Posted in Phoenix - Tucson Market | Posted on 05-18-2015 | Written by Metrostudy News
- Sales have been positive – when will the price appreciation begin?
- Consistency in job growth and wage increases hold the key to maintaining and improving starts numbers
- Builders optimistic but cautious about 2015 closings – is the subcontractor base large enough to meet current demand?
- Metrostudy’ s forecast remains unchanged: 8% starts growth in 2015
May 2015 – According to the Metrostudy 1Q15 survey, home starts, attached and detached, in the Phoenix area numbered 10,160 over the last four quarters. 4Q14 annual starts were down significantly year over year at 14%. This was not unexpected as builders were much more pessimistic going into 2015 than 2014. Due to the 2014 decrease we did not see much improvement in the annual start numbers up only 1% annually. This raises a few questions if you have been watching sales numbers during the first quarter.
MLS single family monthly sales have seen solid growth showing 16% growth year over year up to 7,326 during the month of March. Annual sales year over year are still down 5% to 73,622. That is driven by the market contraction we started to see in March/April 2014. Though the annual sales number is still down it has steadily been improving 3% month over month, which substantiates that there are more buyers in the market for new homes and resales.
“With sales on the rise and median MLS single family pricing seeing a solid increase of 7% the market vibe has cautious but positive vibepositive,” said Rachel Cantor, Director of Metrostudy’s Phoenix region. “The solid price appreciation seen in the resale market is a good sign. The plan is this price appreciation will be felt on the new home side late Q2 2015. MLS inventory did raise some questions as it has seen a solid decrease over the past quarter down 16% from March 2014. The Phoenix resale market is still below the equilibrium currently holding 3.4 months of supply and days on market has seen a slow increase to 93 days. With inventory continuing to drop we may begin to see a supply issue that could push buyers to new homes and sellers to the market. It is only a watch item at this time.”
As always the highs and lows of the market are driven by the SE Valley. With a major gain in SE Valley 1Q14 to 1Q15 (starts up 26.8%) we can see the market improvement. One submarket does not make the entire market so though the growth is definitely notable more of a shared starts growth is needed before we start projecting larger growth than the projected 8% for the Phoenix metro area. Low starts growth can be attributed to less spec building. If we look back at 1Q14 builders were just starting to pull back on starts as the market was retracting. Another question mark is do we have the subcontractor base in place to support larger growth. The SE Valley is now driving 40% of starts for the market so builders may be searching for contractors in the other submarkets which could also be leading to the slower starts. With increased sales, most builders are still providing some type of incentive but it appears that the war on incentives has become less volatile.
Annual closings showed a slight decrease year over year down 1.8% (45 closings). As we watch the SE Valley again leading the closings charge with 17.6% increase (152 closings). The NE Valley also showed a 26% improvement with 32 additional closings year over year. Closing increases definitely spark our interest because at the end of the day that is how builders make their money.
Inventory in the form of finished vacant (FV) units saw a slight decrease down to 2.8 months with a total unit count of 2,394. It is within the market equilibrium and builders have been careful managing the unit count. The overall inventory of vacant developed lots (VDL) continued to rise in Q1. The slight increases indicate that we are bringing slightly more inventory to market than is being absorbed. Since the market boom, the Phoenix market has held a larger than typical VDL count and months of supply are driven by start changes. Phoenix is carrying about 25,000 D lots “dead lots” across the market. These lots have streets completed but are currently in undesirable locations for the builder and not completely finished in some cases. .
Q2 2015 will really set the market for 2016 – 2017 as builders will have to make the decision on their expected growth. Planning for future growth of 15-20% is not a realistic expectation based on what we have seen historically. It is also not clear that we can build them if we sell them. If we can continue to see consistent job growth like we have seen in the trade base then I would feel more comfortable that we can meet the larger demand.
“Overall we have some solid indicators in the Phoenix market,” said Cantor. “It was expected that we would see some growth from those exiting the penalty box this year, but it appears that more of the buyer drive is from consumer confidence. Also it appears that buyers are more qualified – also another bonus for homebuilders. With continued solid economic growth in the form of jobs and hopefully wages to follow then the growth will be sustainable. My previous forecast of 8% starts growth (11,800) remains in place. “
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