New Construction:
Currently, new construction holds about a 20% share of all real estate closings in Maricopa County, highlighting a trend in the market: buyers prefer move-in-ready homes. Historically, new builds have only represented about 10%-14% of the market.
The provided heat maps show new construction activity, with June’s permits indicating supply and June’s closings showing demand. As expected, the southeast and northwest valleys are hot spots for new permits and home closings. These areas are likely to keep growing due to available land and, especially in the northwest valley, numerous new job opportunities.
The year 2023 has been particularly successful for new home builders, with major public companies performing well in the stock market. Both public and regional builders benefitted from a limited supply of resale homes and additional financing options, including some offering permanent mortgage rate buy downs.
New permits have increased by 45% year over year, reflecting builders' optimism for early 2024. Although June’s permits slightly decreased by 1% year over year, the overall supply is expected to grow. In contrast, the demand for new homes is more subdued, with year-to-date new home sales up nearly 2% compared to the previous year, but June sales down over 2% year over year.
Typically, demand slows during the summer, so July's numbers will be telling. A potential Fed rate cut in September could trigger some of this latent demand, while the upcoming elections might create some challenges for a Q4 increase.
Supply & Demand:
Here's a summary of the current market conditions: Inventory has increased by over 50% year over year, though it has plateaued recently. New contracts are still outpacing new listings, but the cancellation rate is higher than usual. The market is somewhat stalled, with buyers holding off for lower mortgage rates. Price increases have stabilized, and many analysts predict a softening of prices for the rest of the year. The situation mirrors the 2014 market, characterized by balanced conditions, frequent price reductions, and cancellations. Both buyers and sellers have negotiation power. The best properties are selling quickly, making it important for sellers to make updates and repairs before listing rather than offering buyer concessions. Buyers today prefer move-in-ready homes, contributing to the growth in new construction, as they are less inclined to buy homes needing repairs.
Case Shiller Home Prices:
The Case-Shiller Index for May's home prices was released recently. While not ideal for current buyers or sellers due to its lag, it is useful for understanding long-term trends. The year-over-year changes provide insights into the market's 12-month evolution. If interest rates were to drop to 5.5%, it would immediately impact the market. Currently, Greater Phoenix is trending below the national average, with a 4.4% appreciation rate for May, compared to a 3.4% increase in CPI, effectively a 1% home price increase over the past year. May was the peak of the spring market, and price appreciation typically lags in the second half of the year, especially during election years when Q4 tends to be slower due to uncertainty.
Month-over-month data is more telling: Greater Phoenix is the only city in the seasonally adjusted 20-city composite to show a two-month decline, with Portland showing a one-month decline. Local prices peaked around May 10th and have been under pressure since. Despite this, prices have been resilient, offering buyers more options than a year ago. Sellers are not desperate and may not meet buyer demands, which has kept prices from dropping significantly. I anticipate further softening of the market later in the year.
The recent Q2 GDP report may prolong the period of market strength, but my skepticism about sustained growth stems from the sharp decline in the American savings rate in recent months.
Info from: The AZ Market
Written by: Sarah Perkins
Thanks for reading this article and stay tuned for more!
Alejandra Paladino (Arizona REALTOR®) eXp
Realty Cell: 480.382.0519
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