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Phoenix remains a hot housing market for renters, buyers in 2022

CONTI Capital found some Sun Belt destinations like Phoenix are benefiting from higher wages and a growing workforce.

PHOENIX — From home buyers being priced out of sales, to renters hanging out longer, and boomerang kids leaving home, current Arizona real estate trends are shaking up all aspects of the market.

In this hot housing market, first-time home buyers continue to struggle to lock-in mortgages. The scene is much different than a decade ago, when home-ownership was much more attainable.

March census numbers show Maricopa county added more than 58,000 new neighbors in 2021, taking the number one spot on the list for U.S. county population growth. Along with the growth comes the housing affordability problem. Phoenix joins the list of other cities like Dallas, Orlando and Tampa, as seeing drastic price increases surpassing the national average.

Rising home prices leading to longer rents

CONTI Capital, a real estate investment company, analyzed Housing Affordability Index data. It found first-time home buyers are being forced to rent longer. That’s because of the rising home prices, investors and buyers with more cash.

CONTI shared research from the National Association of Realtors. It indicated home prices have gone up nearly 30 percent since 2019. And the average home is about $80,000 dollars more than pre-pandemic, said Carlos Vaz, CONTI Capital CEO & Founder. 

"In any healthy market you’re going to have six months of housing inventory. Give me one city in the U.S. with six months," Vaz said. "Maybe a small place in Alaska you might be able to find something. Right now inventory that’s our biggest issue that you have."

"If things are not challenging enough, interest rates are also coming up.” Vaz added, “So the issues of housing, it’s hard for me to see that you’re fixing them any time soon, meaning the next two years.”

CONTI Capital said even though wages have gone up recently, they’re generally not keeping up with home prices. This is hard on millennials who make up 90 million Americans who are typically getting into their first-time mortgages.

When Americans are looking to relocate, Phoenix continues to be a top-five destination. Arizona is part of the Sun Belt, which is home to several hot spots. One of the main factors considered in research is the Valley's growing labor market.

Phoenix seeing higher wages, growing workforce

CONTI Capital found some Sun Belt destinations like Phoenix are benefiting from higher wages and a growing workforce. Workers are leaving Gateway markets like Silicon Valley and others because of the more affordable cost of living elsewhere. Vaz said more growth in places like Arizona reveals employers are laying down roots, growing and looking to attract talent. More competitive salaries tend to follow. Jobs peaking interest in these markets are professional and business, which also typically pay more.

“Phoenix is going to be right there with Atlanta, with Dallas, with Tampa – Orlando, more Tampa than Orlando," Vaz said. "To me, (it) depends on the time and the quarter you see that data, but I always see Phoenix in that top five destinations, easily.”

The measures are interesting showing Sun Belt markets are experiencing aggregate income increases much greater than more traditional Gateway markets, Conti research showed. 

While populations rise, Arizona rentals have maintained a strong demand. Another group contributing to this trend are 'Boomerang kids.' The term regained popularity in mid-2020 as the pandemic gained speed. 

Young adults leaving the nest (again)

Now, real estate experts said these young adults are leaving home and venturing out on their own again. This shift in dynamics points to an increasing demand for rentals, because young adults make up a large portion of renters, experts said. 

Conti drew from a Federal Reserve Bank of Cleveland report. It found the percentage of adults age 18 to 29 who went back to live with a parent is back down to pre-pandemic levels. In February 2020, about 47 percent of 18 to 29-year-olds lived with a parent. By June 2020, that number rose to more than 52 percent. The number dropped back down in September 2021, to where it was before COVID.

CONTI said the 18 to 29 year old group represents another of the largest generations in history, pumping up rental demand. The investment firm added, Arizona benefits from more Boomerang families moving to the Valley.

“These kids start to move with the parents, to me, it’s a positive sign for the city because we have more young labor force," Vaz said. "Something about boomerang kids. Many of them have a college degree. So we have a good labor force moving to the region.”

Research also showed about 36 percent of Boomerang kids are in families in the top 20-percent income bracket, so the families have the means to support their children during periods of unemployment.

Rental market getting shake up from additional source

In addition to Boomerang kids, another age group is shaking up the rental market. The 30 to 40 year old age group is grabbing the attention of experts as they report more of them are choosing to rent. Typically, adults in their 20s take a larger share of this market.

CONTI found 42 percent of head-of-households in the 35 to 44 year old range are renters. And this group has increased about 12 percent from 2010 to 2019. And by 2019, there were more than 41 million adults in this range in the U.S.

As millennials age, experts said the group is expected to increase within the next 10 years. For 30 and 40-somethings who aren’t interested in apartment life, Vaz said they’re trending towards build-to-rent communities in the Valley.

“They might say I don’t want to live in apartment building, I don’t want anyone above me, below me, I want a backyard, but I don’t want to buy yet because I’m still getting to know the city," he said. "I don’t know if I want to buy here or somewhere else. I’d rather do a build to rent. I have all of these amenities. A professional company is taking care of everything for me and I’ll make my decision.”

CONTI said higher end rental properties in desirable locations like Phoenix are catching on more with the freedom of short-term leases and as home-ownership becomes less affordable.

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