Rising interest rates, and the expectation home prices will rise soon, spurred a lot more people to buy new houses in metro Phoenix during the past month.
It’s a nice boost for the Valley’s homebuilding market that’s still recovering from the housing crash.
New-home sales were up 22 percent in the Phoenix area, reports Belfiore Real Estate Consulting.
“Demand for new homes is healthy,” housing expert Jim Belfiore told me. “Between mid-April and -May, more new homes sold in the Valley than any other period in the past decade.”
All it took was interest rates to climb from 3.5 percent to more than 4 percent, and a forecast that new-home prices would climb as much as 8 percent this year.
Definite signs of the homebuilding market's path to recovery are there.
That last indicator for the Valley’s homebuilding market recovery is double edged.
“The strong housing market has also brought some challenges,” David Kitnick, president of Scottsdale-based Rosewood Homes, told me. “There is a severe shortage of construction labor because vast numbers of tradespeople were forced to move into other industries during the housing downturn.”
Many of those skilled construction workers found jobs in Texas and Colorado and haven’t returned to Arizona.
To draw the skilled construction workers to keep up with buyer demand for new houses, Valley contractors’ costs have risen anywhere from 20 to 50 percent, housing analysts estimate.
That means higher wages for construction workers, which is good news. But ultimately, it will also mean high prices for new-home buyers.
Ryan Brault of real-estate research firm Metrostudy said Phoenix-area builders are also facing higher land costs now.
That’s because many of the lots builders have been selling new homes on during the past few years were acquired for bargain prices during the crash.
And Kitnick said lumber costs are up for builders due to tariffs on Canadian wood.
Those higher prices for builders are expected to translate into higher new-home prices for buyers soon.
New-home prices in metro Phoenix climbed about 2.8 percent in 2016 and 3 percent in 2015.
“Yet, during the last two years, home construction costs increased 25 to 30 percent,” said Belfiore.
He estimates new-home prices will climb 6 to 8 percent in the Valley this year and 5 to 7 percent during 2018.
The median price of a new metro Phoenix house is about $302,000 now. That compares with about $247,000 for an existing home in the area.
Consumers who recently bought new houses beat the price increases, though many took out mortgages with slightly higher rates than a year ago.
We all love a good deal, so the recent jump in new-home sales makes sense.
Whether buyers are willing to pay 7 percent more will determine if the Valley’s new-home market continues to recover.
Since homebuilding was one of metro Phoenix’s biggest economic drivers before the boom and crash, I hope so.
About 19,000 new homes were built across the region last year. That''s far off the peak, and about half of what would be considered a healthy market for Phoenix's growth.
Three of those new homes sold on my block. Not only did those houses mean more jobs for the housing industry, their sales boosted my home’s value.
We can all appreciate the jobs and the housing appreciation.