estate market now? What do you make of all this?

STAPP: No, it's not a cold — I mean, I think that's a really misleading statement. But it has, it's normalized. And so we went from a supply shortage, right. We underbuilt after the Great Recession, and then we had this demand shock which was COVID. And we had some of the highest inflation in the United States here, right.

So our housing prices inflated very quickly here. And what happened is we grew very fast, and then we stabilized. And that's exactly what's happened. This is a inflation-related issue. It's not a pricing related issue.

BRODIE: Does that mean that with some of the prices maybe normalizing, as you say, is that making housing more affordable here?

STAPP: You know, we're creating an environment where there's a possibility for that, but prices are sticky, and they're not going to fall and they're not falling. And when you look at the averages in the medians for our housing or existing home stock, we continue to increase in price — and I think we're going to continue to see that.

Homebuilders have got to make up a lot of what we need for additional inventory. You know, arguably we're somewhere between 60,000 and 120,000 homes "short" of what we should have. Yeah, but it's hard to, it's hard to make that up.

So what you see is also at the same time our immigration is slowed down a little bit and our job growth has slowed down a little bit. So that takes the pressure off. And what we're going to see is home prices will continue to rise, but much, much more slowly.

Arizona State University

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BRODIE: Are they rising across sort of the spectrum of houses and home prices?

STAPP: No, you see a lot of the pricing — when people talk about what's happened in our marketplace, it's very much skewed to the upper end of the market. The lower end of the market is really short of inventory. And so if we have a shortage problem, it's at the low end, it's not at the high end. And it's also where it's hardest to add new inventory is at the low end, because the cost of creation, the cost of construction is so high.

BRODIE: Well, that's kind of what you were talking about just a moment ago in terms of developers and builders have to sort of make up all the costs that they incur building a home. I would imagine it's harder to do that if you're only selling that home sort of at the low end. I say only for a couple hundred thousand dollars, for example.

STAPP: Well, forget about a couple hundred thousand dollars. You're not going to, you're not going to see that. You know, it's hard to get a $350,000 home, new home. And then it's a, it's a matching problem as well.

So some of it isn't in the places that a lot of people want to live. So you're going to find some of this moderate-priced new housing inventory on the edges. Because that's where it's been the least expensive development. And that's a pattern we've had in our history.

And that too is changing because we're densifying, we've got more constraint on the edges which makes it harder to find land. And that land that we do find available for development doesn't necessarily have the infrastructure. So that adds to the cost, that adds to the time to create it. And so this is a market that's hard to completely fix.

BRODIE: I mean, that is sort of the problem, right? That policymakers, lawmakers, the governor have been trying to do something especially about supply for a while. But as you say, there's so many conflicting sort of factors here. Do you find that this is maybe a harder market in which to fix housing than other places?

STAPP: I don't think it's a harder market, Mark. I think that the issue would be the same in most other places. One of the things that's happened to us here, though, is we've got some constraints that over the course of the last 10 years in particular have made it a little bit more difficult, a little bit more expensive to create new homes.

There's some other areas in the country where that isn't the issue. And then also how new home subdivisions are financed here is a little bit more difficult than it is in other markets like Texas and in some of the Carolinas, places like that.

BRODIE: So what do you see in the short term, then? Do you see dramatic changes coming? Do you see sort of more incremental changes coming in the near term?

STAPP: Yeah, I think it's going to be incremental. I think it's impossible to make dramatic changes to the point where you have such a significant increase in the number of inventory that we solve this problem quickly. Because the minute you do some of these other things, it then is likely going to cause inflation — again.

And so this is a pernicious problem that we have, not easily fixable. And a lot of the things that the Legislature has worked on are making those incremental changes. Not really big, big changes.

BRODIE: If they were to make bigger changes, would that lead to bigger impacts in the market?

STAPP: Could be. You know, one of the things that would be helpful is how land development is — and it particularly single-family residential or residential in general development is financed in this state.

We have some of the least number of economic development tools available of any state in the United States. And, therefore, it's a little bit more difficult for developers to find the necessary financing for that very expensive infrastructure that has to be done built in order to accommodate large amounts of land development.