Phoenix is rising? Maybe.
The city’s new-home market is showing signs of life, much like other cities across the United States. It’s nowhere near the frenzied market that came to symbolize the pandemic housing boom, but, if we’re hunting for green shoots, the city could be a good place to start looking.
Don’t take it from me. Take it from the almost 700 people who attended our Phoenix Dealmakers event in late February. Hundreds of professionals gathered to share their wisdom with one another, and to figure out if we’re right to feel a bit optimistic as we head into spring.
As Jordan Rose, president of Rose Law Group, told the crowd: “If you are not optimistic, you should not be in this industry.”
And there are legitimate signs of recovery. Sales and traffic picked up to start the year, according to those in attendance, although activity is below the crazed levels of previous years. But serious, qualified buyers are back on the scene.
This echoes what we saw in Zonda’s January Housing Market Update, although our chief economist, Ali Wolf, reminded us that we’ve been jostled around by conflicting data in recent months.
“It has felt like we’ve experienced data whiplash over the past few months as new economic and housing stats have been released,” she said. “It’s hard to see the uncertainty clearing anytime soon, so we recommend going back to the basics of understanding market resilience, local supply and demand dynamics, and consumer preferences to guide future developments.”
Good reminders.
What else did we learn about Phoenix that we may be able to extrapolate to other large markets across the country?
- The city has seen its cancellation rates normalize, after a dramatic spike;
- All submarkets have pulled back year over year;
- Resale homes are sitting for 80 days, which is mostly normal; and
- Vacant developed lots are at a 15-month supply. This is way below equilibrium of 18 to 22 months. This downturn is very different than the Great Financial Crisis.
Interestingly, it looks like we’ll need to create a new dictionary definition for “entry level.” Tight supply has pushed up the cost of an entry-level home to somewhere in the $400,000 range, compared with the $300,000s one may have expected to encounter pre-pandemic.
Will a bigger price tag and higher mortgage rates act as a drag? Quite possibly. But it’s important to remember that affordability is critically important in the housing decision. Ultimately, a lot of people buy their homes because of the stage of life they are entering—when they get married, have children, change jobs, upsize, downsize, etc.
If we learned one thing in Phoenix, it’s that things are looking better for the housing market. But we were also reminded we are living in uncertain times.
So maybe it’s worth saying it one more time: “If you are not optimistic, you should not be in this industry.”
