Posted in Phoenix - Tucson Market | Posted on 03-02-2015 | Written by Metrostudy News
- Despite high expectations, 2014 New Home Starts were down 14% from 2013
- Affordability is a concern as new communities come on line at higher prices; it is not clear if condos and infill will be the affordable solution but the market should be watched
- Builders should not expect much organic growth through the market and should be focusing on the consumer if they want to larger share of the starts
March 2015: According to the Metrostudy 4Q14 survey, home starts, attached and detached, in the Phoenix area numbered 10,140 over the last four quarters, down 14% from 2013. This was a disappointment as initial expectations were for a substantial increase for 2014. The largest declines (25.7%) continued in Pinal County, followed by the Southeast Valley that saw a 15.9% decrease. The competition in the Southeast contributed to the decrease as more competitors have entered this area in hopes of gaining more market share. The Northeast Valley continues to see the strongest starts growth year over year with an increase of 15.3% (820 starts). Closings over the last four quarters are also trending down to 10,329; though we had hoped that closings would remain flat for the year we finished out with a 10.6% decrease.
MLS single family listings have started a slight downward trend down 8% to a total of 21,484 when looking at December over December. Though still higher inventory numbers than we saw through most of 2013 it appears that sellers are still in the market as sales ended the year up 9%. The market is currently holding 3.6 months of supply and days on market have been holding steady at 88 days over 4Q 2014. With room to grow in the resale market the undersupply of homes has been under our equilibrium of 5-6 months since 2009.
Annual New Home Starts and Closings
For 2014, single family annual MLS sales numbered 72,402 units, down 11% from one year ago, but it still represents a large volume of transactions. The median price of a single-family home sold through the MLS rose slightly reaching $204,000, a 3% increase from twelve months ago. Despite what was expected median price did increase slightly from the previous quarter. Condo sales are on the watch list though annual sales were down 5% and inventory is also down slightly. We did see strong median price appreciation up 13% to $129,400.
“With new homebuilders entering the market in the next year it will be interesting to see what occurs in the infill market and what effect that will have on resales specifically condos,” said Rachel Cantor, Director of Metrostudy’s Phoenix market. “We expect to see strong numbers coming from projects in the Central Valley and Scottsdale area. But the question is will buyers be able to pay the higher prices we expect to see in these new communities and how deep is the pool of buyers interested in the product.”
SE Valley is still drawing a majority of the starts and the competition landscape already filled to capacity will see more additions in 2015. The upside is that buyers are still in the market. The first two weeks of 2015 has seen traffic and sales in the Gilbert market come in very strong and we are currently tracking traffic at the same pace we saw in the beginning of 2014 which makes us cautiously optimistic. The competition is constantly changing and builders should now begin looking and start thinking about replacement projects as well as consumer segmentation. With little growth expected in 2015 market share will be gained by beating out the competition.
As we see the SE Valley is drawing the largest amount of starts and carrying only 18% of VDL supply for the market. The overall inventory of vacant developed lots (VDL), or finished lots, continued to rise in Q4. The total of 55,136 vacant lots includes all product types. Though VDL inventory has seen minor growth year over year currently up 6% from last year it has been a consistent growth throughout the year. Through most lots are in the outlying areas of Pinal County and the SW Valley reviewing existing positions and timeline for lot deliveries is going to be critical in 2015. Planning lot deliveries and subdivision close-outs in highly competitive areas like the SE Valley will help builders begin to review purchases for lots in 2016 and 2017.
“2015 is currently the year of watching population, wages, jobs, and migration very closely,” said Cantor. “Any changes in these areas could make or break our housing industry. With little to no affordable housing left it is not a surprise that apartment and condo growth seems to be on the rise, though it is not yet clear if apartments or condos will become how we now define affordability. Phoenix is not alone in the quest for affordable product – several higher permit producing markets like Texas and Florida are beginning to see the slow erosion of their affordability market and increasing land prices leading them to wonder how they will be changing in the next few years. Locally, I question how deep the pool of clients that want this type of product is and how much can they afford? I am not yet convinced that condos and infill are the new affordable solution but never say never.”
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