Perhaps you are a homeowner in the greater Phoenix area, and you are considering the purchase of a second home for use as rental property. You are probably wondering if this is a good time to get into the rental business, and you would like to know what to expect during the coming year. Or maybe you already own rental property and are trying to decide whether you should sell your property or hold onto it for another year. Well, the good news is that the Phoenix rental market is alive and well, plus it is likely to stay that way through 2019 and beyond.
Living in Phoenix
If you already call Phoenix your home, you know that this is one of the best places to live within the United States. In addition to the abundant sunshine that this area enjoys, Phoenix is home to a thriving job market and a relatively low cost of living. Although the downtown area primarily gives the appearance of all work and no play, there are plenty of opportunities for leisure activities, hobbies and recreation. Phoenix is home to some of the country’s best stadiums, shopping districts and restaurants. According to a recent report by U.S. News, Phoenix ranks in the top 20 metro areas for best place to live as well as best place to retire.
Rising Cost of Home Ownership
While it is a great place to live, not everyone residing in Phoenix owns their own home. The coming year is no exception, and it appears that the demand for rental units will continue to increase. One of the primary reasons for this is that wages are failing to keep pace with the escalating cost of home ownership. Homes in the Phoenix area continue to see a rapid acceleration in prices. A recent year-to-year comparison of Phoenix home prices found that prices are rising at a rate of almost 10 percent per year. Over the past seven years, prices are up a whopping 145 percent, and there are no signs of a slowdown anywhere within the Phoenix metro area.
Phoenix Home Sales and Inventory
The increase in home values has a direct affect on the demand for rental units. Home sales are down more than 11 percent compared to a year ago and down almost 20 percent over the past two years. This combination of increased home prices and decreased sales has a compounding effect on the rental market. As home prices continue to rise, many Phoenix residents are finding it extremely difficult, if not impossible, to afford a home or to qualify for a mortgage. This leaves them with only one choice, which is to rent.
Demand for Homes
Despite the increase in home values, Phoenix is experiencing an extremely tight inventory of homes for sale. While a normal supply for this area might be four to six months, the present inventory of homes is less than three months. As the supply of homes for sale decreases, the demand increases. Because of this, a high number of homes in the area are selling at the full asking price. Not surprisingly, this makes it even more difficult for lower-income residents to purchase a home in lieu of continuing to rent.
Phoenix Population Growth
Phoenix is considered to be a highly desired place to live. This is evidenced by the number of people moving into the city each year. Maricopa County is the fastest growing county in the United States. Each year, more than 200 people per day are moving into the area, which equates to more than 80,000 new residents per year. This keeps Phoenix property management professionals busy with apartment rentals as well as searching for empty office space. One of the factors contributing to the population growth is the significant presence of large telecommunications and high-tech firms in the area as well as many regional back-office corporations. Additionally, Phoenix is home to Arizona State University and Luke Air Force Base. Even foreign governments have established offices here.
Phoenix Economy and Job Growth
The economy in Phoenix is strong and expected to remain that way. The job market has risen by more than 3 percent during the past year. Job growth over the next 10 years is expected to top 40 percent, which is much higher than the U.S. average. This is partly due to the growth being experienced in the local tech community. More tech companies are locating here than ever before. At times, it seems as though a new high-tech company is moving here every week. Phoenix is quickly becoming one of the more desirable locations for startups and entrepreneurs.
Rise in Interest Rates
Another factor making it harder for people to purchase a home and forcing them to rent is the recent increase in interest rates. For a 30-year mortgage, the average interest rate has increased from less than 4 percent at the beginning of 2018 to more than 4.4 percent at the present time. Forecasts indicate that this trend is likely to continue throughout the year and into next year. The increase in home prices coupled with a rise in mortgage rates will continue to keep the rental market strong because it will be difficult for many individuals to purchase a home.
Trends in Phoenix Rental Property
One of the trends evident to anyone involved in Phoenix property management is the rate at which rental prices are rising. Vacancy rates are a little over 5 percent, and rental prices are rising at the fifth-highest rate among major U.S. cities. This trend is expected to continue due to the consistent growth of the metropolitan area, which is projected to grow at a rate of more than 2 percent per year for the next several years.
Rise in Apartment Rental Rates
The average rental rate for an apartment in Phoenix is currently between $1100 and $1200 per month. This represents an increase of more than 10 percent when compared to this same time a year ago. Even more striking is the fact that rentals are up more than 2 percent during only one month. Breaking this down, a one-bedroom apartment in Phoenix rents for a little over $1000 per month, and a 2-bedroom unit goes for a little more than $1200 per month. This translates into a gain of about 6 percent for a one-bedroom unit and more than 5 percent for a two-bedroom unit.
The Big Picture
Going into 2019, an image of profitability is projected for property investors as well as property managers. The combination of a strong economy and consistent wage growth should result in a high demand for rental property. It is expected that the large number of seniors and Millennials, many of whom cannot afford to purchase a home, will continue to provide a boost to the rental market through 2019 and beyond. Additionally, the home affordability index (HAI) of 160 for the metro Phoenix area instills confidence that rental property will continue to be a good investment.
The rental market in Phoenix is strong and expected to stay that way through 2019. If you are thinking of investing, you owe it to yourself to contact a Phoenix property management professional who could help you determine the best areas to invest in. Because of the large number of units being rented by seniors and Millennials, it is important to understand what attracts them to a particular area. You also may want to hire a professional to manage your property for you so that you can avoid some of the headaches and concentrate on other issues.
Give On Q Property Management a call at 480-470-3906 to get a free rental consultation!