Jobs are returning, wages are increasing at an annual rate of 3% and population growth is rising in Phoenix, AZ. All good news for Phoenix’s overall single family home real estate market but booming news for its entry level single family housing market segment ($250,000. and under). With double digit appreciation in this entry level home resale market segment, sellers are ecstatic. Buyers, however, not so much.
Inventory shortages are common in this resale market segment as are bidding wars. In some cases, “blind” or sight unseen bids are making their way into such wars. The some 16,000 newly constructed entry level single family and town house units built in 2016 offered some relief but clearly not enough to satisfy market demand. Currently, for every 2.5 new jobs coming into Phoenix, there is only one building permit being issued.
So what’s going on? Ryan Brault, the regional director for Metrostudy, a local market data cruncher, offers some perspective. “During 2006-2007, some 50,000 – 60,000 homes were built annually here in Phoenix. After that, there was no activity…whatsoever. Skilled labor moved away, mostly to Texas, and many buyers stopped buying…” Now that people and jobs are returning, the lot supply necessary to build new units has dropped significantly so builders will be forced to find new land on which to build. “The problem with any ‘new land’ however, is that lot prices have shot-up significantly…and builders are risk adverse due to what happened here during the recession.” Additional considerations such as continued labor constraints, “…all those people who left are just beginning to return but they’re not all back yet…” and increased material costs make it harder and harder to build entry level products at entry level prices.
When asked whether or not Brault foresees another housing bubble happening within this entry level market segment in Phoenix again, He said, “No. The market fundamentals are strong here.”
Michael Underhill, a professor of architecture at Arizona State University and expert in urban design issues, agrees. “There might be a shortage of affordable housing here but that shortage is a really critical component to a thriving city. Phoenix is now a thriving city.” Underhill is more concerned that available tax credits and equity homeownership resources are being missed by the entry level buyer pools of people than he is of housing bubble talk. He speculates, “…that somehow that information (credits and equity resources) is not getting out there as it ought to be.”
Underhill sees town house living, owning and renting as being a solution to this entry level single family housing shortage in Phoenix. “People aren’t able to afford to live (as owners/renters) where they want to live…say in Tempe (just south of Phoenix and home to ASU) and are forced out into these less desirable suburbs… because local zoning codes do not recognize the word ‘town house.’ The city forces us to call town houses condominiums and lenders don’t like to finance condominiums.”
Where to go from here for entry level buyers, builders, lenders and solid urban neighborhoods? Underhill says, “More mixed income projects with pockets of subsidized housing. That’s what makes sense all the way around.”