Architects with blueprints at construction site
New home starts up 60% from last year in Phoenix
Metrostudy’s 1Q16 survey of the Phoenix housing market shows annual home starts, attached and detached, in the Phoenix area numbered 16,687 over the past four quarters ending 1Q16, a 60% increase YoY and up 13% from 4Q15. Quarterly starts in 1Q16 numbered 3,928 units, up 47%% from 1Q15. Annual closings numbered 12,651, up 20% YoY, while quarterly closings in 1Q16 numbered 3,414 units, up 32% YoY.
“The first quarter of 2016 had the strongest annual closing performance during the past three years,” said David Brown, Metrostudy’s Regional Director of the Phoenix region. “Heading deeper into 2016, concerns remain regarding lack of real wage increases and rising new home prices. Starts and closings are projected to increase at a moderate pace during 2016, despite wage and pricing concerns.”
At the start of the year, Maricopa and Pinal Counties witnessed solid year-over-year growth. Historically, the market has consolidated around Maricopa County with Pinal seeing healthy but moderate growth. Maricopa County accounted for the majority of total new home starts during the past year. The county witnessed 88% of total new home starts in the Phoenix metro area at the end of 1Q16. New home starts ended the first quarter of 2016 up 64% compared to first quarter 2015. Pinal County finished the year up 35% compare to one year ago. If we see jobs increase and consumer demand remain in place, then we can expect 2016 to be a positive year for the Phoenix area. Beginning of the year closings held steady with most builders able to hit unit-count forecasts. Market-wide new home starts and closings are projected to end 2016 higher than the sturdy benchmark year of 2013.
In 1Q16, finished vacant (FV) inventory saw a 16% decrease down to 1.9 months with a total unit count of 1,980. Units are not moving into the finished vacant category, which means closings are happening as soon as the home is completed and ready to occupy. Our FV unit count is the lowest we have seen since the close of 2012. Units under construction continued to climb standing at 7,882 units at the close of 1Q16, a 123% increase compared to 1Q15. The latest tally of under construction units was the highest witnessed since 2008.
Despite strong under construction unit volume, that tally still sits at just 25% of the under construction peak seen in the 2Q06. Even though under construction units remain far from the historical peak, it continues to move in a positive direction. With such a high number of units under construction forecasting for starts and closings for the upcoming year will need to be watched closely. For 2016, we are projecting 13,000 closings with over half of that inventory already under construction. With at least 7 months of supply in the under construction category we are well positioned for 2016 but expectations of 30% increases are not likely until the labor shortage is fully solved.
The overall inventory of vacant developed lots (VDL) fell in 1Q16, down 2% YoY, with only 2,887 lots being delivered in the first quarter. We are now moving into a new space we haven’t seen in a while, with potential lot shortage and competition for future demand. The total of 53,209 vacant lots include only single-family detached and townhome units. The increase in starts moved the needle on months of supply in a major way as, even with the “zombie lots,” the market is down to 38.3 months of supply. A year ago builders were concerned about how many lots they were holding and now this year there will probably be a rush on lots.
“Rising home prices due to increased construction costs, land and lot price increases, and rising development costs have forced new home prices above levels that could maximize absorption,” said Brown. “In the first quarter, there was a slight growth in the median closed home pricing at 4% across the market, though it was stronger in some submarkets like Gilbert, Mesa and Chandler. Land pricing has appreciated slightly faster which is going to push builders into higher prices.”