Secret #2 – The Real Reason House Prices Skyrocketed After Covid

What the Real Estate Industry Won’t Tell You

• Investors in Phoenix bought more than TWICE as many homes in 2021 than in 2019.

• Live-in home buyers in Phoenix actually bought FEWER homes in 2021 than in 2019. 

Live-in home buyers didn’t cause Phoenix home prices to skyrocket. Landlords did.

It looks like investor demand was FAR, FAR more sensitive to the sharply falling interest rates of 2020 and those investors crowded out some primary home buyers.

More Demand = Less Supply. Almost everyone agrees the main culprit that caused our skyrocketing house prices from the second half of 2020 through the first half of 2022 was the extremely low number of houses for sale. 

In the metro Phoenix MLS at the end of 2019 (before Covid), 9,500 single-family houses were for sale. Two years later at the end of 2021, only 4,500 single-family houses were for sale in the Phoenix MLS.

We had 5,000 fewer houses for sale – that’s less than half the number of homes for sale – and home prices were skyrocketing. 

The real estate industry loves to say the only solution is to build more houses. The industry conveniently ignores the other part of the supply equation – the number of houses sold. 

Houses for Sale = (Houses Put Up For Sale) - (Houses Sold).

The supply of houses for sale was so low after Covid because investors bought up so many more houses than usual that they pulled down the supply of houses for sale. 

Mathematically, when investors buy more houses, fewer houses are for sale.

Let’s compare normal Phoenix single-family home sales from the MLS in the boom year 2021 to the pre-boom year 2019. 

• Investor owners bought 6,800 more homes in 2021.

• Second home owners bought 2,400 more homes in 2021

• Live-in owners bought 2,800 FEWER homes in 2021. 

Live-in home buyers didn’t cause house prices to skyrocket. Investors did.

We had 5,000 FEWER single-family houses for sale in the Phoenix MLS at the end of 2021 than at the end of 2019 and that’s what caused home prices to skyrocket.

Phoenix was the hottest real estate market in the country in 2021 but IF investors had bought the same number of houses in 2021 as they did in 2019, by the end of 2021, the number of houses for sale would have been back to 2019 levels and house prices would NOT have increased nearly as much in 2021 and early 2022. 

Zoning wasn't the problem. 

The biggest reason – by far – for those skyrocketing house prices from the second half of 2020 through the first half of 2022 was the low number of houses for sale, and the biggest reason – by far – for the low number of houses for sale was skyrocketing purchases from investors. 

Think of it like an auction. If more people show up at an auction, the sale prices at the auction tend to go up. The supply of things for sale at the auction did NOT change but prices went up anyway. The sale prices increased because the additional buyers bid up prices at the auction. 

Source: The “intended use” data (“to be used as a primary residence”, “to be rented to someone other than a ‘qualified family member,’” or “to be used as a non-primary or secondary residence”) was derived from here and here. The Cromford Report gets the data from county records. FYI, these county records underestimate the number of rentals because buyers don’t always tell the counties when homes will be used as rentals because property taxes are a bit higher on rentals.