Article originally posted on Phoenix Business Journal on January 4, 2019
Although housing activity remains in a rut nationwide, local population and job growth is keeping Phoenix somewhat insulated from the national housing malaise.
“Put bluntly, housing activity remains in a rut,” according to a December study published by UCLA Anderson Forecast and the UCLA Ziman Center for Real Estate. The study forecasts modest gains in housing starts nationwide, with 1.31 million unit starts in 2019 and 1.32 million in 2020, which lags behind the 1.4 million to 1.5 million units that UCLA analysts believe to be consistent with long run demand.
But analysts and homebuilders in the Valley aren’t worried about the national slowdown.
“While the pace of growth may well slow nationally, and even locally, I suspect the pace of growth in Phoenix will be stronger than growth across the country as a whole,” said Peter O’Neil, director of research for NorthMarq Capital in Phoenix.
Historically, challenges with housing in metro Phoenix are more supply-related than demand-related, he said.
“Phoenix housing tends to struggle when we overbuild,” O’Neil said. “That is certainly not the case in the current cycle. Even though economic growth has been strong, homebuilders have been fairly cautious to this point in the cycle. Single-family permitting has accelerated in recent years but levels are well below the peak.”
In 2004 and 2005, in the peak years before the Great Recession, Valley homebuilders pulled permits for 57,000 and 60,000 single-family homes, respectively, O’Neil said. In 2017, permits were down to 20,500 and likely will be 24,000 for 2018.
“I think this more cautious pace of single-family home building is something that will keep Phoenix from suffering any significant shocks on the supply side, even if economic growth slows — but doesn’t stall,” O’Neil said.
Several massive homebuilding projects are in the works in the region. For example, Toll Brothers Inc., a well-heeled national luxury homebuilder, has recently acquired 258 acres in north Scottsdale, while Scottsdale-based Storyrock Development is moving forward on a $125 million master-planned community called Storyrock, with plans for 443 homes.
Still, it looks like fourth-quarter sales in metro Phoenix will be lower than fourth quarter 2017, said Andy Warren, president of Maracay Homes in Scottsdale.
He said the softening could be attributed to rising mortgage interest rates, which caused consumers to step back in their decision to buy a home.
“Consumer confidence is one of the variables that drives the market,” he said. Because the West Coast experienced a slowdown, consumers in Arizona also got more cautious, he said.
But the majority of factors that drive real estate are local, which means consumers shouldn’t be overly concerned about what’s happening in other states, he said.
Tom Kirk, COO of Camelot Homes in Scottsdale, said all economic indicators point to positive growth for Phoenix in 2019, despite national media reports about a housing downturn.
“As a homebuilder, I’m starting to hear more about the slowdown and see some things support that locally, but all other things being equal, the market indicators say Phoenix should remain a pretty good market,” he said.
At the same time, Kirk said, he doesn’t think Phoenix will be insulated completely from some of the national effects.
“I’m not ignoring what I’m hearing,” he said. “I’m just not as pessimistic as I’m hearing things at the more national level.”