April Shumway, an Arizona real estate expert for decades who became a builder during the pandemic, remembers her parents struggling to buy a home when mortgage rates hit 17% in the 1980s. 

That is a lesson lost on current buyers, she says as interest rates fell to historic lows which dipped below 3% in 2021. Those people are having a hard time adjusting now that mortgage rates have settled to around 6%.

“I always joke and say that Covid was when money was free. That’ll never happen again,” said Shumway, who now builds where the land is cheaper and her homes can be more affordable. 

Arizona builders are scaling back new construction as they work through unsold inventory from 2025, as higher carrying costs and price cuts to attract buyers eat into their profit margins. In February 2026, there were 47,507 homes for sale in Arizona, up 2.2% year over year, according to Redfin. If rates remain where they are now for any lengthy period of time, builders will cut back pretty significantly.

“They are not going to build more homes than they built last year when rates were lower,” said Jim Belfiore, CEO of Belfiore Analytics, an advisory firm from the housing industry in the Phoenix metropolitan area.

According to Zillow, the average home value in Arizona is $420,906, which is below the national average in January, but the price remains out of reach for many.  Arizona’s cost of living surpassed the national average for the first time in 2023 and continues to exceed the other Sunbelt states, according to the 2025 State of Housing in Arizona report. 

Builders are enticing buyers in two ways: reducing the sticker price or purchasing an interest rate. Reducing the sticker price is what most buyers want, but it puts pressure on profit margins more because builders have to reduce the price so significantly to impact a payment with the current interest rate.

“It’s not getting cheaper for us to buy land. It’s not getting cheaper for us to buy labor,” said Shumway.

Home building was decimated in the United States after the 2008 financial crisis and many cities remain severely under supplied. Builders have struggled to keep up with demand ever since and have mostly benefited from the tight market. But the pendulum is swinging back to sellers as homes remain unsold.

The 2020s are also when millennials are turning 30 and are wanting to settle down. However, the median age of a first-time home buyer has jumped to 40 in 2025, due to low wages and student debt, creating an affordability gap that builders are having to face.  

As of February 2026, there are 19,352 active listings in Phoenix, Mesa, and Scottsdale, which is around the pre-pandemic supply. Builder permits in Arizona have steadily increased since the 2008 financial crisis, and remain higher than midwestern states like Illinois. But when inventory is sitting for months, builders are forced to pay property taxes and are more likely to decrease the prices. 

Unsold inventory comes with carrying costs for builders. Cleaning the home, mowing lawns are some of the smaller costs. Often, however, the land and the home itself is almost always financed with someone else’s money. Builders also have to pay property taxes until the home is sold. 

“If there’s five to six home builders in one specific community, they kind of all have to offer incentives to be on a level playing ground,” said Tim Cusick, a local real estate broker in Arizona and California for 25 years. 

There are parts of the country that have even less inventory and bargaining power for sellers. In February 2026, 46.5% of homes in Connecticut sold above list price, while only 12.4% did in Arizona according to Redfin. A combination of exclusionary zoning laws and lackluster building incentives created a severe housing shortage in the state. It wasn’t until the pandemic that affordability became a concern for middle income families which caused a shift towards builder-friendly policies. 

“If your town has less than 10% affordable housing, then you must accept a developer that comes in who wants to put in affordable units,” said Chelsea Osei, Program and Data Specialist for the Connecticut Housing Finance Authority. 

Still, the shortage remains. A wide open state like Arizona might not have the same constraints, which allows sellers to lock in a mortgage much below the market rate. 

The builders are feeling the affordability crunch as much as the buyers are.

“It cost me 175 bucks to fill my tank. We’re going to see a damper on housing sales and it’s going to be because of uncertainty and the higher bills Americans are paying,” said Belfiore.