Thanks to high demand for Phoenix real estate and low mortgage rates that survived for nearly five years, refinancings and home equity loans were made easily available. Because of rapidly appreciating Phoenix real estate prices, “the average household extracted $26,700 in equity with each refinancing.” Local homeowners then used this newfound wealth to pay off old debts, add to savings and even contribute to the increase in consumer spending.

But interest rates are finally beginning to increase and the Phoenix real estate market is beginning to see demand dampen and construction activity and mortgage lending soften. All of these signs suggest that Phoenix real estate price appreciation is in for a slowdown. No longer are refinancings and home equity loans a boon to homeowners, which may prove damaging to consumer spending on the local and national level.

High real estate prices aren’t the only factor knocking potential homebuyers out of the Phoenix housing market. Now there are increasing borrowing costs to worry about. The affordability of Phoenix housing is determined by how much a homeowner pays monthly for their mortgage, taxes and insurance, and as mortgage rates rise, already expensive Phoenix housing grows increasingly unaffordable.

As interest rates increase, an average Phoenix homebuyer has a smaller pool of houses to choose from. Let’s say a homebuyer earns $100,000 yearly and has a $40,000 downpayment saved up. With 30-year mortgage at a fixed rate of 5 percent, the homebuyer can afford a $421,000 home. Once mortgage rates hits 6 percent, that same buyer can only afford a $390,000 Phoenix home, and an increase to 7 percent brings the price down to $362,500.

Few markets have shown such frenzied demand and growth as the Phoenix real estate market. The boom in Phoenix real estate sales and values generated 10 percent yearly gains for homeowners and sellers, and even with consistently escalating prices, there was no shortage of buyers. However, with mortgage rates on the rise, it finally looks like the overheated Phoenix real estate market will be cooling off.

Economists surveyed by Blue Chip Economic Indicators believe mortgage rates will hit 7 percent by early 2006, bringing a 5 percent decrease in housing starts and sales. On a positive note, economists aren’t expecting Phoenix real estate prices to plummet. Thanks to good job and income growth and a strong economy, prices are expected to stay where they are or increase slowly.

Urban Dencity currently has two central Phoenix housing developments planned. The first, Forma, is a project located at Windsor and Third streets that would include sixteen 2,000 square foot Phoenix townhouses. “There will be a common pool and patio and eight roof decks with parking under the residences.” Prices for this Phoenix housing has yet to be set, but Urban Dencity believes it could be about $350 a square foot.

The company’s second Phoenix housing development, called Soleil, is “a four-unit, three-story townhouse complex at Mulberry and Third streets.” Each unit comes complete with roof deck and lap pool and is approximately 3,400 square feet. The price for each unit is projected at about $1 million.

Construction and design plans for both of Urban Dencity’s Phoenix housing developments are “working their way through city planning” and include plans for “steel-stud construction and high-end appliances and plumbing fixtures.”

In planning for the new Phoenix residences that they will develop, Urban Dencity has been scoping out central Phoenix investment properties. They’ve found various “vacant lots south of Indian School Road,” and have purchased derelict Phoenix houses on Third Street that they will demolish in order to begin building their Phoenix residences by the beginning of next year.

Unlike other “major home builders working on the fringes of metro Phoenix,” Urban Dencity is interested in developing buildings and communities with a small number of Phoenix residences. Rather than trying to attract families, Urban Dencity is building with the urban professional in mind. They know that the area and their Phoenix residences will be of most interest to people working downtown who don’t want to commute or live to far away from the culture and entertainment that the city center offers.

Urban Dencity, a real estate development group comprised of landscape architect Matthew Blanchard, luxury home designer Erik Johnson and architect and designer John Labahn, has taken over Third Street in central Phoenix. The company is certain that the residential Phoenix real estate it is planning just south of Indian School Road will make the area an ideal “place to live, work and play.”

Urban Dencity believes that the area is a perfect place to develop high density Phoenix real estate, as “it is a short drive to the downtown employment centers, sports arenas and performance theatres,” plus it’s only “three blocks east of the future light rail line on Central Avenue.”

Locals hope that Third Street will be turned into “a pedestrian-friendly grand promenade that will be the future home of city parades,” and that Urban Dencity’s mix of residential Phoenix real estate will blend nicely with retail Phoenix real estate developments, “sidewalk restaurants and public gathering spots.”