Why interest rate drops!? - Arizona Housing Market Update

A stalling job market is one of the reasons the Fed cut rates. Wall Street now sees a 91% chance that the rate cut is because of weakness in the labor market.

Job growth dropped significantly: as of August 2025 it was only 6.5% growth, compared to about 7.1% in May. Since then there has been a steady downward trend with no real growth, which is the main reason the Fed cut rates last week.

The impact on buyers has been substantial. The average mortgage payment has dropped about $250 since May. Instead of paying $2,500, buyers now only pay around $2,250 for their house.

Looking forward, predictions show that 12.7% of organizations expect at least one more cut toward the end of the year, 48.5% expect two cuts, and 37.9% expect three cuts. The majority is predicting two or three more times that the Fed will cut rates before year-end.

This week, the comfort market index rose by an average of 5.9%. It’s still positive, but down from about 7.6% last week.

The city breakdown shows 14 cities trending toward sellers, while only 3 improved for buyers. The same 3 markets favoring buyers last week continue to lead: Paradise Valley, Glendale, and Maricopa.

Paradise Valley stands out with challenges. It is dropping quickly, mainly because of supply—active listings on the market are up 40% compared to a month ago. This gives buyers more options in the area.

Meanwhile, Fountain Hills has moved past Paradise Valley to become the #1 seller-friendly market. Other cities showing strong momentum include Scottsdale, Gilbert, Peoria, Surprise, and Avondale. Overall, the distribution shows 7 seller’s markets, 4 balanced markets, and 6 buyer’s markets.

It’s interesting because lower interest rates are creating a double-edged effect. On one side, they bring more buyers into the market since affordability improves as rates go down. At the same time, more sellers are also entering. Many have been stuck in the high-interest-rate market for a long time, and now they finally see their chance to sell, upgrade to a newer or larger home, or move to a different area. That’s why new listings are rising—both demand and supply are moving higher at the same time.

For buyers, the advice is clear: if you are shopping for a home under $500K, you need to act quickly. This is the time to negotiate hard, secure a good deal, and refinance later when rates go lower.

For sellers, momentum is still in your favor, especially in Fountain Hills, Gilbert, and Chandler. But competition is increasing as more homeowners decide to list their properties. Many want to move to a better home, a new area, or even another state. That makes pricing strategy and presentation more critical than ever.

The mortgage rate is now about 6.3% for a 30-year loan, and this has helped boost contract activity, especially at the higher end of the market.

In the mid-range, homes priced between $500K and $1M are showing steady demand, with contracts up 5%.

For luxury homes, activity is even stronger. Properties over $1M are up 6.4% compared to last year, and up a record 20.8% compared to 2023. The standout performer is the $1M to $1.5M range, which has grown 16% year-over-year. Ultra-luxury homes priced at $10M and above are also performing well. Only 10 such homes are currently under contract in Arizona, but that’s 30% more than the same time last year.

The entry-level, however, continues to struggle. Homes under $500K are showing weak demand, even though prices are lower than in 2023 and 2024. Many first-time homebuyers remain on the sidelines, keeping this segment softer than the rest of the market.

Obviously we see a lot of people believe that the rate is going to go down. That, in fact, is going to give the buyers a lot and a lot of advantage to buy for sure in terms of affordability. But in terms of competition, that's not helping seller buyers." The urgency for buyers is clear: "I think right now is the best time for buyers who's been waiting on the side to make the decision whether you want to all in, which I recommend, or you want to back out... if you don't want to back out just keep renting for a while and keep paying someone else mortgage."

For first-time buyers specifically: "I wouldn't recommend the first time homebuyer to wait too much longer, too much longer. If you wait too much longer, then you obviously do not take advantage. When you come back... When you come back, then you will be competing with a lot of people, a lot of people. competition on the market." The market balance has shifted: "We see that there's somewhat imbalance, more and more sellers market. Remember, if you remember last time is way more balanced than today. So today there's more sellers market than the buyer market already. So buyers watch out because if you're still waiting, you may be late to the game."