Here we are again with another year behind us, and it’s time to review the chapter that just closed. This is an important exercise, I believe, because it allows us to put each month’s changes into a broader context. In this newsletter, our aim is to help explain the changes that happen from month to month and to address the most meaningful and salient topics of the current moment in time. With the year in review, we have a clearer, fuller picture of what those changes meant and whether the effect was as impactful as it might have seemed while in the midst of it.
There are a number of ways we could slice this up and serve it for your reading pleasure, because data is, after all, nearly endless. That said, the 2025 Phoenix real estate market ended up being a rather tepid year with few major swings in either direction. So, to keep it simple and concise, we’ll take a look at the key measures we address regularly, like supply & demand, mortgage rates, and we’ll wrap it up with a look ahead to what the next twelve months might have in store for us. No graphs or charts this time, just numbers and an honest look at where we’ve been and where we might be headed.
Before we dive into the details, let’s quickly recap the market index, which represents the relationship between supply & demand. With an index between 90 and 110, the market is more or less in balance. Above 110 is a seller’s market, and below 90 is a buyer’s market. The index officially dropped below the 90 mark by the end of January and remained below for the remainder of the year. This effectively means the Greater Phoenix Metro area was in a buyer’s market for most of 2025. This gave buyers the ability to drive negotiations by offering and ultimately paying less for homes, receiving higher concessions towards rate buy-downs and closing costs, and requesting more home repairs during the transaction.
Supply was on a strong upward trajectory at the beginning of 2025, which was cause for concern. In February, we reported that during the first four weeks of the year, over 2,000 new listings had been added, an increase of over 10%. With that rate of increase, the market was on pace to become oversupplied very quickly, especially with the chronically weak demand. This upward trend continued through May, with active listings peaking at nearly 27,000, the highest number seen in over a decade, and by early summer, the market index reached a low of 72. As the year progressed, however, discouraged sellers slowly began removing their listings, which eased the downward pressure on the market index. Active listing counts ebbed and flowed a bit for the rest of the year, and by the end of December, there were 22,838 listings for sale, which is about 14% higher than where the year began. This is not great news, but it’s better than it seemed we were headed in the spring.
I alluded to the weakness in demand, which I’ll elaborate on shortly. Before I do, though, we must talk about a big part of what’s driving it: the mortgage rates. We’ve addressed the mortgage rates at length in previous newsletters, so I won’t belabor the last four years' history. It's worth noting, however, that since 2022, when rates climbed rapidly above 6%, they have averaged between 6.75% and 7% since the beginning of 2023 through 2025. All along the way, there has been an awful lot of indulgent speculation on the part of the experts and pundits about when and why rates would either skyrocket again or drop back into the 5% range. Also along the way, we have been saying here that this is just too hard to accurately predict, and it’ll happen when and how it happens. Fortunately, the trend we’ve been hoping for has been underway now since the latter half of 2025. On May 21st, the average 30-year fixed mortgage rate was 7.08%, and over the next six months, rates steadily dropped to 6.2% by the end of December, which is well below the long-term average of 7.7%. This is welcome news to buyers and has led to a notable increase in the demand index.
A buyer’s decision to purchase is deeply rooted in emotion, with all of the nuance of the moving parts of their daily lives. It’s not only about their confidence in the short-term prudence of their decision to purchase, but also the concerns about the long-term health of the housing market. If 2025 showed buyers anything, it’s that we’re beginning to edge out of the “fear phase” of the correcting market and are headed into a slightly calmer place. One where optimism can begin to return, and a better future seems possible again.
There are many ways to measure demand, but listings under contract are a good barometer. We still have a long way to go, but when 2025 began, there were 5,479 listings under contract (the lowest since 2008), and by the end of the year, there were 6,185. Again, still very low, but that’s a nearly 13% increase, which at the very least helps keep us on pace with the increased supply. With only two weeks' worth of data into the new year, it’s fair to say that we’ve started 2026 stronger than last year. Active listings are on the rise, which is to be expected this time of year, but it’s not climbing at the same pace as last year. Conversely, demand is beginning to heat up, with a modest 4.3% increase over last year at this time, and mortgage rates are currently hovering just above 6%, which could help continue to spur buyer activity.
As always, we have no way of predicting the future, but there are enough signs indicating a subdued recovery that I believe there is reason for optimism. 2026 is unlikely to bring a massive wave of buyers or another extreme shortage of supply. What brought us here felt swift, but we didn’t get here overnight, and won’t come out of it overnight. I’ve said it before, and I’ll say it again. The market we’re in is not and hasn’t been a “bad market”; it’s just a very quiet market, one that requires patience and flexibility as it corrects. There’s a lot that has to change to get us back into what feels like a more “normal” market, but it seems those changes could be underway. If you are considering selling your home in the near future and would like to discuss your specific situation and dive deeper into the details, please give me a call. I’d love to talk nerdy with you :)