By Callan Smith | Rose Law Group Reporter
New home buyers are seeking affordability and heading out of town to the exurbs to get it, Jim Belfiore, founder and president of Belfiore Real Estate Consulting, said Thursday at the company’s quarterly Phoenix Housing Market update, yesterday.
Growth in the exurbs, areas beyond suburban Phoenix, such as South Buckeye, North Buckeye, Queen Creek/Hunt Highway and into Pinal County with Casa Grande, Coolidge, Florence and Maricopa are responsible for 83% of all of the growth in Metro Phoenix Area new home sales that has taken place in the past three years. Here, the number of actively-selling new home communities has moved up 19% in the past year, while community counts have fallen in higher-priced, closer-in urban and suburban areas, Belfiore said.
“Growth is happening in the exurbs because homes are inexpensive and buyers are seeking affordability,” he said, and the surprising thing is the communities account for only 125 of the 541 total active subdivisions in Metro Phoenix.
Most millennials, empty nesters and retirees can’t afford the higher price tag for homes found in Phoenix, in the $350,000+ range, so they’re driving to find what they can afford.
One builder taking advantage of the exodus is D.R. Horton and its communities, such as Express at Tartesso, which is in Buckeye.
Despite the demand growth beyond the Valley proper, new home sales are down from 3.2 sales per subdivision per month last year at this time to 2.9, from mid-February to mid-March 2019. However, homebuyer traffic is up at a 12-year high, which equates to 22 people weekly are visiting new home communities. Those buyers are taking longer to commit to purchasing a new home, with data suggesting they are visiting sales offices more times before making a purchase.
The sales drop off started in the fall, and Belfiore doesn’t attribute it to affordability, but a lack of confidence, because of the significant jump in mortgage interest rates and the recent government shutdown.
“Affordability certainly has occasionally played a role, and there’s a lot of talk about that, but if we look, the NAHB/Wells Fargo Housing Opportunity Index shows that sixty plus percent of people in Phoenix can still afford a home,” Belfiore said.
New home pricing was up 4.5% percent last year, but the boost isn’t big considering the rising horizontal costs for lot development and construction that builders continue to face. One-way builders are adapting to higher costs is to sell more options and upgrades. In the coming year price appreciation is expected at 3 to 3.5 percent.
Top performing subdivisions in Metro Phoenix are Express at Tartesso, Express at Terravista and Express at Sorrento by D.R. Horton, Discovery at Marbella Ranch by Lennar and Landmark at Aloravita by Taylor Morrison.
Top builders are D.R. Horton, KB Home, Ashton Woods, William Lyon Homes, Garrett Walker, Taylor Morrison, and Meritage Homes.
Top performing submarkets are Ahwatukee, East Mesa, Northeast Phoenix, Far West Phoenix, and Biltmore East. The poorest performers are Sky Harbor North, North Goodyear, Rio Verde, Cave Creek/Carefree and Northeast Phoenix, which Belifore stressed is successful, but showing down by .4 percent due to an amenity change, which isn’t indicative of any change in demand for the Desert Ridge area.
Demand for existing homes is down seven percent YOY, according to data from the Cromford Report, and resale prices have jumped. While sales are down three percent over the last 12 months, this is not an indicator of trouble to come.
“People want to know if this is the same as the situation in 2005 and 2006. Are we headed to a catastrophic situation like 2007? It’s easy to tell them absolutely not. The reason is we have no supply,” Belfiore said.
There are 23,600 homes on the resale market as of the 16th if April, according to the Cromford Report, which equates to a low 2.6 month supply. Resale prices have gone up 5 percent YOY, with the average home price at $268,400.
Out of the total market, 16 to 17 percent of all homes sold in Metro Phoenix are new, and Belfiore expects that to increase because buyers coming into the market do not have homes to list.
Lots continue to be a challenge with the number of finished lots down eight percent over last year and 21 percent over two years ago to 37,208.
“It is an anemic situation,” Belfiore said.
Fifty-six percent of the available finished lots are in inactive subdivisions in the exurbs: Buckeye, Casa Grande, Coolidge, Florence, and Queen Creek.
Belfiore’s advice to builders is to get into those markets because of lots and buyer demand
“The exurbs are going to see tremendous growth over the coming years.”