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Housing is healthy but higher costs, labor shortages challenge builders, prices

Posted by   /  September 20, 2019  /  No Comments

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By Mike Sunnucks | Rose Law Group Reporter

The regional housing market is performing well spurred on by low mortgage interest rates, population growth and buyer demand.

But higher costs for labor and materials challenge land sales and home builders and puts upward pressure on prices.

That was the takeaway from a Friday morning forum hosted in Phoenix by Valley Partnership on the housing market.

Jim Belfiore, president of Belfiore Real Estate Consulting, moderated the panel discussion and pointed out the regional housing market has been performing well since April and he expects that to continue throughout the rest of the year.

Belfiore said his latest research shows new home sales are up 14 percent over the past 30 days compared to a year ago. He expects that year-over-year data to continue to shine versus the latter part of 2018.  Housing demand declined in the latter part of last year when mortgage interest rates rose.

“We saw a deep dive,” Belfiore said.

Now, those rates are back down at multi-year and near historic lows. That is encouraging for home buyers, especially entry level ones.

“Demand is very healthy today,” said Belfiore who told the Valley Partnership audience the Phoenix housing market could see year-over-year gains of 30 to 50 percent the rest of the year.

But the real estate market also continues to face higher costs for workers and materials. The higher costs put price pressures on builders and can complicate land deals, said Jeremy Ramsdell, vice president of land for home builder Ashton Woods.

Ramsdell and Jeff Gunderson, senior vice president for Lennar, said changing and higher costs for materials, labor and land can change the dynamics and ability to close deal even between the start and end of escrow.

Belfiore said annual price gains for homes have been moderate in the Phoenix challenging builders to keep up higher materials and labor costs.

Ron Hilgart, managing principal of engineering and planning firm HilgartWilson, said he seen significant price increases for PVC pipe as well as for concrete and materials to build curbs and streets in new subdivisions.

 Builders also continue to battle labor shortages and increased demand on contractors, truckers and landscapers.

There aren’t simply aren’t enough truck drivers, masonry workers, landscapers and construction workers to keep up with the volume of work.

“They cannot take on all the work coming their way,” Hilgart said.

That results in longer development and construction timelines.

“It takes a lot longer to get lots developed these days,” Ramsdell said.

Belfiore said healthy demand and shortages of construction workers and truck drivers will put continued upward price pressures on labor. “They are going to go up more in the near future,” he said.

The challenge in the Phoenix market is that if builders are increase prices in entry level and more affordable submarkets, they run the risk of pricing out buyers.

Hilgart said the construction of the South Mountain Freeway Loop 202 connection brought in concrete and other materials as well as contractors who might have worked on residential projects. “They paid better than a lot of the residential developments,” Hilgart said.

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