Valley luxury homes saw biggest price increases

Jan. 24—The average square-foot price of single-family homes in the Valley rose the most over the last two years in cities with the most luxury homes, according to a leading analyst of the Phoenix Metro market.

That increase was the highest in Paradise Valley, where the per-square-foot price soared 42.3% between 2021-2023, the Cromford Report said last week.

"This is the first time since 2000 that we have seen Paradise Valley accelerate well ahead of the pack," it stated. "It probably has something to do with the number of homes that are torn down and replaced with new builds that have extremely high costs per square foot.

"This process extends the gap between Paradise Valley and Scottsdale home pricing."

Scottsdale saw the second highest increase at 23%, a shade ahead of Wickenberg's 22.9%. Fountain Hills, Cave Creek and Carefree also saw per-square-foot price increases above 20%.

Per-square-foot prices in the last two years rose 17.2% while in the Southeast Valley, they rose at least 10%.

That includes Apache Junction (15.1%), Chandler (13.7%), Mesa (13.2%), Gilbert (12.6%), Tempe (12.2%), Sun Lakes (11.6%) and Queen Creek (11.2%).

The Cromford Report also noted that Valley-wide between 2022 and 2023, the year-over-year per-square-foot price increases were the highest among homes selling for at least $3 million.

In that time period, homes that sold for $11 million or more saw the sharpest increase in per-square-foot prices at 12.8%.

Homes with a sale price of $7.5 million and $10 million saw a 9.5% increase while homes in the $5 million-$7 million range recorded an 8.7% increase.

Homes that sold for $2 million or less, on the other hand, saw average per-square-foot prices drop between December 2022 and last month, according to the Cromford Report.

That decline was the greatest among homes that sold for $350,000-$400,000, where the per-square-foot price dropped an average 7.7%. Declines in other price ranges were between 2.1% for homes selling between $700,000 and $800,000 to 5.9% for those selling between $300,000 and $350,000.

"The cheaper you go, the more 12-month average prices tend to have fallen," the Cromford Report said.

"We rarely see such a clear pattern, so I conclude that something is bolstering the luxury market," it continued. "It is not lack of supply, which is plentiful, although active listing counts are not excessive compared to the normal levels at these altitudes.

"It seems that luxury buyers have been less affected by the high interest rates which appear to have had a much more serious effect on first-time home buyers."

The Cromford Report's analysis comes at a time of mixed assessments of the housing market in Arizona, the Valley and nationwide.

Arizona REALTORS President Shelley Ostrowski predicted that recent declines in mortgage interest rates will see more buyers jump into the market, benefitting sellers.

"I see more buyers coming back into the market as interest rates begin to settle," said Ostrowski. "The housing market will remain strong in 2024, emphasizing the importance of clear communication and why buyers and sellers are best trusted to use a Realtor."

Sindy Ready, Arizona REALTORS president-elect and associate broker for RE/MAX Excalibur in Scottsdale, also predicted more activity in the market.

"While inventory might be lower than usual at this time, interest rates are speculated to decrease by the end of the second quarter to a historically normal rate of 6% to 6.5%, which will bring more buyers into the market," Ready said.

Ready also doubted the Valley will see a "silver tsunami" created by a flood of baby boomers unloading their houses.

"Many baby boomers in today's housing market are rightsizing as opposed to downsizing, meaning they are searching for a different floor plan or a level property that accommodates their lifestyle," said Ready.

"This means simplifying backyard maintenance and introducing trendy new features to the home such as an outdoor kitchen, fire pit, and seating area."

Shane Cook, 2024 treasurer of the Arizona REALTORS from eXp Realty in Gilbert, added: "I expect interest rates to retreat some, which will create more buyer demand

"With inventory now in short supply, this could mean a potential impact on the market that continues to be more favored to the seller."

The Cromford Report provided data that gave reason for at least sellers to be optimistic, noting that all 17 Valley submarkets showed a "trend in favor of sellers is starting to accelerate."

But other experts held out little optimism about a big downward shift in home prices.

"I don't think we're going to see a big break in prices, since the broader trend facing the housing market continues to be not enough supply relative to demand," said Realtor.com Chief Economist Danielle Hale.

A survey by Fannie Mae said its monthly survey in December showed that more buyers are expecting more mortgage rate reductions.

But Fannie Mae also said the survey showed that homebuyers were "overwhelmingly pessimistic" in their assessment of the market, with only 17% saying this is a good time to go home-shopping.

"Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it's both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may incent some to list their homes for sale, helping increase the supply of existing homes in the new year," said Mark Palim, vice president and deputy chief economist at Fannie Mae.

"Of course, that's likely dependent on the extent to which mortgage rate expectations are met with actual mortgage rate declines," he added.