The Sky Is the Limit for Phoenix Metro Housing
July 22, 2016
President, RL Brown Housing Reports
To give you a clear perspective for the future of new homes in Phoenix Metro, it’s important to understand where we have come from in the recent past.
First, let’s examine total Phoenix Metro home sales, which is the combination of new home closings and resale closing activity.
The chart below tracks total home closings back to 1992 and shows the steady increase in housing activity generated by the population increases up through the early 2000s. Demand accelerated reaching the peak in 2005, followed by the bursting of the housing bubble to the depths of recession. Finally, the graphic shows the climb of resale and new home closing activity from the beginning of the recovery to the present.
The relative flatness of that total home sales activity reflects the fact that population growth slowed from the boom times and resale prices fell dramatically as a function of the recession, substantially diminishing the homeowner’s equity.
The key ingredient for a successful new home market over the five year forecast period in Phoenix metro will be market share.
The next chart identifies the new home market share calculations from 1990 through 2015. It clearly shows the new home market share capture was in the range of 35 percent or so of the overall housing market over the historical. With the recession, we saw the new-home market share fall dramatically with the low point of 6.49 percent in 2011. We finished off 2015 with a substantial recovery for new homes capturing a 15 percent market share with 12,032 recorded closings.
Through June of this year, we have continued to see strong new home permit and new home closing activity indicating an increased demand for new housing across the region. There are currently more than 100 builders and 500 active new-home communities with available lots in Maricopa and Pinal County.
The Southeast Valley has led the way with several hotspots for new housing. Top performers include: The Bridges, Eastmark, Mulberry, Mountain Bridge and Adora Trails. This submarket will continue to be dominate for at least the next 12 to 18 months. There are enough available lots in this submarket to sustain the current demand; however, builders will need to be proactive in developing lots to avoid a shortage in the forecast period.
The Northwest submarket has also performed well and will continue to gain market share of the overall housing demand as more communities come online. Tierra Del Rio, Coldwater Ranch, Vistancia and Festival are communities to note in this submarket.
The Southwest submarket will likely offer the most affordable housing and we expect the demand here to strengthen. Look for expansive growth along the 303 corridor and south of I-10 within the forecast period. Estrella Mountain Ranch, Verrado and Palm Valley are prominent masterplans in this geographic area.
The Northeast submarket will perform well in spite of the relative higher cost of raw land and lot development and home prices as evidenced by the existing and upcoming new home communities along the Shea and Pima corridors.
We believe that both the available lots and potential future land opportunity remains extremely positive for this marketplace, especially compared with similar opportunities in other cities.
Based upon our research we currently have over 33,000 available lots in active new home communities and another 37,000 potential lots in platted but not started new home communities. We believe that we can expect to see an increase in market share capture for new homes over the next five years, rising from that 2015, 15 percent to the range of 22 percent or so by 2020.
Our projection is for steady improvement at a moderate pace over the forecast timeframe with recorded closings of new homes to be +17,000 units in 2016 climbing to a range of 23,000 to 26,000 new home closings by 2020. Our local government and municipalities have been proactive in working with developers and builders to streamline approval processes. We have already seen several state land sales which will be used to develop future lots to meet the demand for new housing.
It would be prudent to point out that land prices, home prices, interest rates, the pending election and other global events could impact the overall housing market.
I will provide more details about this topic at the upcoming New Home Sales Market seminar at the Arizona School of Real Estate & Business Scottsdale campus on Friday, August 26th.
Greg Burger joined Home Builders Marketing in 1999 after 10 years of hands-on experience in the Phoenix housing market with major active homebuilder firms. His vision and marketing expertise is focused on the brand awareness of RL Brown Housing Reports as well as developing technologies and data collection processes. Greg can be reached at 480-614-0211 or at firstname.lastname@example.org.
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