Posted in Phoenix - Tucson Market | Posted on 08-14-2015 | Written by Metrostudy News
- 2Q15 New Home Starts numbered 3,726 – the highest number of quarterly starts since 3Q08
- Growth will likely be limited by a constrained labor supply
- Metrostudy is revising its 2015 forecast upwards from 11,800 starts (up 8%) to 13,000 starts (up 20%).
AUGUST 2015 – Metrostudy’s survey of the Phoenix housing market shows that annual home starts, attached and detached, in the Phoenix area numbered 11,103 through 2Q15. Closings numbered 10,516 during the same time frame. The positive news is that Q2 starts numbered 3,726 which is the highest starts count we have seen since Q3 2008. We expect annual starts to finish out the year around 13,000 (attached and detached). The lag in closings is clear indication of our labor constraint. Closings have seen growth of 8% Q2 vs Q1 and as expected we are now seeing an increase to build times. Even with the increased build times closings are expected to finish out the year around 12,000 units.
“Starts have begun to outpace closings, which is a leading indicator of an expanding market,” said Rachel Cantor, Metrostudy’s Regional Director of the Phoenix region. “With current labor constraints, though our growth will most likely be limited for the remainder of the year. The large 30% growth we have seen in Q2 will likely taper off in the last two quarters of the year unless we find a solution to our existing labor shortage.”
MLS single family detached monthly sales are showing solid 19% growth year over year up to 8,200 during the month of June. Annual sales year over year are now showing positive numbers as well, up 3% to 76,296. As sales continue to increase inventory continues its own downward trend. Down 21% from a year ago, inventory months of supply is at 2.9 which is similar to what the market had seen in 2013. With sales on the rise and median MLS single family pricing seeing a solid increase of 10% the market vibe is positive. The continued solid price appreciation is a good sign and should support some price increases on the new home side which is right around the corner.
The condo market has also seen solid improvement of 12% growth in annual sales up to 4,959. Median sales price growth has been 10% and currently holds 3.3 months of supply which is slightly higher than the detached resale market. Overall the resale market has held steady and though inventory is a watch list item there are no major concerns at this time.
Q2 2015 starts showed an increase of 1,161 starts over Q1 2015. Submarket share increase was shared equally across all markets. All parts of the valley shared in consistent growth. The SE Valley still remains the strongest driver of starts for the market. As the Phoenix market continues to have a more stabilized recovery price appreciation will come along with that more normalized market. For those expecting incentives to disappear we do not foresee that occurring in our market.
Inventory is also an indication of build times. In the form of finished vacant (FV) units saw an 11% decrease down to 2.4 months with a total unit count of 2,061. Units are not moving into the finished vacant category which means closings are happening as soon as the home is completed and ready to occupy. Slightly below our market equilibrium of 3 months, we will continue to monitor to gauge the full impact of labor constraints. At this point it seems to be impacting builders in varying degrees and only seems to have shifted build time about 20-45 days. We have our wonderful weather, though hot, to thank for our small build time shift. It is one less worry about any loss days due to rain or snow.
The overall inventory of vacant developed lots (VDL) rose in Q2. The total of 57,484 vacant lots includes all product types. The increase in starts though did move the needle on the months of supply we are now looking at 62.1 months versus the 66 months we witnessed last quarter. When we break down the numbers into subdivisions by quartile we are able to show that for example in the first quartile the top 50 subdivisions have 19 months of supply. The second quartile is top 51- 150 subdivisions which have 18 months of supply. The third quartile is 151 -300 subdivisions with 33 months of supply. Then we have the remaining active subdivisions and dead subdivisions that have months of supply off the chart.
Overall we have some solid indicators in the Phoenix market, and are starting to see more qualified buyers in the market, as it appears that more of the buyer drive is from consumer confidence. With continued solid economic growth in the form of jobs and hopefully wages to follow then the growth will be sustainable. I have adjusted my previous forecast (8%) from 11,800 starts to (20%) 13,000 starts. Now I do believe that we could see higher numbers if we are able to come up with some solutions on the labor shortages.
“The items on my watch list for the remainder of the year include concerns about the ability of our trade base to sustain larger starts,” said Cantor. “Though it is clear they are hiring can they find the talent and meet demand. Also, price increases have already begun and with such a large number of starts in one submarket will they turn down work in other submarkets. MLS inventory is also a concern. With listings and months of supply reaching pre-recession levels are we running the risk of creating another false run-up due to lack of supply. With the way items stand today I think 15% growth should be expected for 2016 and 2017.”
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