Drive around metro Phoenix these days. All you’ll see are construction sites and brightly colored SOLD signs on new properties; 22% more SOLD signs on new homes than were seen last year at this time. New communities of single family housing (Shea Homes is launching 11 new such communities in Phoenix right now), senior and assisted living communities (Vi is constructing multiple city blocks of new two/three story apartment buildings, condominiums and service amenities in Scottsdale right now), and new commercial developments are springing up everywhere.
Jim Belfiore of Belfiore Real Estate Consulting says, “Between mid-April and mid-May, more new homes sold in the Valley than any other period in the past decade..the demand is healthy.” Belfiore thinks that home buyers were spurred by the anticipation of rising home prices and interest rates. Rates climbed from 3.5% to 4%. Housing experts also forecast that new home prices would rise as much as 8% in 2017.
“The strong housing market, great news for us all, has also brought some challenges,” said David Kitnick, president of Scottsdale based Rosewood Homes. “There is a severe shortage of construction labor.” Arizona lost some 200,000 construction jobs when the market plummeted from 64,000 in 2006 to less than 10,000 in 2009. “…Vast numbers of tradespeople were forced to move…” many to Colorado and Texas, said Kitnick. Now, to draw on that skilled labor force to keep up with buyer demand, “…Valley labor costs have risen 20 – 50%.”
With those rising labor costs, developers are also facing higher land and material costs. “Land that was acquired during the crash for bargain prices is now used up. Currently available land costs much more. Also,” said Ryan Brault if the real estate research firm Metrostudy, “there are higher lumber costs due to tariffs on Canadian wood…(overall), during the last 2 years, home construction costs have increased between 25-30%.” Brault estimates that prices for new homes will climb 6-8% in metro Phoenix this year and by 5-7% in 2018.
Currently, the median price of a new metro Phoenix home is $302,000. compared with $247,000. for an existing home. Whether or not buyers will be willing to pay 7% more for a new home in metro Phoenix will determine the recovery of this new home market here in the Valley of the Sun where already, temperatures are in the triple digits.