Builders saw positive traffic during the Phoenix spring selling season, but competition have builders scratching their heads on how to keep their market share.  Price decreases occurred but only 8% of the 6,000 plans tracked by Metrostudy saw the decrease.  The price changes that did occur were less than 5% of the base price.   Builders are leaning on incentives to limit changes in base pricing.  Though most plans remained flat quarter over quarter there was still growth and builders did see price increases across 38% of plans in the Valley.

The Southeast Valley continues to dominate in starts but, despite its larger numbers, competition has been fierce in this market. Though home prices are still slightly on the rise it appears the market has reached the price threshold. The 4,006 home starts in 2013 are down 5.5% from the previous year. The Northwest Valley is the next most active market area with 2,352 annual starts ending 1Q14, up 1.7% over the previous year.  The hottest market is the Northeast Valley where starts grew by 374 units or plus 86.2 % from March 2013. Growth slowed in this submarket over the first quarter but still had positive growth of 22.7% over 4Q13. Closings improved across all markets except the Southeast Valley. As annual closings improved 2.4% over the same quarter last year the Southeast Valley was the only submarket to slip in closings numbers.

According to Metrostudy’s first-quarter survey of the Phoenix housing market, home starts, attached and detached, in the Phoenix area numbered 11,734 over the last four quarters. Metrostudy expects the market to remain relatively flat for 2014 and though sales traffic has been up for the year the conversion rate was 3.79% through April as reported by builders.

In hopes of a strong spring selling season builders started more homes in 4Q 2013.  This push has resulted in a larger number of newly built finished vacant units.  The total of 2,473 is up 23 percent from one year ago and currently represents 2.6 months of supply.  Not a concern at this point just a watch item for builders in the upcoming quarters.

“Based on concern regarding future demand and high land prices, many builders have been renegotiating existing land deals or cancelling contracts,” says Rachel Cantor regional director of Metrostudy’s Phoenix-Tucson Market. “Though it is still a seller’s market, there is less room for land price growth as builders review their current land strategies. Increased competition and buyer qualification appear to be at the center of slower sales.”

The Phoenix economy, measured by job growth, is continuing to expand. Employment is up 2.2 from March to March, an additional 39,900 jobs during that time. Phoenix is still ranked in the top 10 among all metro areas in terms of year-over-year growth, with strong growth expected in the professional/business and health sectors. Unemployment as of March stands at 6.4% (not seasonally adjusted), slightly below the national unemployment rate of 6.7%.

“The first quarter of 2014 was a slow start but we have some positive indicators for the remainder of the year,” says Cantor. “We do not expect to see growth in 2014, as previously estimated starts will take a dip in 2Q14 as builders work through the standing inventory. Closings should remain flat as well but we should keep an eye of the positives occurring in the resale market. It is noteworthy that our market still carries fewer homes than we would expect in a normal market with only 3.8 months of supply based on current sales. With a drop in distressed indicators the expectation is sellers have equity and with that hopes to purchase new home. With strong increases in consumer spending and consumer confidence we can expect that new home sales will be next. Buyer financing is still the wild card and though no one likes higher mortgage rates; an increase could stimulate buyers to make a move.”

For information contact: Rachel Cantor at 480.588.1585


About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

Learn more about markets featured in this article: Phoenix, AZ, Tucson, AZ.