By Callan Smith | Rose Law Group Reporter
etro Phoenix home builder’s sales offices saw more homebuyer traffic than in the past 11 years, before the downturn, said Jim Belfiore, president of Belfiore Real Estate Consulting.
Before a group of industry insiders at his Quarterly Housing Market update on Thursday, Belfiore reported traffic levels were up nine percent YOY and were particularly robust in the middle of 2017, leveling off in the last months, with a drop in December, which is the norm for the holidays.
“It means that more people are interested in purchasing homes, and it’s very likely that you’re going to see an increase in purchases when you see increased buyer traffic.”
Homebuyer interest remains high for many reasons including the economy and jobs. Confidence is high, Belfiore said, and “they feel as though they have some savings and mobility.”
The outlook is favorable in this new year, but with some uncertainty regarding the effect of mortgage interest rates and affordability because of projections of higher home prices.
Subdivision sales finished the year strong, with sales up every month except June and July. December saw 2.5 sales per subdivision, up from 2.3 in December 2016.
Home sales moving into the spring, February, March, April and May, will be high. “We’ll start to see sales go up month-over-month and we’ll expect some increase as well year-over-year on a per subdivision basis,” he said.
Total new home sales have been moving at 1,500, as well as sales contracts for eight consecutive months, excluding December.
“Last year was the first year in 11 years that we’ve had more than two months of more than 1,500 sales.”
Top subdivisions for Phoenix include Express at Tartesso, Via Sorento, Racho Cabrillo, The Palms and Albany Village. Top builders based on sales per subdivision include William Lyon Homes, D.R. Horton, Fulton Homes, Woodside Homes, Taylor Morrison, Pulte Homes and Lennar.
There are currently 559 active subdivisions, which is similar to last year.
“Despite demand increasing by 11 percent, builders are still active in the same communities as the prior year,” Belfiore said.
The expectation is additional new home communities will come online.
One problem for homebuilders is the lack of growth in new home price appreciation.
Belfiore said he is confident this will change, “with supply issues. The reality is that little supply means more pricing power. He said price appreciation for new home builders has to follow. In the resale market, prices are up eight percent year-over-year, according to the Cromford Report, but the increase has not been seen yet in the new home market,” Belfiore said.
One way for builders to gain in revenue is through options and upgrades, which buyers are spending more on and through lot premiums that were previously non-existent since 2006. In the past few years, buyers have been willing to pay for location, particularly for upscale products.
Subdivisions seeing price appreciation were Northeast Phoenix, the Desert Ridge area, I-17 and the Loop 101, Sky Harbor South and East Mesa.
Areas seeing slight price depreciation over the last 2 months were Sky Harbor North, Ahwatukee, Rio Verde, Paradise Valley and Laveen.
In outlying areas, Casa Grande with only a few active communities is expected to come back. Unless a builder can build a low-priced home, it’s not the time for that market, perhaps in the next 12 months, Belfiore said.
Maricopa is already coming back with prices up. There were 60 active communities in 2006. Today there are 12 or 13 with infrastructure in place and finished lots.
There has also been a significant boost in activity in the resale home market.
Last year nearly 18,000 new homes were sold in Metro Phoenix, based on sales contracts.
While the resale market is healthy, there is still a supply issue — too few homes available for purchase. Sales are higher than they were the previous year, however, up seven percent YOY.
“We’ve been working through excess supply. At the bottom of the downturn, 2009 and 2010, there was no reason to build new homes due to supply. That’s not the case today; we have a shortage of supply,” Belfiore concluded.
The resale market is at a 2.9-month supply, with some areas in Phoenix seeing just over a four-week supply.
Belfiore encouraged builders targeting entry-level or move-up buyers to build supply to get ahead of the buyers.
“In the past two years, there has been a struggle with bringing product to market. Entry-level buyers in areas such as Queen Creek and South Buckeye, walk into a sales office and fall in love with the unit, the floorplan and they want it closed quickly. They don’t have anything holding them back and want product to look at.”
Despite the tremendous growth in home sales lot supplies continue to fall.
“If we compare the lot supply at 41,321 finished lots in the metro Phoenix area to two years ago there are 19 percent fewer lots available today,” Belfiore said.
Areas with finished lots available to builders are Maricopa, which has seen increased activity. South and North Buckeye along with Queen Creek and San Tan Valley which have 2,934 lots, seven percent of total availability in the Valley.
The number of permits for 2017 is expected to come in around 20,500, based on U.S. Census figures thru November and Belfiore’s December projection.
Distressed supply is minimal, but always something that should be monitored to gauge the overall health of the housing market based on foreclosures,
Employment is strong and up about 45,000 jobs. Moody’s is projecting healthy growth in 2018 and 2019, with a drop off from 2020 through 2022, based on predictions that there will not be enough workers to fill open jobs.
Population growth in Metro Phoenix remains heavy, but is magnified beyond the Valley in areas such as Prescott due in some part to retirees.
For builders in the infill market, such as Biltmore East, with a three-story townhome product, priced at $400,000 – $500,000, the market has been challenging with sales below one per month. Belfiore’s suggestion is to know buyer’s price point, along with how to develop, merchandise, roll out and sell that type of product.
Another suggestion for builders is affordable infill.
Belfiore said,“The reality is we are not building enough affordable housing. There are very few projects today in the Metropolitan Phoenix area where homes are priced under a hundred-fifty or hundred-seventy-five thousand dollars.”
Belfiore mentioned an affordable condominium community that is selling well: Copper Leaf Villas, a higher density attached product, in South Phoenix with a starting price at $143,000.
“They do not have all the bling, but there is so much demand out there it’s not an issue.”
Going forward, Belfiore said he expects to see more affordable supply with the Loop 202 opening, as builders and developers are already positioning there.
“Build it now; it’s that time, entry-level versus second move-up, you need to have inventory homes. If you’re an entry-level builder and you want high-volume, get it done. Get the inventory underway because it’s going to be hard to get contractors if its similar to the last couple years come March, April, May, June, start it now,” Belfiore told the gathering.
Regarding Phoenix multi-housing, Belfiore was cautious: 25,000 rentals have been built in the past four to five years.
While rental growth has been steady, there are another 20,000-plus rental units in the development pipeline through zoning. The numbers are based on RealData, Belfiore said.
Many are class A communities that have high-priced units. He advised builders in that market to understand renters before bringing the product to market.