By Callan Smith | Rose Law Group Reporter
The take away from the 8th Annual AZ Dealmakers Thursday is the need for new home price appreciation, with home builders feeling the squeeze as the cost of building homes goes up, says Jim Belfiore of Belfiore Real Estate Consulting.
Compared to the boom, the cost of building a home today is up 50 percent, with much of that rise happening in the past two years, he said. A shortage of construction labor and cost of lots are contributing factors.
Over the past two years’ new home appreciation has held at only three percent per year for 2015 and 2016.
There is plenty of interest to purchase new homes in the Metro Phoenix market with 550 active subdivisions available and sales up nine percent in the last year, Belfiore said, before laying out the following: “Taking the sales rate of those communities over the past twelve months and applying it to the subdivisions and the number of lots within them, fifty-two percent would sell out in the next twelve months. Builders are under tremendous pressure to buy replacement lots and lot prices are not going down, the cost of building homes is not going down. They are going up. That’s the struggle in the Metro Phoenix area and is present in a lesser degree in other parts of the state.”
Belfiore projects an average of seven percent appreciation in 2017, and said home prices must appreciate for builders even at the cost of some of their volume in 2017 and 2018. The reality is the demand is there, outside of any big jumps or spikes in interest rates.
Belfiore said he expects new home permit growth to reach 21,400 in the Metro Phoenix marketplace, up from 18,400 in 2016.
On the demand side, there are more active submarkets in the Phoenix marketplace, such as Maricopa, Tolleson, Avondale, Goodyear and Buckeye.
“All of these submarkets were dormant for a while. Now they’re coming back,” Belfiore said. “That’s because there’s diversity in the marketplace with more boomerang buyers purchasing jumping back into the market, and down payments have come back with people repairing their credit” said Belfiore.
For the rest of Arizona, Tucson with its 96 active new home subdivisions hasn’t experienced the volume that Metro Phoenix has as the base of employment has been adequate to meet builder supply.
Sales in Prescott, Prescott Lakes and Chino Hills have not turned around at the same pace. Flagstaff demand is healthier, for sure. The other markets are still not experiencing a significant rebound in demand, said Belfiore.
