Mixed Market Action, and the Prospect of Capital Gains Relief

Uber-luxury ($2 million and up) remains the most competitive segment of the Greater Phoenix residential marketplace. There’s not as much product, deals tend to be cash rather than financed, and transactions are happening. Beyond that sweet spot, however, conditions continue to be challenging in entry-level and starter homes through lower-end luxury ranges. Homes are taking longer to sell, and mortgage rates have remained one of the biggest obstacles for buyers. Fixed-rate 30-year mortgages have been hovering in the upper-6% range, and ticked above 7% for the first time in a year on September 10, partly due to an increase in 10-year Treasury yields (which are a primary benchmark for home loans).

Even so, as noted in our July post—Greater Phoenix Homebuyers Appear to Accept Interest Rate Reality—the buyers who are interested are also committed, given that rates may be as good as they get for the foreseeable future. It remains a buyer’s market, with more product than prospects, and they have plenty of negotiability.

For sellers, pricing and condition continue to be critical. Greater Phoenix homes are generally selling at about 97% of list price, while more than 58% of sales involve some form of seller concession to the buyer, often in the form of a temporary rate buydown that can last 2-3 years. Appropriately priced and well-presented homes continue to sell, while overpriced properties face longer marketing times and additional price reductions. The typical Phoenix home’s 67 days on the market is slightly faster than a year ago, but longer than the national median of 60 days.

Changes Ahead for Capital Gains Taxes on Home Sales? 

In the past few months, there has been increasing support in Congress for updating the capital gains tax rules on primary residences. Since 1997, capital gains tax exclusions have been set at $250,000 for individuals and $500,000 for married joint filers, which has contributed significantly to the “lock-in” effect: Selling a highly appreciated home can result in a whopping tax penalty that eats away at profits, so homeowners are incentivized to stay put. 

Bipartisan bills—both named The More Homes on the Market Act—are working their way through the US House and Senate. As proposed, the exclusion levels would rise to $500,000 for individuals and $1 million for married joint filers, with annual adjustments indexed to inflation. According to Realtor.com, dozens of new co-sponsors from both parties have signed on since the beginning of June, bringing the total to about a third of all lawmakers. While the bill has not yet been passed and signed into law, it offers the potential for sellers to move without being so heavily taxed, while freeing up more and better product onto the market.

By the Numbers: Listings, Permits and Sales

From July to August 2026, the supply-demand index barely decreased, from 80.5 to 80.4. The supply index fell from 101.1 to 97.5, while the demand index fell from 81.4 to 78.4. Because both indexes declined at similar rates, the status quo remains for the housing market as it continues to drift in a buyer’s market. 

• New active listings in July totaled 7,425 in the Arizona Regional MLS, up 1.9% over last July’s count of 7,290. However, August listings were weak as of the last week of the month, down 3.6% from last year. That puts Q3 down just 0.6%, similar to week 34’s overall listing count, which is also down 0.5% from last year. 
• Builder confidence remains low as higher mortgage rates show little sign of easing. New single-family home permits issued in Greater Phoenix from January through July are down 12.2% from last year and down 37.2% from the 2021 peak. However, they are up 16% in Buckeye, 24% in Apache Junction, and 28% in Florence. 
• Multifamily permits are also down, 29% from last year and 48% from their 2022 peak. It may not seem like it, however, since permits approved over the past few years are either in the process of being built or newly open for business. 
• July sales closed at 5,846, up 1.9% over last July, but current listings under contract remain nearly 6% below last year. This indicates that August and September closings will most likely come up short in year-over-year comparisons. Closings started to weaken in mid-August in response to low new-contract activity after the 4th of July. As of the last week of August, closings were down 7% for the month and down 3.2% for Q3. 

Perspective on the Greater Phoenix Housing Market

The end of summer is the low point of the year for active listings, especially for luxury and retirement communities. Supply often drops sharply in these submarkets due to an increase in cancelled/expired listings after the spring season concludes and low counts of new listings in the summer. For the past two years, supply has dropped more sharply than demand at this juncture, lifting both luxury and retirement markets into temporary seller’s markets. In fact, Paradise Valley is the #1 seller’s market currently. This will turn in October, however, when new listings increase.

As far as contract activity, a decline can be expected when mortgage rates rise above 6.5%; however, it’s mortgage rate volatility that is often more detrimental to buyer demand than the rate itself. When rates are actively rising, or even actively falling, buyers tend to wait on the sidelines to see where it settles before acting. 

Economically, Arizona’s unemployment rate has increased to 4.9%, higher than the 4.1% national rate. While that is high compared to the most recent low of 3.4% in 2024, it is a return to 2020 before the Covid-19 shutdown. The difference is that back then, the unemployment rate had been stable between 4.8-4.9% since 2017; this time it is actively rising. On the bright side, the future of advanced manufacturing in Phoenix is strong, according to a recent Hines report, “Mapping the U.S. Manufacturing Buildout.” Out of 1,500 U.S. submarkets analyzed, Phoenix was in the top 4 for growth that will “more likely translate into demand and rent growth potential.”

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