The valley’s housing market is deteriorating not only for sellers, but also for builders, a leading local market analyst said last week.
The Cromford Report offered a dismal outlook on the new home building scene in the Valley, indicating that the number of permits issued for new homes is plummeting and the industry here is “stepping on the brakes”.
Signaling that “things are getting worse for sellers”, the Cromford report said its Valley Residential Submarkets Index – based on a variety of sales and price data – shows that “market deterioration continues to to lower”.
He said that of those submarkets, Queen Creek now offered the least favorable market for sellers.
“Eleven cities are buyer’s markets, three are equilibrium markets, and three are still seller’s markets, although all three are rapidly deteriorating,” the Cromford report said.
The “deteriorating markets” are Fountain Hills, Paradise Valley and Scottsdale because, although beneficial to sellers, this environment is now less attractive. Cromford said the three strongest markets are Cave Creek, Phoenix and Chandler.
“Dramatic trends are reported by the Census Bureau for building permits in central Arizona,” the Cromford report also said. “For Maricopa and Pinal counties in September, we only saw 1,485 single family building permits. This is the lowest monthly total since February 2017 and down 36% from September last year. »
This is bad news for buyers – and for renters – at least in the short term.
The Cromford Report and many national experts say a slowdown in home building about five years ago contributed to low home inventory which, in turn, helped push prices to historic highs and to historic sizes in recent years.
Currently, inventories have risen because fewer homes are selling as rising mortgage interest rates discourage potential buyers, according to financial website Kiplinger.
At the same time, the valley’s population continues to increase, leading to higher demand and preventing prices from falling freely.
In August, Peter Schiff, chief economist at investment firm Euro Pacific, tweeted: “Soon the construction of new homes will be almost completely closed. Indeed, it will be too expensive to build new homes that most buyers can afford. The housing market will consist almost exclusively of existing homes that will sell for less than the cost of replacing them. »
Business Insider, another financial website, cited Schiff’s observation. and say:
“Although this is not the foreclosure crisis of 2008, today’s real estate market also has a dark side. This all stems from the fact that fewer and fewer Americans can afford to buy the limited homes available, especially as interest rates rise.
“Homebuilders are feeling the pain of falling demand and slowing housing construction, contributing to the vicious cycle of the housing crisis.”
Falling demand isn’t the only factor affecting builders, who are also facing rising costs for some materials, even as prices have fallen slightly over the past two months for others, the company reported. the National Home Builders Association last week.
“Prices have fallen 2.3% since June, the biggest three-month drop since April 2020,” he said. “However, these modest price declines occurred when material prices were already at extremely high rates.
“And while lumber and steel prices have trended lower in recent months, prices for ready-mixed concrete and gypsum building materials have continued to climb since the start of 2021.”
The Builders Association explained: “Not only is gypsum a major component of drywall, it is also an essential ingredient in the Portland cement used to make ready-mixed concrete. Strong demand for cement – combined with lower imports of aggregates due to the closure of a major quarry in Mexico – has reduced the supply of ready-mixed concrete and gypsum produced in the country.
“As drywall and cement are used in many applications outside of residential construction, prices have risen even as single-family construction has cooled.”
The association also said builder confidence is steadily declining.
“In another signal that rising interest rates, building material bottlenecks and high house prices continue to weaken the housing market, builder sentiment fell for the 10th consecutive month in October and traffic from potential buyers fell to its lowest level since 2012,” he said. .
But multi-family resort builders don’t face the same problem — at least not yet.
The Phoenix metro area is seeing “a record number of building permits issued for apartment construction,” the Cromford report said last week.
“It’s clear that 2022 will be the busiest year ever for multifamily permits,” he said last week, reporting that in Maricopa and Pinal counties combined, 5,599 multifamily units were issued during the third trimester.
Compared to the home construction industry, he added, “the multifamily construction industry is spinning in the opposite direction at full speed.”
The trend in apartment construction in the Valley reflects a national trend, according to a variety of housing market analysts.
However, these same analysts predict that the multi-family market will face the same downturn that their single-family housing counterparts are facing.
Kiplinger said last week: “Multi-family housing starts will trend lower over the next year as slowing rental growth and record numbers of apartments under construction discourage developers from starting new ones. projects.
“Multi-family housing starts, fueled by low vacancy rates and rising mortgage rates, will increase 15% in 2022. Single-family housing starts will fall about 8% for the year.”