The United States is experiencing record-high inflation levels. Arizona continues to be an epicenter for inflation due to the increase in housing prices during the COVID-19 pandemic. Arizona’s economy is experiencing a ripple effect because of the decrease in affordability of homes and the increase in inflation levels. The overall cost of living in the Valley has risen higher than the United States average. So, what is happening with inflation in our state and how will this impact the Arizona housing and real estate market?

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Interest rates are now increasing to slow the inflation of home prices. As reported by the National Association of Home Builders, the cost of building materials such as lumber has raised the average home cost by about $18,600.

Rich La Rue, designated broker at HomeSmart.

Another factor that has driven the average home price up is the number of people moving to Arizona. According to U.S Census Bureau data, Arizona had five of the top 15 fastest growing cities or towns in the United States from July 2020 to July 2021. According to Stacker, the domestic growth of Arizona came from many people leaving western states such as California and Washington.

Therefore, the housing market in Arizona has been experiencing too much demand and not enough supply. Potential buyers have gone to measures of bidding wars, in addition to paying over the homes’ list prices. On June 15, 2022, the Federal Reserve raised interest rates by 0.75 percentage points, being the largest hike since 1994. Rates were raised to reduce the rising rate of inflation, including in the housing market. The rate hike is expected to calm Arizona’s hot housing market. Signs of a cooldown are already being seen across the Valley as many home prices are being reduced. Other signs include demand for homes weakening, with sales totals dropping. Interest rates being raised could push many potential buyers out of their budget to afford a home.

Looking into the future, the hot Arizona market is going to enter a cooldown, which we are already seeing signs of. Due to the pressures of the high inflation we are experiencing, list prices will start to settle, competition will decline and so will the number of buyers. Investors are expected to slow down their purchases as well. With an increase in interest rates, many people lost buying power, and demand should lower.

Real estate costs in Arizona have risen to an all-time high, but with increased interest rates, and a decrease in demand, real estate prices are expected to stabilize soon with a low chance of a housing market crash. 


Author: Rich La Rue is the Designated Broker for HomeSmart Phoenix, the flagship brokerage operation in the HomeSmart system. La Rue has more than 38 years of experience in real estate sales and management from real estate offices to regional and national operations. La Rue began his career in real estate in 1983 in Phoenix, Arizona as a sales associate. In 1986 he earned his Arizona Real Estate Broker’s License. He also holds a California Real Estate Broker’s license, GRI, CRS, and CRB designations as well as the e-PRO and the SFR certifications. For more information, visit