April 29, 2024 / Modified may 1, 2024 1:06 p.m.

Navigating the Arizona Housing Crisis: Millennials struggle to afford the American Dream

Exploring barriers for young buyers amidst soaring prices and dwindling inventory.

Real estate house key in door hero A key in a door lock.

Millennials across the nation have been trying to buy in on the American Dream that was sold to them, but for many in Arizona, they can’t afford to.

The group known as millennials was born between 1981 and 1996, making them between the ages of 28 and 43. The state boasts a population of about 1.8 million people in this age group according to Census data, with the majority gravitating towards the Phoenix metropolitan area.

Investing in their first home feels like a distant goal because of student loan debt, stagnant wages, inflation, and increased cost of living.

Research shows that this generation needs to catch up to their older counterparts in achieving significant milestones like buying a home.

So, how are Millennials faring in Arizona?

“We have lived in the same apartment for six and a half, closer to seven years now...but we never planned on living here that long.” Mary Muscarello, 28, kindergarten teacher

Housing Market Challenges in Arizona

Dr. George Hammond, director of the Economic and Business Research Center at the University of Arizona's Eller College of Management, says housing affordability in Arizona, has plummeted since the pandemic.

For instance, in the Phoenix metro area, the percentage of homes affordable to median-income families has fallen from 64.9% in the fourth quarter of 2019, to 21.7%.

“A huge drop,” Hammond calls it, noting that we’ve seen something similar in Tucson.

“Before the pandemic began 71.2% of homes sold were affordable and that’s down to 32.5%,” he said.

What’s happening in Arizona, is happening across the nation, with the national figure of housing affordability dropping from 63.2% to 37.7% before and after the pandemic.

Those statistics are reflected in the climbing prices for single-family homes which have risen 20-30% since 2022.

In early 2022, mortgage rates were about 3%, at the start of 2023 they were averaging about 7% and have continued a slow rise since.

Contributing Factors to the Crisis

Escalating home prices and interest rates leave some potential home buyers feeling hesitant about getting into the market.

In Pima County, the median price of homes sold in March was $394,700 and about $450,000 for the state. That’s a 7% increase from last year.

“I think the biggest hesitation right now…is interest rates because we’re still hovering within the mid-sevens,” said Megan Linderman, a real estate agent with Long Realty. She added that she thinks people are comparing the anomaly year of 2020 when interest rates were in the low threes.

“I mean anybody who purchased back then…They really lucked out. It’d be nice if we got down to that again but it’s very unlikely,” Linderman said.

“That’s really a kind of double whammy or a perfect storm that has really hammered housing affordability as both house prices have remained high and mortgage interest rates have increased so that makes it much more difficult for someone or a family making the median income to be able to do that affordably,” Hammond said.

“I don't know how anyone is buying. There's a a saying that you date the rate but you like marry the house because you can always refinance. But even at a 7 or 8%, the cost of just your mortgage is insane.” Melinda Stewart, 29, senior program manager

Low inventory, high demand

Ginny Huffman, broker and board member with the Arizona Association of Realtors echoes concerns surrounding housing affordability, stating that availability is one of the biggest issues people are facing right now, for both renters and buyers.

“Right now, home prices are escalating rapidly because we just don’t have the inventory,” Huffman said.

The supply issue is not new.

“Our supply in Tucson, right before this influx of people moving in and whatever happened during the pandemic, I, think because it was affordable and weren’t continually building, then everything that was there just became exponentially more expensive,” Sarah Meggison, Housing Development Manager for the City of Tucson. said.

The scarcity has led to intensified competition between buyers, resulting in bidding wars that drive prices even higher.

Hammond attributes the surge in demand to households splitting up after the pandemic, therefore migrating into the state driven by the surge in working from home, adding that people weren’t selling their houses like before the pandemic hit.

“After looking at the houses that were on the market and the rates and everything that comes into play, I was just kind of really disheartened, mostly because everything is so expensive.” Andrea Cañez, 34, digital sales rep

Adding to the high prices is a decreased ability to bargain is out-of-state buyers.

