By Catherine Reagor| April 19th, 2020
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Last month was the best March for new home sales in the Phoenix area since the boom of 2005, so it will take a while for that momentum to cool. 

But homebuilding in metro Phoenix is bound to slow along with the rest of the economy due to the COVID-19 pandemic.

Fewer potential buyers are venturing out to check out new communities, even though some homebuilders still have sales offices open with hand sanitizer by the front door. 

And workers still are building homes in many Valley subdivisions. Construction is one of the essential businesses named by Gov. Doug Ducey to remain open during this crisis.

Jim Belfiore, a homebuilding expert, is forecasting that this year's biggest drop in new home sales will come during the second quarter.

But don’t expect a repeat of the housing crash of 2008-12 when tens of thousands of new metro Phoenix homes sat empty as buyers walked away. Those neighborhoods became ghost towns for a few years until prices fell and enticed bargain buyers.

Back then, the housing market led the economy into a recession. That’s not the case this time.

“Conditions are rapidly changing in the housing market, going from a huge wave of demand to very little…” Belfiore said. “But it should be a temporary disruption.”

He held a video forecast last week to help builders and homebuyers with the latest data and tips during these tough uncertain times.

Homebuilding watch

Belfiore expects fewer new homes to go up in the Valley than in recent years, which was a downward shift from earlier projections. 

He revised his forecast from 27,400 new homes to go up this year down to 16,500. In 2019, 25,000 new Valley homes were built, compared to 23,500 in 2018.

Here are seven other insights from Belfiore: 

  • Home sales during the past six months are 41% higher than the half-year before.
  • New home sales and construction will remain high in April because they are a lagging indicator from contracts signed earlier.
  • The drop in new home sales will be “dramatic” in May, June and July. Contracts to buy new Valley homes could fall as much as 80% this summer, Belfiore said.
  • Speculative-built new homes — or those homes built in hopes of finding buyers once completed — are in short supply, which is much different from the crash. About 2,500 of the almost-ready to move-in spec houses are available in metro Phoenix now. That’s a five-year low. 
  • Whether new home prices fall depends on how long the coronavirus crisis lasts. Homebuilders will start to offer more incentives before prices fall.
  • Homebuilding still hasn’t recovered from the crash. During the boom years of 2005-06, about 60,000 new homes went up in the Phoenix area. That number plummeted below 10,000 in 2009.
  • New home buyers canceled slightly more contracts in March than the prior month. Last month, 13 metro Phoenix subdivisions reported more cancelations, compared to 12 in February.

 Belfiore said July will be the biggest month for new home cancelations in the area.

Tips for new home buyers

If you have a new home under construction, or you're looking to buy a new home, consider these five tips:

  • Tell your homebuilder right away, if you have signed a contract to buy and lost a job. Some homebuilders are developing programs to help buyers hit by the economy.
  • Check your contract. If you need to cancel a new home purchase, whether you can get your deposit back depends on the terms of the sale.
  • Watch for homebuilders offering more incentives. If you already have signed a contract, your builder might add those incentives to your deal.
  • Track mortgage rates. If you haven’t locked into a rate on a new home yet, builders might be more flexible now. Mortgage interest rates have been ticking up and down between 3.5 and almost 4% with the uncertainly of COVID-19.
  • Look for deals. If you are ready to buy, builders could start offering more incentives soon.

“The world is not ending for the housing market, Belfiore said “There won’t be a freefall in new home prices because there’s little supply built and available now.

The sooner there’s a solution to the  COVID crisis, the sooner people will feel more confident about moving and buying again,” he said.

 Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @Catherinereagor.

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