Phoenix Homes on Track to Break Record This Week as Housing Market Booms

Even as home prices in Phoenix soar, housing in the area is still cheap compared with many other big cities in the West.

The Phoenix-area median existing-home price was $399,900 in June, up 31.1% from a year earlier, according to the Arizona Regional Multiple Listing Service. That’s more than $100,000 below the median home prices in San Francisco, Los Angeles, Seattle, Portland, Ore., and Denver.

“When people come here from Seattle and Portland, they are thrilled at what they can buy,” said

Alan Jones,

division president for home builder Lennar Corp. “And from California, they go beyond being thrilled.”

Phoenix home prices have risen faster on an annual basis than any other metro area in the S&P CoreLogic Case-Shiller 20-City Composite Home Price Index for 23 straight months, matching the record streak set by Portland from 1990 to 1992. If Phoenix holds on to the No. 1 spot when the May index data is released Tuesday, it would mark the longest a city has held the record for fastest annual growth in data going back to 1987, according to S&P Dow Jones Indices.

The index, which measures repeat-sales data and reports on a two-month delay, doesn’t include some U.S. cities that are also experiencing rapid price growth, such as Austin, Texas, and Boise, Idaho.

Phoenix’s price appreciation, while dramatic, is more subdued than during the early 2000s, when year-over-year price growth in the area soared above 40%, according to the Case-Shiller data.

During the last housing boom, relaxed lending standards, speculative home buying and robust construction activity led to an oversupply of housing. The housing crash and 2007-09 recession hit Phoenix hard. New construction declined and home prices plunged.

Economists say the current housing boom is less risky than the last one, because mortgage-lending standards are stricter and the U.S. has a shortage of homes.

Coming out of the crisis, Phoenix became a destination for new players looking to get into the housing market. Big investment companies started buying up thousands of homes to rent out. Computer-driven house flippers, known as iBuyers, targeted Phoenix as an early market for expansion.

The Phoenix economy became more diversified and less dependent on cyclical industries like tourism. Moody’s Analytics expects the region to add more than 100,000 jobs in 2022.

The area’s onetime surplus of housing has been absorbed. Maricopa County, which includes Phoenix, added 11% more housing supply between 2010 and 2020 while its population grew by 20%, according to Census Bureau data.

Even the once-remote exurbs are hot again.

“I used to say this when the market crashed before: ‘Where’d all the money go?’ ” said

Nate Martinez,

a real-estate agent based in Surprise, Ariz. “Now it’s like, where’s all this money coming from? It’s just crazy.”

Tina and Craig Vanderlei bought a new home currently under construction in Surprise, about 45 minutes from Phoenix, and plan to move when it is ready. They have been renting a house near Santa Barbara, Calif., for five years, and had been waiting for prices there to go down so they could buy.

“We would love to be able to stay here [in California], but the opportunity is so much greater in the Phoenix area, with jobs and things to do,” said Ms. Vanderlei, who is 52 years old. “We don’t want to live the rest of our lives just paying a high mortgage or a high rent.…We want to be able to have more fun.”

The Phoenix market has cooled slightly in recent months as skyrocketing prices have prompted more sellers to list their homes, but buyers are still competing for a very limited supply.

Phoenix-area existing-home inventory in June was 29.6% below a year earlier, according to ARMLS. And most builders in the area are capping sales of to-be-built homes to make sure they don’t sell more houses than they can build, said

Steven Hensley,

advisory manager at housing-research firm Zonda.

Local buyers are struggling to compete with new arrivals. Phoenix rents are up 17% from a year ago, outpacing an 8.4% increase nationwide, according to listings platform Apartment List.

Christopher Morgan decided to buy a home when his landlord talked about raising his monthly rent to $1,500 from $1,000.

“You’re going to go look at places and there’s a line—it’s like going to the grocery store, there’s three, four people ahead of you and behind you,” Mr. Morgan said. “It’s like you never have a chance.”

After losing out on multiple offers, he bought a two-bedroom condo in Phoenix for $195,000.

Phoenix added 25,194 new residents in 2020, the most of any U.S. city, according to Census Bureau estimates. But in the coming years, extreme heat and drought could deter people from moving in, said

Jesse Keenan,

an associate professor at the Tulane School of Architecture, who studies climate change and real estate. “If homes in Phoenix perform to the national average in terms of annual appreciation in the next 20 years, I would be blown away,” he said.

Economists and real-estate agents say two factors could slow the Phoenix market in the near term: markedly higher mortgage-interest rates or a downturn in another Western market that prevents homeowners from easily selling their homes there to move to Phoenix.

Susan and John Sullivan, who are retired, bought a new home outside Phoenix and plan to move after selling their house near Los Angeles. They want to pay lower taxes, and Arizona isn’t far from where their son lives in California, Ms. Sullivan said.

Ms. Sullivan said they know four families who have moved from California to Arizona in the past three years. “Our friends are like, ‘You’re going to be fine. You’re going to like it so much better,’ ” she said.

Write to Nicole Friedman at nicole.friedman@wsj.com