Promising outlook for Spring Phoenix housing market despite a fourth-quarter drop

Jim Belfiore at the Belfiore Real Estate Consulting Phoenix Market Update event. / Photo by Callan Smith

 

By Callan Smith | Rose Law Group Reporter

Despite the turbulent end of 2018 the Phoenix housing market experienced, Jim Belfiore, founder and president of Belfiore Real Estate Consulting, is positive about the upcoming spring selling season.

“We should start to see a pretty significant rebound and healthy spring,” Belfiore said to a group of homebuilders and industry professionals at the quarterly Belfiore Metro Phoenix Residential Market Update.

Last year, home buyer traffic reached eleven-year highs in the first eight months, then dropped off dramatically in the fourth quarter, reaching a monthly low in new sales contracts that was 23% percent the same period in the previous year. The drop caused concern, as new home sales fell marketwide.

Rising interest rates in the second half of 2018 was a one cause. Belfiore made the comparison to summer of 2013 when mortgage rates rose, slowing the housing market. In September of 2013, not unlike our current situation, the government had a shutdown. At that time buyers returned to the market Spring of 2015, but Belfiore doesn’t expect the current slower sales to continue long.

Another possible reason for the drop-in sales could be news coming from other markets such as New York, New Jersey, California, Georgia, and Florida, which are not indicative of the Phoenix Market. Larry Health with Cambridge Properties questioned if the message needs to be countered to help Phoenix home buyers understand the market.

One of the reasons Belfiore predicts Spring is going to be a stronger selling season is the 50-point drop in interest rates in January. Once buyers see that their monthly payments will go down, they are likely to return to the market.

Another reason is the nearly 70,000 jobs that were created in the Valley over the past 12 months, and 95,000 people either moved or were born in Arizona last year.

Despite the fourth quarter drop, total new home sales were up six percent in 2018. On average there were nearly three sales per month per subdivision last year, peaking in April and May, during the 2018 Spring selling season.

Belfiore expects sales rates to come in below 2018 numbers over the next sixty days. At present, from December 15th through January 15th sales came in at 2.1, down from the previous period a year ago at 2.3 sales per subdivision.

Buyers are looking for an affordable product, with increased sales and interest coming from exurban areas such as Coolidge, Florence, Casa Grande, and Maricopa.

“That’s where the major growth with continue to occur,” Belfiore said.

Buyers are driving to qualify because the price has pushed them to those markets looking for affordability. Belfiore did praise builders that have been developing and attracting buyers to an affordable high-density product, closer in, such as Lennar, Mattamy Homes, D.R. Horton, and Maracay Homes.

Home price appreciation for builders is an “uphill battle,” Belfiore said. Margins are tighter as it costs more to build homes and develop lots.

There are 549 subdivisions in the Phoenix market. The top-performing communities are Express at Tartesso and Magma Ranch Unit 8 by D.R. Horton, Canyon at Parkside by Pulte Homes, Express at Cottonwood Ranch by D.R. Horton, and Cactus at Parkside by Pulte Homes.

Top Builders based on sales per subdivision, and a minimum of five active, are D.R. Horton, LGI Homes, Beazer Homes, KB Home, Mattamy Homes, Maracay Homes, and Fulton.

Subdivision counts are down one percent YOY despite the strong growth. If the current communities sold at a steady rate, 300 could sell out. More communities are expected to open soon. In 2018, there were 220 new communities. But it is taking longer for builders to bring new communities to the market due to the lack of finished lots.

Currently, there are 37,471 finished lots, down two percent over last quarter and nine percent over last year, and down 22 percent over two years ago. The lots are primarily located in inactive subdivisions. Whereas, preplatted lots are at 86,981, which is up three percent over last year. It will take time for these lots to go through the entitlement process.

Many of finished lots are in Pinal County including Coolidge, Florence and Casa Grande with rest located in Queen Creek and North Buckeye.

Existing home sales have slowed over the last few months and are now flat YOY with a low supply, down 14 percent MOM. There is a 3.6-month supply that is going to drop when the market picks up with 21,472 resale units on the market as of January 15th in the Metro Phoenix, according to the Cromford Report.

New homes sales account for 16 percent of the total with resale product bringing in 84 percent. While the numbers have differed in the past, Belfiore predicts new home sales should bump up to twenty percent of the market.

“We should start to see a lot more of the new home supply taking over the total number of sales. The reason is a lot of the buyers coming into the marketplace don’t have anything to sell. They are entry-level buyers,” Belfiore said.

Top performing submarkets are North Glendale, Rio Verde, Northeast Phoenix, Red Rock, and Eloy. The poorest performing submarkets are West Phoenix, Sun City, North Goodyear, Biltmore East, and Waddell. Belfiore expects that Laveen and the West Valley will see a surge of activity due to the coming 202 South Mountain freeway, which will open up the area.

Final permit numbers haven’t come in yet for 2018 due to the government shutdown affecting census data. The numbers are expected at 22,400 to 22,800. Looking forward, Belfiore predicts 22,000 permits for 2019.

Belfiore gave some suggestions to the audience for 2019; the first was providing affordable product to homebuyers. The second was attached RV garages, which have been well received by Richmond American buyers.

He cautioned builders in the San Tan Valley area due to the Johnson Utilities issue that has been before the Arizona Corporation Commission. There is a presently a moratorium restricting new-homes to one per month.

Court Rich, Rose Law Group co-founder and senior partner, represents builders and has met with both Johnson Utilities and EPCOR, the company that took over the utility, provided some clarity for homebuilders on the subject.

“It really depends on where you are in the service territory, and I don’t even think the die is cast yet to know how that’s going to impact longer term for the year, because there’s a lot of potential solutions that are still out there. I think some builders within the Johnson Utility service territory will be not impacted at all,” Rich said.

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