The Arizona real estate market forecast for 2018 suggests that Phoenix could have a relatively normal year, at least where home values are concerned, which may be positive, given the tremendous volatility the market has seen over the last decade. Jeff Sibbach of Realty One Group is predicting a steady rise in 2018—similar to what the real estate market played out in the 1990s. “I believe we are going to see a swiftly up-moving housing market due to the decrease in supply. Because of that and in combination with demand being up about seven percent, it is going to lead to a pretty competitive market but also a good one to buy,” he says. Most buyers are seeking a new or newly remodeled home from $200,000 to $250,000. The majority of buyers right now are millennials and baby boomers looking to downsize.

Arizona real estate market forecast for 2018: a look at home appreciation

The median home value in Arizona is $231,100. Home values have gone up 6.3% over the past year, and Zillow predicts they will rise 2.4% within the coming year. The median price of homes currently listed in Arizona is $270,000, while the median price of homes sold is $235,800. The Arizona real estate market forecast for 2018 predicts little more than 4% appreciation across the state—slowed down from the 6.9% which was the reality in 2017. Drawing a brief comparison to two of Arizona’s major cities, the median home value in Tucson is $172,500, where home values have gone up 8.2% over the past year, and Zillow predicts they will rise 4.5% within the next year.  In Phoenix, the median home value is $223,700, and values have gone up 9.4% over the past year, with Zillow predicting they will rise 2.9% within the next year. If we put it all together, what does it mean? Is it time to buy, or time to sell? Consider this: a “normal” appreciation rate is considered to be 3% per year. While values are still appreciating, the rise is slowing, which means the market is more welcoming to buyers than it has been in a while.

Suburban expansion: real estate market forecast for Arizona in 2018

Prices in desirable urban city centers are increasing at some of the fastest rates in cities across the US, and Phoenix is no exception. While many buyers want to live in the city, they are being priced out and pushed to the suburbs where they are more likely to find affordable homes. This is why most new home builders are focusing on the suburbs to meet demands for quality affordable housing. Limited areas for development and zoning restrictions in central areas are part of the problem. The real estate market forecast for Arizona in 2018 predicts further suburban development in the cards.

Falling inventory levels

Inventory in Arizona’s capital city has been falling every year since 2011. Limited supply is therefore still an issue, especially in entry-level markets around $200,000. This will likely be the last price range to cool off. Usually pressure is released in high-end markets first before working its way down. In the meantime, new home builders continue to build. For the second half of 2018, it’s possible that buyer demands may finally cool off a bit, but not before more of a dent is made.

Rising interest rates

At the start of 2017, 4.5%-5% interest rates for top-tier buyers were predicted by the end of the year. That hasn’t yet happened, but it looks like it’s on its way: central banks have increased rates five times since 2015, and they are projected to be raised three more times in 2018. The Arizona real estate market forecast for 2018 may mark the end of relatively low-interest rates for quite some time.

The millennial market

Because of the changing lifestyles of baby boomers and millennials, a shift toward denser housing for metro Phoenix is occurring. A desire among these groups for luxury residences with the amenities of an urban setting are driving condo developers to build near downtown areas. Luxury loft-style homes close to shopping centers and in popular neighborhoods like Phoenix, Scottsdale and Tempe are popping up at record speed. Millennials are projected to make up 43% of Phoenix home buyers this coming year. If inventory starts to rebound, the Arizona real estate market forecast for 2018 says these first-time buyers will make up an even larger percentage of homebuyers.