By Mike Bodeen · 3 January 2018
Five Reasons Why
Welcome to 2018! Ready or Not Here We Go!!
Back in 2017 (last week’s issue) I wrote that there are 5 Reasons why I believe we’re looking at a continued strong and healthy Phoenix residential real estate market in 2018, and not only that, one which could be our strongest since 2014 when we last had double digit appreciation. See chart below.
Last week I spoke of reasons 1 and 2 which included strong economic growth and the new tax law change. Strong economic growth is happening and will climb higher. The tax law, rather than being a damper on residential real estate, as some have stated, will enhance real estate for the metro Phoenix area. I will also go out on a limb outside of my residential expertise zone, and predict a much stronger commercial and industrial market as well. All of this will have a benefit for retail, though this one is more of a crapshoot, because of changing shopping trends. Oh, shopping will increase, just not sure how and where?! Malls may continue to get slammed.
3) Residential building will continue strong but will build further out. The Phoenix metro market has done an awesome job of doing urban residential infill projects and this will continue, but the question here is affordability. In our downtown areas, the infill projects will be upscale (read: costly!). We will develop more townhomes and the like. Any new close-in townhouse project under $400K will spike. Builders will continue to build North, West and Southeast as long as buyers buy — and they will.
4) State and National Economic growth will fuel rising incomes and further lower the already low Arizona unemployment rate. New industry and relocating companies, especially from California, will increase. Consumer confidence continues to rise. When consumers are optimistic, they spend. With rising incomes, higher price ranges will profit, as in the $500K range to $1,000,000. Luxury housing over $1 Million will need more time.
5) Mortgage Rates will increase, but remain affordable. This will be due to the increased national rise in the economy. Mortgage rates in the mid to upper 4% range will probably be reached after the middle of the year. This is good news because it will remain affordable. Yes, it won’t be in the 3% range, but sub 5% is still good and I doubt that higher rates will deter buyers. Oh, and I will add that this prediction about an increase in rates has been so wrong for so long, that I won’t put down much money on this one. But overall, it will be a very strong economic market this year.
– Mike