EXCLUSIVE: Phoenix Metro housing demand high, but affordability lacking

By Callan Smith | Rose Law Group Reporter

Homebuyer traffic levels are up to a decade high in Phoenix Metro, said Jim Belfiore, founder and president of Belfiore Real Estate Consulting, to a gathered group of homebuilders and industry professionals. That’s good news for builders and home sellers because traffic indicates homebuyer interest.

Peak traffic levels came in the spring, from March to May, before the seasonal slowdown, which is typical during the hot summer months.

Home sales for valley homebuilders were at a high that hasn’t been seen since 2007, Belfiore said.

During the month of May, there were 3.1 sales per subdivision with seven consecutive months where the number of sales per subdivision was up over the previous year. The 2017 average through mid-July was 2.8 sales per subdivision, and the numbers are on target to reach 2.6 sales for 2017, higher than 2016 numbers of 2.5.

“Traffic has undoubtedly been coupled with higher conversions, creating a situation where we have decade high sales levels,” Belfiore said.

Existing home supply is low with only a two-and-a-half-month supply and 22,139 homes on the MLS, according to the Cromford Report. Last year at this time there was a three-month supply on the market. The long-term average is between three and five months, Belfiore said.

Demand has been strong with 500 to 600 more resale buyers in the market over the last 30 days than during the same period 12 months ago, and sales are up eight percent YOY. However, higher end markets are seeing a nine to twelve-month supply.

For lower price points, with two and a half months supply that means the market is exhausted, and it’s not just in the 150,000-dollar homes, it’s also in the 200,000, 250,000 and in some places, 300,000 and 325,000-dollar homes have low availability Belfiore said.

“We’re not building enough affordable product. That’s why the market is exhausted in terms of supply,” Belfiore said, encouraging builders to find a way to bring more affordable homes to the marketplace.

Speculative market supply, homes built without a buyer in place, is up 10 percent more than in 2016 at 2940 units, but much of that supply is attached housing, which is a challenge Belfiore said.  Most of the attached housing constructed and offered presently, Belfiore said, is either the wrong product in the wrong place, overpriced, market incorrectly, or a combination of multiple factors. To the contrary, the single-family detached product offered is moving and supply is appropriate.

Permits are tracking with home sales at 20,577, with 10,463 permits in YTD through June. Belfiore is forecasting 21,200 permits at year end.

Finished lot counts are anemic Belfiore said. There are 44,493 total finished lots, down 13 percent over 2016 with 60 percent of those lots available in inactive subdivisions in Maricopa, Casa Grande and Buckeye.

Active subdivisions in the Valley are approaching 2009 numbers, coming in at 566 with 88 of those opening in 2017. Of those 165 have five lots or fewer, and 110 have 10 homes or fewer.

Land acquisition is starting to ramp up, in areas such as South Buckeye, queen creek and the Hunt Highway area where larger parcels have been purchased by builders, Belfiore said.

Taylor Morrison with its Discovery and Encore at Adora Trails tops the list of top performing subdivisions. Followed by D.R. Horton’s Express at Tartesso, KB Home’s Enclaves at Santiago, D.R. Horton’s Express at Miller Park, William Lyon Homes, Harvest at Meridian and Fulton Homes Paradise at Ironwood Crossing.

Belfiore encouraged attendees to make a trip to D.R. Horton’s Tartesso; “it is a production feat with the number of homes under construction and sold,” he said.

Builders are still operating under compressed margins with only 1.9 percent appreciation in new home prices, compared to existing home prices up six percent over the last quarter, representing mid-July 2016 through mid-July 2017. Belfiore expects new home appreciation in the second half of the year to total around 2.3 percent.

Certain Submarkets such as Wickenburg did experience higher appreciation at 2.7 percent and 9.8 percent YOY. Other top performers included South Peoria at 2.7 percent, 1.6 percent YOY; South Scottsdale at 2.4 percent, 2.0 percent YOY; and Maricopa at 2.0 percent, 6.6 percent YOY. The Biltmore East submarket also saw an increase of 2.7 percent in a two-month period; however, it is down YOY at -4.6 percent.

LGI Homes topped the list of top builders in the Valley based on Subdivision sales. William Lyon Homes came in second followed by D.R. Horton, Fulton Homes, Garrett-Walker and Beazer Homes.

Some markets didn’t show as much appreciation as the average 1.9 percent. They included North Goodyear, but Belfiore wasn’t concerned as there isn’t a lot available there he said. Central Scottsdale, East Mesa and South Glendale also made the list along with Cave Creek and Carefree.

Of those two markets, Belfiore said, “buyers are sophisticated, and it’s tougher to gain appreciation.”

From June 2016 through June 2017 there were 58,000 new jobs, showing a healthy demand at nearly three percent YOY.

The situation in the Metro Phoenix area is the same throughout the U.S, with fewer people immigrating, so the labor force is smaller, leaving jobs unfilled.

“The reality is we’re going to struggle with labor in our industry and in the larger market as well,” Belfiore said.

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