How Low Mortgage Rates Are Shaping Supply and Demand in the Phoenix, Scottsdale, and Mesa Real Estate Market

How Low Mortgage Rates Are Shaping Supply and Demand in the Phoenix, Scottsdale, and Mesa Real Estate Market

The Phoenix Valley real estate market, encompassing Scottsdale, Phoenix, and Mesa, is heavily influenced by supply and demand dynamics, with mortgage rates playing a pivotal role. The historically low mortgage rates during the COVID-19 pandemic created unique conditions that still impact today’s market. As we continue to see these trends unfold, buyers and sellers in the Valley face their own set of challenges and opportunities.

The “Lock-In Effect” and Its Impact on Supply

During 2020 and 2021, mortgage rates dropped to unprecedented lows of 2% to 3%, sparking a buying frenzy. As of late 2024, over 21% of outstanding mortgages still have rates below 3%, and 83% are below 6%, according to Realtor.com. Homeowners who locked in these low rates are now hesitant to sell, which has created a “lock-in effect” and is limiting the supply of homes on the market.

In a highly competitive market like the Phoenix Valley, where demand is typically strong, this phenomenon is exacerbating the already tight inventory. Homeowners who locked in these historically low rates are reluctant to trade for the current higher rates, which are near 7%, leaving fewer homes available for prospective buyers. Learn more about the “Lock-In Effect” on Realtor.com here.

How Demand Is Affected

Even with higher mortgage rates, demand in Phoenix, Scottsdale, and Mesa remains robust. These cities attract buyers for their vibrant urban lifestyle, access to top-tier amenities, and sunny weather. However, the affordability gap is becoming an increasing concern. With mortgage rates higher than the lows of 2021, monthly payments on homes have significantly increased. For example, a buyer looking at a $800,000 home in Scottsdale today would see a much higher monthly mortgage payment compared to what they would have paid just a few years ago.

A recent Realtor.com survey indicated that 40% of potential buyers would consider entering the market if rates dropped below 6%, and 32% would make a move if rates fell below 5%. You can read more about how mortgage rates are affecting buyer behavior here.

Phoenix Valley Market Outlook

As homeowners continue to hold onto their low-rate mortgages, the supply of homes in Scottsdale, Phoenix, and Mesa remains constrained, which could lead to elevated home prices despite fewer transactions. For buyers, this means increased competition for available properties in desirable areas.

For sellers, this market presents an opportunity to command premium prices, especially if their homes are located in sought-after neighborhoods or offer unique features. However, sellers must weigh the trade-off of losing their low-rate mortgage when considering a move.

Looking ahead, there is hope that easing inflation and falling mortgage rates could ease some of the market pressures. If mortgage rates dip below 6%, it could unlock more inventory and lead to an increase in seller activity, which would help balance the market.

A Strategic Approach to Buying or Selling in the Phoenix Valley

Navigating today’s real estate market in Phoenix, Scottsdale, and Mesa requires a strategic approach. Whether you’re looking to buy or sell, working with an experienced real estate team is essential to make informed decisions. At Christians Team Real Estate, we offer tailored guidance and expert insights to help you successfully navigate the current market conditions.

For more detailed insights into mortgage trends and their effects across the country, read the full report on Realtor.com here.

Are you ready to explore opportunities in the Phoenix Valley? Contact us today for personalized advice and the latest market updates.