While much of the Valley's real estate market may be experiencing a drastic slowdown, it's important not to mistake it for a crash. Various factors are currently at play, with two prominent ones being increasing interest rates and low supply. Although demand may not be at its strongest, the severe lack of supply continues to keep prices robust and buyer leverage lower than anticipated. Affordability has taken a significant hit for a substantial portion of the market, as interest rates have left many buyers hesitant to make a purchase and sellers contemplating whether they should give up their current low-interest-rate mortgages.
These market factors that are having a profound impact on the majority of buyers are not applicable to many of those in the luxury market—particularly cash buyers. According to The Cromford Report, "Unaffected by mortgage rates, the market over $1M has witnessed its second-best year in Greater Phoenix so far." While many homebuyers at lower price points are waiting for affordability to improve by hoping for decreasing mortgage rates, ”multi-million-dollar homes are less likely to utilize a traditional mortgage to finance their purchase — being more likely to either pay cash or leverage a margin account” (Real Trends).
During the past several years the market has seen beyond modest home appreciation. Especially in the Valley, many homeowners have had a significant increase in their home equity. While the rate of the growth has slowed down, data does not suggest any significant downturn in prices will occur anytime soon. That being said, “the continued strength in the real estate market could be due, in part, to the movement of capital into real property as a hedge against inflation. This could be particularly true for the wealthy, looking to preserve their gains over the past few years against inflation and falling equity prices” (Real Trends). This trend holds true, especially for those who possess the flexibility to adopt a long-term perspective when making their real estate investments.
Then there’s the conversation about supply. While listings under $1M are becoming more and more scarce, The Cromford Report provides reassuring insight for the luxury market. According to their findings, "once you reach $2 million, we are not experiencing a real shortage - in fact, there is a greater abundance of choices available today compared to the beginning of November [2022]." This favorable condition, coupled with financial flexibility, presents the perfect combination for luxury buyers to find their ideal home or investment opportunity.
The luxury housing market in the Valley is a unique landscape. While other segments of the real estate market are experiencing slowdowns and uncertainties, the luxury market continues to display resilience and stability, attracting high-end cash buyers who recognize its enduring value and potential for long-term gains.