“They’ve sold a property somewhere else, so they’ve got a little bit more access to cash reserves to make it easier for them to purchase,” Huffman said.

Another trend is investors, both commercial or mom-and-pop as Huffman calls them.

“They bought the home because they intend to come and live here eventually themselves or they bought the home as part of a retirement plan, they’re diversifying their money,” Huffman said.

She said what is needed to help the issue is a significant amount of new construction.

In response to the imbalance between supply and demand builders and resellers have capitalized on the market dynamics, driving prices upward and further compounding the challenge of affordability.

Huffman said that the same phenomenon is occurring in the rental market as well.

As a realtor and property manager of single-family homes, she said she sees firsthand the struggles tenants face.

“When we talk to them about purchasing, they come up against that pricing point, they can’t qualify for the homes that are available and until there’s more inventory brought forward, we’re going to continue to see that problem,” Huffman said.

In Arizona, she explained that more apartment buildings are being built, which will help alleviate some pressure on rentals for business professionals and families.

“But most people don’t want to live in apartments, they really want to be in a home,” Huffman said.

As a solution, Huffman suggested that municipalities ease up on zoning regulations, rezone certain areas, and make it easier for smaller regional builders to undertake infill projects and bring more homes online.

“We have a lot of small regional builders throughout the state, 10-25 homes in a subdivision is something that they could very easily do if the availability of land was there,” Huffman said.

“I purchased my manufactured home in 2017, I was already sick of how expensive rent was at that time...and this was initially just supposed to be like a stepping stone home to where I would just you know buy this, renovate it slightly and then sell it. And then with the proceeds from that, move into a better home.” Andy Pratt, 32, tattoo artist

Strategies for solutions

Meggison advocates for creating more flexible codes and zoning changes to foster a more diverse range of housing.

“I look to other jurisdictions that have relaxed certain zoning regulations, development standards and they have seen an increase in inventory since they changed their codes,” Meggison said.

Meggison emphasized that the increased inventory shows a direct correlation to lower rent.

Where does that leave Millennials now?

Meggison added that data indicates it’s becoming increasingly difficult for a broader range of income brackets to afford housing.

According to Yahoo Finance, the median millennial salary is about $55,500.

“If someone who makes $68,000 a year, they should not be spending more than $1,700 a month on rent and so when we see our rents like I don’t even know if there’s anything downtown that is you know actually $1,700 and that proves kind of that point that even if you’re making you know almost $70,000 a year is 120% of the area median income, to find rent below 1700 means that you’re probably going to be cost-burdened,” Meggison said.

“I knew that buying a house was expensive. You always hear about that. But I think you don't really realize how much money you're putting into it until you go through and like seeing all the paperwork we signed and seeing the breakdown of like all these different fees and costs you have to pay like it's really insane.” Peggy Rowe, 29, attorney

Looking ahead

The Arizona Department of Housing (ADOH) recently announced the mortgage down-payment assistance program, ‘Arizona is Home’ which offers substantial assistance to first-time homebuyers across income brackets.

Joan Serviss, CEO of ADOH said the new initiative looks to change the landscape of homeownership across the state.

The program supports households with those who are at or below 80% of the area median income and those who fall between 81% and 120%. Depending on their eligibility, they could receive up to $30,000 to be used as a downpayment, interest rate buy-down, or closing costs.

The program targets homebuyers in Maricopa and Pima counties.

In addition to state initiatives, the Pima County Industrial Development Authority (IDA) announced the extension of the PimaTucson LIGHTHOUSE program which offers below-market-fixed-rate mortgage and down payment assistance of 4% of the loan amount for those who qualify.

However, challenges persist for middle-income earners who might make too much, and who are unable to qualify for additional support.

Meggison stressed that this is one of the biggest needs and threats to many people in our community.

“If you don't qualify if you make too much money, then you're just kind of in a different zone and we don't have other programs to support or supplement those needs,” Meggison said.

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