housing prices

With skyrocketing housing prices and a dwindling supply, Scottsdale is a microcosm of the Phoenix Metro region as a whole, where buyers are finding it increasingly difficult to purchase a home without breaking the bank.

Valleywide the annual median sales price of a home jumped 25 percent from $264,990 in April 2019 to $330,000 today, according to the Cromford Report, a web service that studies the Valley housing market.

The growth in Scottsdale has been even higher during that span, with annual median sale prices citywide rising 27 percent and some ZIP codes seeing prices rise 30 to 40 percent compared to two years ago.

The largest jump occurred in 85262, which includes parts of northern Scottsdale, Cave Creek and Carefree. There, the median sales price jumped 41 percent between April 2019 and 2021. The median sales price of a home in that ZIP code is now north of $1.1 million.

The increase in home values is not just isolated to the city’s swanky northern enclaves.

The second highest percentage jump in median sales price between April 2019 and April 2021 happened in 85257, where prices increased 32 percent to over $454,000.

In April 2019, only three of 10 Scottsdale ZIP codes had median sales prices over $700,000.

Today, that number has doubled.

According to industry experts, the price spike is the result of a nearly-unprecedented shortage of homes on the market coupled with high demand as a result of Arizona’s growing population and low mortgage interest rates.

Harry Lourimore, founder of Lourimore Land Development, said favorable interest rates and employment growth are driving population growth and making the Valley a desirable place for people moving away from more expensive markets.

Lourimore said Valley prices are still a relative bargain even if it is not as affordable as it used to be.

“Although our price points have gone up considerably over the last several years, compared to other markets in California…and a lot of the major markets back east, the Phoenix region is still a pretty attractive buy,” he said.  

Lourimore said the pandemic-induced financial pain was not felt equally by all segments of the population as many white-collar workers were able to shift to at-home work while retail and service industry workers were laid off.

“The kind of the home buying profiles of the professional classes that would be more of a Scottsdale buyer were a little more insulated, or a lot more insulated in some cases than folks that worked in travel, service or retail-oriented parts of the economy,” he said.

Steven Hensley, who works with housing data firm Zonda, said many of those white-collar homebuyers are younger people taking advantage of federal COVID-relief measures to enter the housing market for the first time.

“A lot of them had student loan debt, but over the last year and a half, they had federal loan” payments suspended, he said.

The buyers that can afford to enter the market are competing for a shrinking supply of available homes.

“The increase is driven predominantly by the low levels of supply that we have presently, which are down about 50 percent from a year ago,” Hensley said.

Unlike home prices in Scottsdale, the supply of available homes has dropped like a lead balloon over the past two years.

According to the National Association of Realtors, a six-month supply of homes is typically associated with moderate price growth.

Citywide, Scottsdale had less than a month’s supply as of April 1, according to Cromford, and some area ZIP codes had far less. 

The 85266 ZIP code in northern Scottsdale had an eight-month supply in April 2019. That is down 90 percent today.

In 85257 – the lone Scottsdale ZIP code with a median sale price under $400,000 in April 2019 – the supply has also shrunk 90 percent and is around 10 days.

Growth could effectively shut out middle-income buyers from one of the last relatively-affordable areas in Scottsdale: southern Scottsdale, which has historically been home to affordable housing options.

The 85257 ZIP code, which covers most of Scottsdale south of Thomas Road, is still home to many of the small, single-family homes built to house the Motorola workforce in the 1950s and 1960s.

And 85251, near downtown Scottsdale, includes enclaves that housed developments like Holiday Park, which were small apartment complexes marketed to vacationers in the 1960s and later repurposed as affordable housing units.

But both ZIP codes are becoming more unaffordable due to increased home values and redevelopment.

In April 2016, the median sales price for a home in 85257 was in the entry-level range at $270,500. Today, that median price has increased 68 percent to over $450,000.

“There’s not going to be as many younger families being able to afford to live in the city of Scottsdale,” Hensley said. “It’s going to continue to be a move up or second move up market.”

That, in turn, could result in less diversity in southern Scottsdale, one of the few truly diverse areas of the city.

Scottsdale is already a city that is 91 percent white, with 8.1 percent of the total population identifying as Hispanic or Latino, according to the U.S. Census Bureau.

The 85257 ZIP code is notably more diverse with a population that is 88 percent white with 21 percent of the total population identifying as Hispanic or Latino.

The median household income in the ZIP code is also $62,584, well below the citywide median of $86,097.

That could change if housing market continues on the current trend.

“Well, it causes segregation for sure and gentrification,” said Joanna Carr, research and policy director for the Arizona Housing Coalition.

Even with those increasing home prices, Carr said there are ways for cities to incentivize the creation and preservation of other affordable housing options in Arizona, though they are hamstrung by the fact that the state outlaws inclusionary zoning that would allow cities to mandate portions of new development be reserved for people with low or moderate incomes.

Carr said cities can still incentivize the building of affordable housing.

For instance, cities could allow for greater densities for multifamily apartment construction in the hopes that investors would use that allowance to make building affordable housing more feasible – though that is not a guarantee.

“Density is increasing in Scottsdale, with thousands of new apartment units expected to come on line in the coming years, but most of those new units are marketed as luxury.

Scottsdale currently has the highest apartment rental rates in the Valley with a median rate of $1,600 for a two-bedroom unit, according to Apartment List, an online rental marketplace.

Of the 16 multifamily projects approved by City Council in 2019 and 2020, 11 were explicitly described using “high-end,” “luxury” or similar terms in plans filed with the city. Those 11 projects accounted for 77 percent of the total units approved by Council.

Meanwhile, the short supply of available homes in Scottsdale has ramped up competition among buyers who can afford to pay for them, resulting in skyrocketing prices.

According to Cromford, a Scottsdale home in the 85255 ZIP code that sold for $825,000 in 2013 was re-sold in December for $1.3 million, $37,500 above the asking price.

The same home was listed for sale again in 2020 for $1.5 million and sold for $1.7 million in an all-cash deal.

“So it rose by $412,500 in just 16 months, or almost $26,000 a month,” Cromford stated. “It also went under contract after just 3 days.” 

Lourimore said he envisioned price growth in the 10 to 15 percent range this year versus the 18-20 percent growth the Valley saw in 2020.

Hensley agreed that the price increase will hit a breaking point.

“There is going to be a demand for housing and people are going to be comfortable and able to afford homes up to a certain point,” he said.

“We’re still trying to figure out when exactly that’s going to happen, but I imagine through summer and into later part of this year, the velocity of transactions is going to slow because people are going to be priced out of the market.”