Jun 9, 2022 - News

You need to make $87K a year to afford average home in Phoenix

Illustration of a gold-plated house-for-sale sign.

Illustration: Brendan Lynch/Axios

You need to make at least $87,026 a year to afford a median-priced home, according to the latest analysis by real estate company Redfin.

  • That's $27,302 more than was needed a year ago.

Why it matters: The annual income needed to buy a house in Phoenix increased by nearly 46% while Valley wages only grew by about 6.4% in the past year.

  • Out of the cities included in Redfin's report, the needed income jump is the second highest behind Tampa Bay, Florida.
Data: Redfin; Table: Thomas Oide/Axios
Data: Redfin; Table: Thomas Oide/Axios

The big picture: Housing prices in metro Phoenix began climbing quickly at the start of the COVID-19 pandemic and have soared to a record median price of about $470,000.

  • A recent analysis from Florida Atlantic University researchers shows metro Phoenix housing prices are about 58% over the historic trend line — making the Valley the sixth-most overpriced real estate market in the country.
  • Boise, Idaho; Austin, Texas; Ogden, Utah; Las Vegas and Atlanta were the only cities more overpriced.

Details: Ken Johnson, report co-author and a FAU economics professor, said when a market gets as overpriced as Phoenix', one of two things will happen: Dramatic price decreases — like the 2008 housing bubble burst — or a long, sustained period of unaffordability.

  • The city is likely headed for the latter because the Valley has a severe shortage of housing and is expected to increase in population by at least 16% in the next 10 years, Johnson said.

What he's saying: Johnson said the average person in metro Phoenix buying a home right now would have to spend about 40% of their income on their mortgage. That should be closer to 28%.

  • "There's no way out of this without some pain," Johnson said. "Until you can get back to the trend and incomes catch up you're going to be experiencing some pretty unaffordable rent and home prices in the Phoenix area."

What's next: The good news is that the market is starting to show signs of softening, and record-high monthly price spikes will likely be replaced with more gradual growth, Mark Stapp, executive director of the Master of Real Estate Development program at Arizona State University, told Axios.

  • Federal interest rate increases have decreased buyer demand, which has led to a slight uptick in supply and stopped the hyper-competitive home buying we've seen in the past two years.

Yes, but: "The bad news is [home prices] are still going up and with interest rates rising you're pushing more people out of buying and you're keeping them in the rental market and you're seeing the same supply issue there," Stapp said.

  • "That's really where there's a huge affordability concern," he said.

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