2 0 2 5 M E
COMING
Metro Phoenix
THE NUMBERS
$1,243,257
SCOTTSDALE
$3,787,246
GILBERT
from a Cloudy Crystal Ball Predictions
By: Danny Court with Elliott D. Pollack & Company
Written : January 15th, 2025
With a new administration entering the Oval Office and significant campaign promises on the table, it’s difficult to predict exactly what 2025 will bring. However, the outlook for the year ahead appears generally positive.
Greater Phoenix
2024 finished strong, with the stock market returning over 20% for the second consecutive year. This is something we have not seen since the late 1990s. The labor market slowed considerably compared to the previous two years with average monthly growth of 186,000 jobs (from 251,000 in 2023), but ended the year on a very positive note, adding 256,000 workers in December. That helped reduce the unemployment rate to 4.1% and reduce fears of a weakening labor market. Job openings also jumped across many sectors that were previously creating fewer jobs during 2024 (such as professional and business services and finance). With are less workers quitting their current jobs, this means hiring is ramping up.
We’ve also weathered high inflation and ended the year below 3% and wage growth has stayed modestly above inflation, helping households improve their financial positions. All of this means that we are in a relatively strong position going into 2025. We are not in recession, our economy is growing, and the Fed has tools to react to any bad news in the future.
So, why is there so much uncertainty? Because there are a lot of moving parts. In the last four months of 2024, the Fed determined that cooling trends in the labor market and inflation was heading in the right direction enough to lower rates three times. However, in their last meeting in December, they announced that future rate cuts were not guaranteed, citing potential reversals in those trends – a strengthening labor market and inflation remaining at a level higher than they wanted.
The proposals made during President Trump’s campaign all have potential implications for both the economy and inflation. New tariffs and the proposed immigration policy have the potential to reignite inflation by increasing the cost of certain goods for businesses and consumers an limiting the supply of labor. Reducing regulations and the size of government, as well
as extending tax cuts would promote economic growth. Taken all together, they could create competing impacts that depend on the extent that they are implemented. The Federal government’s ballooning debt and unsustainable deficit spending also limit a lot of options.
Our general consensus is that many of the proposed policies are the starting point for negotiations. The general theme appears to point to a pro-growth strategy, with the hope that it is fiscally responsible and sets the country up for long term success. Growth in the economy, paired with a chronic housing shortage, means that the target of 2% inflation may not be achievable soon. This means that interest rates will likely stay elevated for a while, unless we experience a sudden downturn. That does not appear likely this year (fingers crossed).
It is a lot to take in, with a lot of unknowns. We haven’t even addressed all of the geopolitical conflict that could spoil the positive momentum trying to be created. But we remain optimistic. If the incoming administration’s decisions are guided by the goal of accelerating economic growth and reducing our deficit, we will be on good footing.
Here in Arizona, the outlook is very strong. Population growth continues to outpace the national average by multiples. New jobs in promising industries like high tech manufacturing and semiconductors are attracting high wage earners. Our state’s economic development agency has secured nearly $130 billion of capital investment over the last four years. Population and job growth are expected to stay steady. The goal now is to ensure that our infrastructure keeps pace, including transportation, power, water, and housing that is affordable.
Our latest forecasts for the economy over the next two years have taken into consideration a modestly slowing economy over the next 12 months. This is not to be confused with a prediction of recession, far from it. In 2024, retail sales slowed substantially, which we believe will bounce back in 2025 and remain strong in 2026. Employment growth is expected to slightly underperform the long-term historical average in 2025 but recover by 2026. Population inflows are expected to remain steady. We are experiencing a boom of new home construction in 2024, which we expect to level out over the next two years as the industry is now approaching delivering the volume housing to match population gains.
We’re expecting a solid year ahead.
The Housing Cycle is Due for a Turnaround
By: Tina Tamboer with Cromford Report
Written : January 16th, 2025
“In contrast, activity in the housing sector has been weak.”
~ Jerome Powell, U.S. Federal Reserve Chairman
Chairman Powell receives the “Understatement of the Year” award for describing the state of the housing market in one short, concise sentence during his press conference on December 18th, 2024. While the annual sales count from 2023 to 2024 is only down -1.7% in the Arizona Regional MLS, it follows a two year -36% decline from 2021 to 2023 from a peak of 105,164 to 66,942. This places the current annual sales rate in line with 2009, a level not seen for 15-16 years. Considering the increase in housing units and population over that time frame, “weak” doesn’t feel sufficient to describe the attrition and insecurity the housing industry has endured over the last 2.5 years with high and volatile mortgage rates.
That being said, this cycle is due for a turnaround. Mortgage rates have dramatically fluctuated between 6-8% since mid-2022, but sales volume in 2024 didn’t see massive declines. This could indicate the buyer pool has hit bottom and stabilized for the time being. Combined improvements in income and rates could lead to a gradual improvement in buyer demand, but the supply count will determine what it means for price. To the left are the annual price appreciation measures for 2024, and below are the 6-month appreciation rates since June 2024.
ANNUAL SALES RATE
2024 started the year in a mild seller’s market until April, which drifted into a balanced market from May to October, and then a buyer’s market in November and December. Mortgage rates dipped briefly to 6.1% in September, which resulted in an immediate boost in buyer demand and a positive October for sales, until rates jumped back to 7% by the beginning of November.
When the housing market is in balance, or a mild buyer’s market, price appreciation is expected to follow close to the rate of inflation (2.9% per the December CPI) or less. So, what’s the explanation for December’s appreciation measures landing much higher? The luxury market surged after the 2024 presidential election along with cryptocurrencies and the stock market, resulting in +37% more closings over $1M in December compared to last December. Properties sold over $3M were +7.4% higher in their sales price per square foot as well, which pushed overall appreciation measures higher than what most homeowners experienced. When high end sales are removed, homes under $1M saw an appreciation rate of +2.9%, conveniently matching December’s rate of inflation.
As Greater Phoenix enters 2025, the market has drifted back into balance, but just barely. This indicates most homes will see minimal appreciation in the first part of 2025. Predicting mortgage rates has been futile for mortgage professionals, but they keep trying. Most expect rates to remain in the mid- to high- 6% range for most of the year. The Federal Reserve reduced the Fed Funds rate in December, but they also announced they’ll “continue to reduce their securities holdings,” comprised of 92% treasuries and mortgage-backed securities. As they do that, they increase supply in the bond market, which drives interest rates up. This explains why mortgage rates spiked after their announcement. It’s as though the Feds have their foot on the gas but riding the brake at the same time.
In the meantime, it’s business as usual in the housing market. The environment remains favorable for qualified buyers, and frustrating for sellers. There have only been 4 buyer’s markets in Greater Phoenix over the past 25 years, and most only last a short time. It’s a good idea to take advantage of them while they’re here.
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01/01/24 - 12/31/24
773 FAMILIES FOUND NEW HOMES
179 BUYERS GOT THE KEYS
594 SELLERS MADE THE MOVE
$379,557,821 IN TOTAL ANNUAL SALES