Ashlee Eisenstein’s landlord recently increased the rent on her one-bedroom apartment in Phoenix from $850 a month to $1,150, a 26% increase.
She barely entertained the idea of looking for a new place outside of Phoenix, where rents are averaging $1,911 as of April, according to Zillow. That’s 27% higher than what they were two years ago.
“There are other areas outside of Phoenix that are maybe cheaper in rent, but I mean, I’d be paying that much more in gas just to get to work,” said Eisenstein, 49, who is a waitress at 5& Diner in Phoenix.
Her situation is a sign of the times in Phoenix, which saw the second-biggest jump in inflation, 11%, amongst the 23 major cities the Bureau of Labor Statistics tracks. That’s nearly three percentage points higher than the annual rate of inflation in the U.S. as measured by the Consumer Price Index.
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While the regional and national numbers are not an exact comparison, they do show the burden of inflation is elevated in Phoenix.
“It’s not unusual for inflation to run a little bit hotter in Phoenix than the U.S. but what is unusual is the degree to which we’re beating the national average,” said George Hammond, an economist at the University of Arizona in Tucson.
What’s driving inflation in Phoenix? It boils down to housing prices, experts told USA TODAY.
Why are Phoenix homes so expensive?
Until March, Phoenix experienced the most rapid monthly growth in home prices for the past three years, according to the S&P CoreLogic Case-Shiller Index. From March 2021 to March 2022, Phoenix home prices increased by more than 32%, making it the second-largest year-over-year change behind Tampa which saw prices increase by 34%.
Before the pandemic, 68% of homes sold in the greater Phoenix area were affordable to families making the median income of $78,800 a year, according to data from The National Association of Home Builders/Wells Fargo Housing Opportunity Index.
By the first quarter of this year, nearly 44% of homes sold were affordable to families making the median income of $88,800. That’s a 35% decline in housing affordability.
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Nationally some 56% of homes sold in the first quarter were affordable to families making the median income of $90,000.
These data points help explain why April’s CPI shelter index for Phoenix, a measure of how much people rent their homes for or would pay if they didn’t own it, increased by 14.8% from March. The national CPI shelter index increased by 5.5% in May.
“If all other costs (transportation, food, apparel, etc) stayed fixed and unchanged the housing component alone would yield about a 7% increase in the overall CPI in Phoenix,” Amar Mann, a regional economist at the Bureau of Labor who oversees research about Western states, said in an emailed response.
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Although wages and salaries aren’t keeping up with the rate of inflation in Phoenix, they grew by 6.4% in March compared to last March, according to data from the BLS’ Employment Cost Index. That’s the highest wage and salary increase across the 15 metropolitan areas the BLS tracks for the ECI. Nationally, wages and salaries grew by 4.7% in March compared to a year prior.
But Eisenstein said she hasn’t received raises beyond increases in the minimum wage. She earns $9.80 an hour plus $300 in tips that are paid biweekly.
To afford the rent increase, she’s cutting back her spending on coffee and streaming services.
“I have to be a lot more frugal,” she added.
Kevin Gelispie, who runs a Patreon page called “Fetti Talk on Steroids” aimed at providing financial advice to young adults, considers himself “blessed” to have a 3% fixed-rate mortgage for the home he and his wife own in Chandler, Arizona, a city located just outside of Phoenix. He pays a monthly $2,700 mortgage payment compared to the typical monthly payment of $2,000 Phoenix residents pay.
Currently, homebuyers are paying more than 5.46% on a 30-year fixed mortgage payment on average, according to data from Bankrate.
Gelispie, 38, moved to Chandler six years ago when typical home prices in the Phoenix region were below $230,000. Since then, prices have climbed to over $466,000, a more than 100% increase from 2016, according to data from Zillow.
Most of his friends living in Phoenix are paying “anywhere between $300 to $1,000 more in rent per month than they did last year,” he said.
Why are so many Californians moving to Phoenix?
Before the pandemic, Americans mainly located in San Francisco and other parts of Southern California were being priced out of homes and began moving to Phoenix where the cost of living was significantly cheaper, said Adam Kamins, a senior economist at Moody’s Analytics.
Individual businesses also caught on to the trend and moved to Phoenix “where costs were lower and the weather is nice compared to other parts of the country.”
As the pandemic accelerated the shift to working from home, Americans living in Los Angeles, the least affordable city in the U.S., experienced the second greatest population loss of any major cit