Greater Phoenix Blue Chip

HOUSING MARKET OUTLOOK – UNCERTAINTY ABOUNDS

Second Quarter, 2025

Danny Court

Elliott D. Pollack & Company

The U.S. and Greater Phoenix housing markets remained subdued, with no glut of oversupply and no resurgence of buyer demand while mortgage interest rates are elevated and the Federal Reserve maintains its wait-and-see approach before reducing rates. And even if the Fed decides to act in the second half of the year, the impact to housing demand is expected to be muted because of ongoing future inflation concerns that have kept bond yields up, driving mortgage interest rates.

Mortgage rates, which peaked at 7.8% in 2023, have since declined to 6.7%, yet affordability remains strained for many prospective buyers. In Greater Phoenix, resale prices retreated somewhat in 2023 but have since recovered with a year-to-date median sales price of $450,000. New home prices have modestly grown over the last few years with a median price surpassing $500,000. Under the usual affordability metrics, both median resale or new sales require a household income in the six figures. At these prices, any interest rate relief, while badly needed, won’t move the needle much.

Adding to these affordability pressures are rising costs associated with new home construction. Government-mandated impact fees, burdensome permitting processes, and zoning restrictions have all added tens of thousands of dollars to the cost of a new home. Additionally, property taxes and insurance costs continue to rise rapidly, making it harder not only to buy but also to hold onto a home.

The rental market offers no easy alternative. While a wave of apartment construction initiated during the low-interest period of the early 2020s temporarily increased supply and reduced rent growth, rents are still substantially higher than they were five years ago. Meanwhile, the development boom is expected to reverse by 2027 due to high interest rates and rising vacancy rates. Permits for new multifamily construction have declined dramatically since 2021, meaning that future supply will likely be insufficient to meet demand in a few years as demographics continue to drive household formation.

Amid these long-standing affordability concerns, recent tariff activity has added yet another layer of pressure and/or uncertainty. Over the past several months, the U.S. has reimposed and expanded tariffs on Chinese goods and other imports, including key inputs used in housing construction. Tariffs on steel, aluminum, solar panels, and various manufactured components have driven up material costs for homebuilders. These cost increases are passed along to buyers and renters in the form of higher prices.

Tariffs also disrupt global supply chains, causing delays in the delivery of materials like HVAC systems, insulation, and electrical components, all of which are essential for housing development. In some cases, developers may need to source from more expensive or less reliable suppliers, further increasing build times and costs. Combined with domestic labor shortages and ongoing supply chain fragility, tariffs could undermine the potential relief that falling interest rates might otherwise provide. The ultimate landing spot for tariff policy is also still an unknown, making it difficult to plan future investments.

At a time when strong population growth and shifting preferences should be driving a housing boom, regulatory burdens and trade policies are pushing the market in the opposite direction. Without significant action (interest rates falling below 5%, home prices dropping by 10–15%, or major local zoning reforms to enable construction of smaller, more affordable homes on smaller lots), the affordability crisis is poised to worsen.

In the meantime, the likely path forward includes continued growth in rental demand, a shift toward smaller, more efficient housing, and increasing political pressure on local and federal governments to address the root causes of high housing costs. Policy changes that reduce impact fees, streamline permitting, and lower material costs (including revisiting tariff policies) could go a long way in making housing more accessible again.

Until then, housing in the U.S. will remain out of reach for many Americans, with significant consequences for economic mobility, family formation, and the broader health of the national economy.

Current housing forecasts for single family homes and apartments for 2025 and 2026 project permit activity to continue the slower growth trend of the first six months of 2025. Most forecasters expect single family home construction will underperform compared to last year. Additionally, apartment deliveries will be historically high in 2025 but are expected to drop dramatically in the coming years until excess supply is absorbed and interest rates retreat.

GREATER PHOENIX BLUE CHIP: RESIDENTIAL