In Phoenix's Hot Housing Market, Cash Sales Rise — and So Do Concerns

Phoenix realtor Brian Cross has been distributing bumper stickers lately, with a warning: “Don’t LA My PHX.”

But the trend has already begun. Phoenix is in the middle a real estate boom of extreme proportions, drawing headlines alongside cities like Austin, Texas, for its spiking home prices. One economist termed it “migration mania” — movement spurred by the pandemic, which has flooded housing markets with investors and out-of-state buyers.

The trend may be lucrative for real estate agents and sellers, but concerns are rising about long-term consequences for the city. On neighborhood forums like Nextdoor, Phoenix residents are begging neighbors not to sell their houses to investors and flippers, worrying that they will price out locals and “rip out the historic character” of homes, as one Midtown resident wrote on July 13. Cross’s bumper stickers have begun appearing on cars.

“If we’re not careful, we’re going to follow the way of LA, where no one can afford a home,” Cross said. He has resorted to urging sellers to prioritize local bidders, who are frequently the ones losing out. The market boom, he worries, is "at the expense of local hardworking individuals and families" and marks a turning point for affordability in the city, which has long been waning.

According to new national data from Redfin, released last week, nearly a third of all home purchases in metro Phoenix this spring were made with cash, a jump of more than 6% from the year prior. It’s a sign that investors and buyers with deep pockets are, increasingly, the ones purchasing properties — which is bad news for everyone else.

“At the end of the day, cash is king,” Cross said. “And buyers are just getting beat out... How do you compete with $20,000 or $30,000 above asking price offered — cash?”

For prospective home buyers in the Valley, this is often the reality. Local real estate agents have plenty of horror stories about the current state of affairs. Michael Martinez, an agent in Scottsdale, said he has seen clients offer more than $40,000 above asking price and still find themselves outbid. Bobby Lieb, a longtime realtor in the area, said one recent client made 10 offers on houses, all of which failed, before finally closing a deal.

“Cash buyers are going to win it all day long,” Lieb said. And nowadays, he noted, “there are a lot of cash buyers out there.”

Data shows that many out-of-state buyers in Phoenix hail from more expensive cities. According to migration data from Redfin, nearly a quarter of prospective out-of-state buyers in Phoenix were from Los Angeles. Another 17% were from Seattle. From those vantage points, Arizona’s home prices are still comparatively low.

But the rate at which they are increasing is staggering. Per Zillow’s historical home value index, average home values in Phoenix increased by nearly 30 percent from June 2020 to June 2021 — compared to only 10 percent the year prior, and from 2018 to 2019, just 5 percent. By other estimates, listings in the Valley increased by more than 40 percent. Homes are selling in less than a month, racking up multiple offers within days of being listed.

Lower income buyers, particularly those using federal assistance to purchase homes, are left at a real disadvantage.

“If you’re doing down payment assistance you’re going to get beat out by everything out there,” Cross said. “It's kind of crushing.” There is little to do but watch, in real time, the landscape of affordability change in the city, as residents are priced out — and, as Cross emphasizes, "tug on the heartstrings" of people who are considering selling their house to cash investors.

Lieb called the rising prices “astronomically crazy” and said he expects them, at some point, to level off — the trend “just can’t keep up.” But even if the market cools off somewhat, and there are signs that might be happening, most expect the rise to continue.

"For now," Cross said. "It doesn't look like the demand's going away any time soon."