The town of Paradise Valley has long been known for a few idiosyncrasies, including its unusual zoning code that attempts to preserve its unique quality of life. All lots must be at least one acre, rendering large condo and apartment complexes non-existent in the town. However, that doesn’t mean that development doesn’t exist in the city, and a recent story illustrates that development is actually becoming an issue in another way.
It would seem as though speculative builders have overbuilt in the city, but not in the way that one would imagine. A persistent trend in the town has been for purchasers to demolish and rebuild homes on that same land to appeal to new potential homeowners. It would appear as though those new homes are not finding buyers in the timely manner that they traditionally have.
How bad is the glut of unsold homes? Pretty bad; there is currently 26 months’ worth of oversupply in the last 90 days. Additionally, homes that save sold have only sold for 93% of asking price on average, a far cry from only a few years ago when multiple offers above asking price was the norm in the Valley.
What is the reason for this higher-than-normal supply? As is often the case, there are a number of different issues at play and likely some additional ones that are more speculative in nature. The egregiously hot and long summer likely pushed back purchases; after all, who wants to come back from a comfortable summer destination to go homebuying in 110 degrees? The election is often used as a reason for sluggish sales, although while tax uncertainty may have some impact on decision-making, it’s highly unlikely that taxation would have fundamentally changed for 2025 regardless of how the elections turned out.
The one issue not mentioned? Persistently high interest rates. While PV has a significant amount of cash buyers for their homes, anyone that pursues a mortgage to purchase a property will undoubtedly have a cold dose of reality when it comes to interest payments for jumbo loans with interest rates far above 6% and flirting with 7%. Concerns about inflationary effects from President-Elect Trump’s tariff proposals are likely to keep the Federal Reserve from aggressively lowering interest rates, thus perpetuating the affordability problem.
More home sales routinely follow the onset of comfortable weather, so a year from now we may look at this as little more than a bump in the road. But it’s also very possible that this is yet another indicator that the post-Covid housing price boom in Arizona is officially over.