By Callan Smith | Rose Law Group Reporter
Increased demand for new homes, due at least in part to the continuing resale shortage, was the takeaway from the Metro Phoenix housing market update given Thursday by Jim Belfiore, president of Belfiore Real Estate Consulting, before a large group of homebuilders and industry insiders.
Homebuyer traffic levels are healthy, and sales are up on a per subdivision and total sales basis.
“This year we’ve averaged fourteen percent more sales on a per subdivision basis than we had last year,” Belfiore said.
For 2018, through mid-July, sales were at 3.2 sales per month per subdivision, peaking at 3.5 sales from April to May, compared to one year ago at 2.8 sales
Overall, total new home sales in this marketplace were up sixteen percent year over year thru mid-July.
The gains in part are due to the existing home shortage, “in certain areas; there is a three-and-a-half to the six-week supply of resale in a market area where you typically have three, three and a half months’ worth of supply,” Belfiore said.
For buyers in those areas looking for resale, they’re going into new home sales offices even if they weren’t looking for a new home. Nineteen percent of overall demand in the Metro Phoenix housing market over the past month came from new homes, which is the highest percentage since 2007.
The previous month saw as much as 18 percent. Earlier in the year, the demand was at 16 percent with the prior year coming in at seventeen percent. One reason for the increase is what is expected to be a continuing shortage of resale supply homes. Another is millennials, who are now entering the marketplace without the existing to supply to meet their needs.
Belfiore said he expects the demand to rise into greater than 20 percent toward the end of the year and beginning of the next, which is a positive for homebuilders and developers.
A point Belfiore stressed was affordable product for homebuyers. Earnings reports from top builders showed the popularity of entry level. Product such as the Palms by D.R. Horton at a price point in the low to mid-200’s is palatable for buyers. Over the last two months, the community sold 53 homes.
“The large majority of the market on a go forward basis for the next decade is going to be price point, because millennials can’t afford three-hundred and fifty thousand-dollar houses. And they certainly can’t afford those houses when you have an interest rate that six, seven, eight percent, it just doesn’t happen,” Belfiore said.
The list of top subdivisions all have one thing in common, affordable product, leading with The Palms by D.R. Horton, Discovery & Encore at Adora Trails by Taylor Morrison, Cantada Ranch by Garrett-Walker Homes, Express at Tartesso by D.R. Horton, North Copper Canyon by Garrett-Walker Homes and Magma Ranch Unit 8 by D.R. Horton.
Subdivision counts are at 550 communities, which is down three percent YOY. There were 122 new openings so far in 2018 in the Metro Phoenix area, and sell-outs occurred rapidly.
“We’re starting to see a more normal cycle where you have a community come online and builders able to reasonably sell it out in eighteen to thirty-six months, which is a good churn on lots,” Belfiore said.
Builders speculative supply is 2,358, at a two-year low in terms of supply and rising demand.
The Metro Phoenix area’s list of top home builders is D.R. Horton, Fulton Homes, Garrett-Walker Homes, LGI Homes, Ashton Woods, William Lyon Homes and K. Hovanian Homes.
Belfiore is projecting permit numbers to come in at 23,500, up from 2017 at 20,551.
Lot supplies for builders continue to decrease down four percent over last quarter, 13 percent over last year and 24 percent over the last two years. There are 38,703 total finished lots, the majority of which are found in areas such as Coolidge, Florence, Casa Grande, North Buckeye and Queen Creek/Hunt Highway areas.
“There is a lot of development going on in North Buckeye, particularly on the border of Litchfield Park, that market has come back strong,” Belfiore said.
The existing home resale market saw 8,608 sales last month from mid-June to mid-July in comparison to the prior period in 2017 with 9,976 sales, which is down three percent MOM and nine percent YOY- per data provided by the resale home gurus at Cromford Report. Seasonality is a factor as people aren’t looking to move in the middle of summer.
At this time, according to Cromford Report, there are 20,218 total existing home listings with a 2.4-month supply on average, down from this time a year ago at a 2.6-month supply and two years ago at a 3.0-month supply.
“Twenty thousand units is nothing for a market of 4.5, 4.6, 4.8 million people, half that supply is not even sellable with listing sitting for months and months, because it isn’t good enough for most people to buy or is over-priced,” Belfiore said.
A normal amount of resale supply would be 3.5 months.
Rising mortgage interest rates are a related issue, “At this point I think we have seen more of an impact on demand as a result of the people becoming anxious that rates will go higher, they’re coming off the fence and into the market earlier than they otherwise would to purchase,” Belfiore said.
Conversely, the rise in rates may take some buyers out of the marketplace.
Existing home prices are up four percent over the last quarter with the average price at $266,000. Up five percent YOY, according to Cromford Report. There is an expectation that prices will continue to rise due to the lack of supply.
Builders are experiencing appreciation in new home pricing at 2.3 percent in 2018 through May. April to May brought a price gain of 0.6 percent, which is the largest price increase in a single month since August 2013.
Employment data is strong at 65,600 net new jobs in the last twelve months up from 54,900 in 2017 with the 3.8 percent unemployment rate, which is leading to employers struggling to fill jobs nationally. Looking forward, Belfiore said expects continuing pressure due the shrinking available workforce compared to unfilled jobs, which is according to Moody’s Analytics, further affecting builders who are continuing to see construction labor shortages.
Belfiore gave a cautionary message regarding the potential of a government shutdown that could affect home builder price appreciation and sales, which was seen in 2014 after the shutdown at that time. There is also the issue of costs increases when coupled with mortgage interest rates, leading to greater price appreciation, affecting the ability of buyers to enter the market.
