Phoenix–the Southwest magnet for active adults and serious golfers–needs more than a bottle of cold water to quench its thirst for a better housing market.

This market has yet to reach bottom, although there are signs of stabilizing after a wild ride from last year's peak of 61,000 single-family housing permits, according to analysts. The slowdown came suddenly. The average existing home for sale was on the market for eight days in the fourth quarter of 2004. A year later, a house was on the market for 43 days, according to HWMI.

Inventory continues to rise, too. Standing inventory rose 1,524 percent in May 2006 from a year earlier, according to HWMI.

“Prices in the existing home market are reportedly flat to down. Inner areas or areas predominantly occupied by primary owners are experiencing some pricing [strength]. However, outer areas, where investors are prevalent, are facing significant pricing pressure,” reports Zelman in the June Housing Headline News newsletter.

Analysts say the immense amount of inventory should put pressure on this market, which includes the Arizona counties of Maricopa and Pinal, to bring prices down.

“I can tell you that market is going to get softer going forward,” Tomnitz told Wall Street analysts during Horton's July 20 second quarter call. But he says there is good job growth in the region.

Jay Butler, director of the Arizona Real Estate Center, says Pulte has been offering buyers a $1,000 credit card, and Centex is offering $50,000 incentives for buyers use the builder's mortgage company.

“We had a heavy inventory load last year, and people were in a hypermarket. Interest rates are somewhat higher, but incomes are not,” Butler says. “If we follow our normal pattern, we'll slow somewhat more unless something external happens to us.”

John Fioramonti, managing director for HWMI in Arizona, for custom consulting, says the market has a way to go before it normalizes. It is being dragged down by the resale market, where 30 percent to 35 percent of the homes are owned by investors who are trying to dump them.

“We've overbuilt, and we have a supply and affordability issue right now,” he says. “How long it will take to absorb the oversupply, I don't have an answer to. We're going to need to go into the first quarter of '07 to get it to an even keel.”

But the future looks rosy. The region has grown by 100,000 people every year since 2000, 65,000 new jobs were created in 2005, and another 61,000 jobs are expected this year. The region's biggest employers include Wal-Mart, Honeywell International, and Raytheon Co.

The local economy is continuing to grow, and Phoenix will strengthen its position as the dominant economic hub in the Southwest, says Fioramonti.

Market Snapshot: Phoenix Year-over-year change

(March 2005–2006)

  • Housing growth ratio: 17.39
  • Job growth: 6.2%
  • Building permits: 3.6%
  • Inventory: up 1,524%

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