PHOENIX HOUSING 4Q18: With Starts and Closings at Decade High Levels, Relative Affordability Continues to Drive a “Shockingly Strong” Market
- Quarterly new home starts are at their highest level since 3Q07 and are up 14% over 4Q17.
- Quarterly closings are at the highest since 4Q08 and up 3% from 4Q17.
- New home activity has risen in the higher price categories, with starts in the price ranges above $400k all climbing between 40 and 55% over the same quarter last year.
- The supply-demand and overall demographic shifts affecting the Phoenix economy and thus the housing market are seeming to continue to gain strength despite a sense of weakening in other markets that may have already matured in the current cycle.
Metrostudy’s 4Q18 survey of the Phoenix housing market shows that unlike most markets across the country, Phoenix had a shockingly strong fourth quarter in most new home activity measures. Annual new single family & townhome starts increased by 10.7% over 4Q17. Builders started 19,596 homes in 2018, of which 5,005 were started in the fourth quarter. That number actually surpassed the strong 2018 2nd quarter and was the highest number of starts in a quarter since 3rd quarter of 2007! The quarterly starts were a jump of 14% over the same quarter a year ago and 2.3% over the prior quarter. The pace of annual closings was also higher than a year ago, rising 5.7% to 18,550 from 17,544 one year ago. The 4,895 closings in 4Q was a 3% increase over 4Q17 and a 4.1% jump from last quarter. It was also the highest number of closings in a quarter since 4Q08, or ten years ago.
The $200-350k base price range continues to dominate the volume of starts and closings activity in the Phoenix market. Rising costs continue to shift the lower range of affordable homes ever higher, however. That is reflected in an actual decrease of 2.1% in starts in the $200-250k base price range, while the $250- 300k price tranche rose a modest 8.2% in number of quarterly starts from a year ago and there was a jump of 27.3% in volume of starts between $300-350k.
“What is most noteworthy is how much activity has risen in the higher price categories, with starts in the price ranges above $400k all climbing between 40 and 55% over the same quarter last year,” said Ryan Brault, Regional Director of Metrostudy’s Phoenix market. “It may be that the upper end job growth and California and retiree/empty nester buyers carrying over substantial equity are finally having an effect that is being felt by some of the higher end home builders. Phoenix is quickly becoming a spillover market for tech companies moving from or locating satellite operations from the Bay Area due to lower business and housing costs, as well as a major hub for the insurance and financial sectors. Strong job growth is helping to drive the housing market along with commercial and industrial sectors.”
Despite the drop in sales volume recently, median prices have remained flat, not unlike the end of most years. Active listings were up 2% from the year before. Average days on market was down 5 days from a year ago and now sits at 64 days. Median closing price was still up 7% over twelve months ago to $262,000. While still slightly below the peak of the last cycle and of 2018 when it briefly surpasses that number, it’s likely that spring of 2019 will finally break through that level for good. The median new listing price of $280k is still about $24k below (about 7%) the peak listing price last cycle. It will be interesting to watch how the spring selling season begins as it should be a good indicator as to how resilient the Phoenix market will be in the face of higher prices and interest rates.
The Case Shiller Index figure below shows YOY price changes as of October 2018 compared to the YOY in October 2017 as a measure of momentum in each housing market. Phoenix is now 3rd (it was 10th six months ago) and climbing, and has been one of the few markets showing positive growth in appreciation. The supply-demand and overall demographic shifts affecting the Phoenix economy and thus the housing market are seeming to continue to gain strength despite a sense of weakening in other markets that may have already matured in the current cycle. Higher costs of living and housing prices beyond what could be supported have caused a rapid cooling in their housing markets. As that has happened, Phoenix, which has slowly been gaining steam again in this latter part of the cycle, has positioned itself well as an attractive, lower cost, lower tax burden, and easy to live in alternative for many. That relative strength is helping to drive it ahead in comparison to its peers. Expect a strong 2019 for housing in Phoenix, with 20,500 new single family and TH starts projected for the year.
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