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Mostly clear. Low 61F. Winds light and variable.
Updated: April 23, 2023 @ 11:43 pm
The Valley’s housing market is not only worsening for sellers but also looking not so hot for builders, a leading local analyst of the local market said last week.
The Cromford Report offered a dismal outlook on the new-home construction scene in the Valley, stating that the number of permits being issued for new homes is plummeting and that the industry here is “slamming on the brakes.”
Reporting that ”things are getting worse for sellers,” the Cromford Report said its index of Valley home sub-markets – based on a variety of sales and price data – shows “the deterioration in the market continues to fall.”
It said that of those submarkets, Queen Creek now offered the least favorable market for sellers.
“Eleven cities are buyer’s markets, three are balance and three are still seller’s markets, though all three are deteriorating rapidly,” the Cromford Report said.
The “deteriorating markets” are Fountain Hills, Paradise Valley and Scottsdale because while advantageous to sellers, now, that environment is c=beconign elss so. 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 saw only 1,485 single-family building permits. This is the lowest monthly total since February 2017 and down 36% from September last year.”
That spells bad news for buyers – and for renters – at least in the short term.
The Cromford Report and numerous national experts say a slowdown in home construction about five years ago contributed to low inventory of homes that in turn that helped drive prices to historic heights and at historic sizes in the last few years.
Right now, inventory has grown because fewer houses are selling as rising mortgage interest rates discourage prospective buyers, according to the financial website Kiplinger.
At the same time, the Valley’s population continues to rise, driving higher demand and keeping prices from free-fall.
In August, Peter Schiff, the chief economist at investment company Euro Pacific, tweeted, “Soon new home construction will almost completely shut down. That’s because it will be too expensive to build new homes that most buyers can actually afford. The housing market will consist almost exclusively of existing home that will sell for less than the cost to replace them.”
Business Insider, another financial website, cited Schiff’s observation. and said:
“While it’s not the foreclosure crisis of 2008, today’s real estate market also has a dark side. It 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 tanking demand and are slowing down housing construction — contributing to the housing crisis’ vicious cycle.”
Falling demand isn’t the only factor impacting builders, who also face rising costs in some materials even though prices have fallen slightly in the last two months for others, the National Association of Home Builders reported last week.
“Prices have fallen 2.3% since June, the largest three-month drop since April 2020,” it said. “However, these modest price declines have occurred when material prices were already at extremely elevated rates.
“And while lumber and steel prices have trended down in recent months, the prices of ready-mix concrete and gypsum building materials have continued their climb dating back to early 2021.”
The builders association explained, “Not only is gypsum a major component of drywall, it is also a critical ingredient to the Portland cement used to manufacture ready-mix concrete. High demand for cement – combined with lower imports of aggregate due to a large quarry shutdown in Mexico – have spread thin the supply of domestically produced ready-mix concrete as well as gypsum.
“As drywall and cement are used in many applications outside of residential construction, prices have increased even as single-family construction has cooled.”
The association also said that builder confidence is steadily declining.
“In a further signal that rising interest rates, building material bottlenecks and elevated home prices continue to weaken the housing market, builder sentiment fell for the 10th straight month in October and traffic of prospective buyers fell to its lowest level since 2012,” it said.
But builders of multifamily complexes aren‘t facing the same problem – at least for now.
The Phoenix Metro region is seeing “a record-number of building permits are being issued for apartment construction,” the Cromford Report said last week.
“It is clear that 2022 will go down as the busiest year ever for multifamily permits,” it said last week, reporting that in Maricopa and Pinal counties combined, 5,599 multifamily units were issued int eh third quarter.
Compared to the home-building industry, it added, “the multifamily construction industry is ping in the opposite direction at top speed.”
The trend in apartment construction in the Valley mirrors a nationwide trend, according to fa variety of housing market analysts.
However, those same analysts are predicting the multifamily market will face the same slowdown their single-family housing counterparts are facing.
Kiplinger last week said, “Multifamily starts will trend lower over the next year as a slowdown in rent growth, and the record number of apartments under construction, discourage developers from breaking ground on new projects.
“Multifamily starts, fueled by low vacancies and rising mortgage rates, will rise 15% in 2022. Single-family starts will fall around 8% for the year.”
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