Land sales in Greater Phoenix were slower in the first half of 2018 than the second half of 2017. However, the first six months did outpace the same period of 2017. The momentum of land transactions is expected to pick up as the housing market becomes healthier and permitting improves.
Land sales increased more than 30 percent in 2017 but have slowed by approximately 25 percent during the first half of 2018. Prices for land parcels inched lower, despite stronger conditions in both the housing and commercial real estate markets.
Permitting for single-family homes surged during the first half while multifamily project permitting leveled off. Permitting for single-family homes is forecast to reach its highest level since 2007.
Nearly 12,000 single-family permits were pulled during the first six months of 2018, which marks an 18 percent rise from the second half of 2017. The current forecast calls for an estimated 26,000 single-family permits to be issued during 2018. Sales of new homes are on the rise, though price growth has been modest. The median price of a new home thus far in 2018 is approximately $308,000, marking a one percent increase from the median price for 2017.
Multifamily project permitting slowed modestly during the first half of this year. Approximately 4,200 permits were issued during the first six months, down from more than 4,500 permits in the latter half of 2017. The first half did outperform the first half of 2017 by approximately three percent. Developers have pulled an average of approximately 750 multifamily permits per month since 2016. Based on current trends, the market is expected to pull a total of approximately 8,500 multifamily permits during 2018. Despite robust development activity, the multifamily vacancy rate remains below six percent. Demand is keeping pace with increased supply and the city’s appetite for rental units is not expected to slow for the remainder of the year.
Median sales prices for land parcels dipped to $3.59 per square foot, which is down from $4.19 per square foot in 2017. Rising construction costs and a limited number of prime infill sites changing hands may have contributed to this decrease. Sales velocity of land for commercial use has been consistent for the past 18 months. Pricing of commercial land has been somewhat volatile. The median price for commercial land was just $3.49 per square foot in the first half of 2018, down approximately 25 percent from the median price in 2017. Pricing in this category peaked in the first half of 2017.
Sales velocity of land is expected to pick up during the second half of 2018, though some factors may limit activity. Rising interest rates could slow the pace of economic growth and put a drag on housing with higher mortgage costs. Rising construction costs are diminishing profits for homebuilders and making it more difficult to plan successful new projects. Finally, price appreciation in new homes is lagging behind the appreciation of existing home sales. An acceleration in new home sales prices would support greater activity in the residential land sales market.
