Lending markets

Here’s what you need to know

New homes line a street in Phoenix, Arizona. (Photo by Justin Sullivan/Getty Images)

It’s no secret that the housing market is hot in many parts of the country, including Arizona.

Now there are numbers that show just how hot Arizona’s housing market has gotten, with new data showing that 97% of metropolitan areas in the US are overpriced.

Here’s what you need to know.

What do the numbers say about the Arizona real estate market?

According to data from Moody’s Analytics, three housing markets in Arizona rank among the most overvalued markets in the country: Lake Havasu City-Kingman, Flagstaff and Phoenix-Mesa-Scottsdale.

Read more: Here are the 25 most overvalued real estate markets in the United States

The numbers on the list show that an average home in the Lake Havasu City-Kingman housing market is 56% overvalued, while an average home in the Flagstaff housing market is 51% overvalued, and a average home on the Phoenix market is overvalued by 46%.

How do they determine if a particular real estate market is overvalued?

This overvaluation is compared to historical norms of local household incomes, rents and construction costs.

What causes overvaluation?

Mark Zandi, the chief economist at Moody’s Analytics, noted that many of these markets were “boosted” due to previously low mortgage rates and the implementation of remote working during the COVID-19 pandemic.

Specifically for the Phoenix housing market, loan originator Ian Sullivan has said for years that Phoenix is ​​an undervalued market and it’s only a matter of time before prices rise.

Does this mean we are heading for a crash?

Economists are not predicting a crash at this time.

However, they also say they don’t expect the overvaluations to last. Zandi predicted that prices will start falling in the next few years.

“I would not be surprised if some regions [begin to see] outright price cuts, from the record prices we are seeing right now,” Zandi said.

Zandi, however, also said homebuyers will have to be patient.

“It’s not like the stock market, which could change in an instant,” Zandi said. “The housing market is taking time to figure this all out. It won’t be next month or six months, it’s probably next year three or four to see this all play out.”

What else could cause a slowdown in the housing market?

An Associated Press report in April said an increase in interest rates paves the way for slower home sales as higher borrowing costs reduce the purchasing power of potential buyers.

Read more: As the Federal Reserve continues to raise interest rates, here’s what you need to know about its impact on Arizonans

Sullivan said, however, that the increased interest rate could help reduce demand for homes, but not substantially, especially given the number of new jobs available in the Phoenix area.

Read more housing stories at FOX10Phoenix.com

What should people do?

For his part, Sullivan always advises people to buy as soon as possible.

“Time in the market is good for the investor, and that’s what it is. It’s an investment,” Sullivan said.

Sullivan also said many people currently living in starter homes may need to stay there a bit longer, until they can save more money.