June 30, 2017 | By Brandon Cornett | Homebuying Institute
Recent forecasts for the Phoenix housing market, extending into 2018, suggest that home-price appreciation could be slowing down. And this might actually be a good thing, given the tremendous volatility this market has seen over the last 10 years.
Real estate predictions for 2018 suggest that Phoenix could have a relatively normal year, at least where home values are concerned.
A Poster Child of the Housing Collapse
Phoenix, Arizona was one of the hardest hit cities in America during the housing collapse. This is partly the result of housing speculation and overbuilding. Thousands and thousands of homes were constructed during the heyday of the housing boom, many of which ended up vacant. We know the rest of that story.
But this market could finally be normalizing after a prolonged period of boom, bust and recovery. One recent forecast for the Phoenix housing market suggests that home prices will rise at a more modest, but historically average, pace of around 3.5% over the next year.
The suggestion that home price appreciation has been high in recent years is nonsense. In fact, over the last 30 months, the median sales price of resale homes has increased 6.5% over the last 12 months thru mid-June, per Cromford Report and Arizona Regional Multiple Listing data. Nearly all of that increase took place in just the last quarter, as the supply of listed homes dove to just 2.4 months. Resale supply is anemic, and prices have only begun what is almost-certain to be a steady, healthy, supply-and-demand driven rise.
Further, amidst a backdrop of decade-high traffic visiting new home sales offices, and sub-par appreciation- -0.5% to 3.0%- each of the last three years, the cost of building homes has increased 30% to 35% over the last 30 months. Builders have absorbed these higher costs, which have been driven by increases in labor costs. Homebuilders need more construction workers to meet demand; in 2015, 45% more new home permits were issued and in 2015 another 10% were issued. Thus far this year, builders have sold 12% more homes than last year during the same period of time in the Phoenix-Area. Monthly new home price appreciation reached its highest point- just 0.5%- in April, and for homebuilders whose profit margins have been minimalized with labor increases, this appreciation is likely to seem small compared to the prices increases we here at Belfiore Real Estate Consulting expect.
A slowdown in appreciation for the Metro Phoenix Area? Appreciation has been virtually non-existent, and is only now just getting started. Those of us on-the-ground here in Phoenix know what’s going on- something that is likely more difficult when looking at a limited data-set and making projections for markets all across the country from an out-of-state office. — Real estate consultant, Jim Belfiore