By Catherine Reagor| August 02nd, 2020
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Forecasts were grim for metro Phoenix’s home building market during the early days of COVID-19.

Potential home buyers were expected to stay out of new subdivisions and model homes due to health concerns, and many home builders shut sales offices.

But record low-interest rates, mask requirements, virtual new-home tours and pent up demand from buyers who can’t find existing Valley homes they can afford has spurred a surge in new home sales across the Phoenix area.

New home sales in the Phoenix area are poised to climb back to March levels, which was a four-year high for the market still recovering from the crash.

“In April, new home sales plummeted 28% from March,” said Arizona home building expert Jim Belfiore. “But in August, sales should be back at March’s high level.”

New home prices are expected to rise with the demand. That’s because builders didn’t have many cancellations in April and May and don’t have a backlog of houses already built and ready to sell.

Back to home building high for decade

In mid-April, Belfiore dropped his 2020 forecast for new home construction in the Valley to 16,500 from 27,400.

In 2019, 25,000 new Valley homes were built, compared to 23,500 in 2018.

Based on a rapid drop in new-home sales contracts and potential buyers visiting model homes a few months ago, the housing analyst had predicted new Valley homes could fall as much as 80% during the summer.

But with higher than expected demand from hew home buyers during May, June and July, he again sees metro Phoenix home building permits topping 27,000 this year.

What could derail home building surge

Belfiore expects metro Phoenix new home prices to rise 5 to 6% this year with rising buyer demand.

If interest rates climb above the current record lows, higher prices could shut the door on more buyers.

Affordability is still a big concern for Phoenix-area home buyers, said the housing analyst.

Homebuilders looking for more affordable land are going back out to the Valley’s most far-flung suburbs — areas that became ghost towns with half-built subdivisions during the housing crash of 2008-2011.

Belfiore said Valley housing markets that have been dormant since the crash, in areas like Coolidge, Florence and Casa Grande in the southeast Valley, are seeing builders and buyers again.

Jobs need to be near those edge suburbs for the communities to be affordable for buyers, and COVID-19’s impact on the job market is far from clear yet.

The rising costs of construction materials have impacted builders’ bottom lines and new home prices during the past few years.

A lot of construction materials are hauled into metro Phoenix via rail. The crash of a Union Pacific Railroad train on the Tempe Town Lake bridge last week could slow the flow of building materials to the area.

That could cause delays in the construction of new homes and other developments and potentially raise costs.

Belfiore said new home prices could climb 5% to 7% next year.

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

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