After nearly two years of unprecedented competition, the residential real estate market is finally showing signs of running out of steam. With inventories still at low levels and demand still high, home sales and house price growth have started to slow this summer, according to a report on the hottest real estate markets in Construction site coverage.
Taking into account the year-over-year change in median sale price, median days on market, percentage of homes sold above demand, and average percentage sold to list, the analysis revealed that Phoenix had the 15th hottest real estate market among all major US cities in 2021.
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One of the main reasons for the drop in demand is the increase in mortgage interest rates. At the start of the COVID-19 pandemic, the US Federal Reserve launched aggressive stimulus measures to stave off an economic downturn, pushing interest rates to historic lows and making home buying more affordable. But amid concerns about high inflation, the Fed recently reversed course and started raising rates. The average 30-year fixed mortgage interest rate has risen from a low of 2.65% in January 2021 to over 5% today, and could potentially continue to rise for the rest of 2022.
Rising borrowing costs are discouraging buyers and shrinking purchasing budgets, especially for those who may not have the income, credit history or equity to qualify for the lower rates . But house prices themselves are also an important factor that leads to reduced interest in real estate.
Prices have followed a steady upward trajectory over the past decade, but the jump in prices since the start of 2020 has been particularly brutal. At the start of 2020, the median selling price of a home in the United States was $288,000, and by the start of 2021, that figure had risen 14% to $329,000. At the start of 2022, the median home price had jumped another 16% to $376,000 and was already at $424,000 in April of this year. The pace of these increases has begun to push buyers out of the market, particularly first-time home buyers who have been unable to take advantage of property appreciation and whose wage growth or ability to save for a down payment may not keep pace with price growth. .
The Mountain West region and the Southeast have seen some of the largest increases in home prices. Neighboring Arizona, Idaho and Utah each saw the median sale price of a home increase by more than 25% in 2021, while Nevada and Tennessee also saw increases of more than 20% . Many of these places are booming as people leave more expensive states like California in search of more affordable places, but in the process create competition and higher prices.
House prices are just one measure to show how intense the US residential real estate market is. In many places, homes spend less time on the market and more often sell above list price. For example, the fast-growing median Washington home spent 7.8 days on the market in 2021, and nearly three in five homes (58.2%) sold above asking price. Similarly, the median home spent 8.4 days on the market in Nebraska last year, while Alaska led the nation in the percentage of homes sold above demand at 60.9%.
Locations with the hottest real estate markets of 2021 not only share rapidly rising prices, but also less time on the market for homes and more homes selling above list price. Cities that share these characteristics are among the fastest growing and most economically prosperous regions of the United States, including California, Colorado, and Texas. While the real estate market may cool elsewhere in the United States, these attractive locations may continue to see strong competition and high prices in the future.
The data used in this analysis comes from Redfin. To determine the locations with the hottest real estate markets of 2021, Construction Coverage researchers calculated a composite index that took into account the year-over-year change in median selling price, median days on market, percentage of homes sold above demand and the average percentage selling to list. In the event of a tie, the location with the largest year-over-year change in median selling price was ranked highest. With the exception of the year-over-year change in selling price, which was measured between December 2020 and December 2021, all other statistics reflect data from January to December 2021.
Here is a summary of the data for Phoenix, AZ:
Composite score: 54.98
Median Selling Price: $379,140
Change over 1 year in the median selling price: +30.3%
Median days on market: 26.8
Percentage of homes sold above requesting: 50.5%
Average percentage of list sales: 101.2%
For reference, here are the stats for the entire United States:
Composite score: N / A
Median Selling Price: $370,713
Change over 1 year in the median selling price: +15.1%
Median days on market: 20.9
Percentage of homes sold above requesting: 47.5%
Average percentage of list sales: 101.2%
For more information, a detailed methodology and full results, you can find the original report on the Construction Coverage website: https://constructioncoverage.com/research/the-hottest-real-estate-markets-of-2021