Builders Respond to Increased Demand for New Homes

Metrostudy: NEWS RELEASE

(Phoenix, AZ ) With an under-supply of resale homes on the market in Phoenix, more and more buyers have been looking to the new-home market to meet their housing needs.  This turnaround has challenged builders, who have had a difficult time building enough homes to meet buyer demand.  Builders were starting to sell out of their communities faster than they could replace them, and their costs are going up.  They have responded by limiting sales in some of their communities and raising prices an average of $15,000 from March to September, a 7 percent increase.  “This is the first wide scale increase in prices since 2005, but the increases are still lower than that of resale pricing over the same six-month period,” said Ben Sage, director of Metrostudy’s Phoenix division.

New home starts in the Phoenix area numbered 9,975 during the year ending 3Q12, which represents a 66% increase over last year.  Starts are based on Metrostudy’s lot-by-lot survey of all new construction subdivisions in Maricopa and Pinal Counties.  “Housing supply, both new and resale, is very tight as record-low mortgage rates and an improving economy are fueling home sales,” according to Ben Sage.  “From an historical perspective, new-home sales are still rather low, but many builders are reporting a two-fold increase in sales so far this year compared to 2011.”

New-home inventory, which includes under construction homes, has gone up this year from 5,744 units at the end of 2011 to 7,145 in 3Q12.  Importantly, however, the number of new-home inventory units that are finished but vacant has fallen from 2,438 at the end of 2011 to 1,934 at the end of the third quarter, a 21 percent decline.  “The increase in total new-home inventory reflects the increased demand, while the decline in finished vacant inventory indicates that builders can’t keep up with demand,” said Sage.

“Builders are starting homes about as fast as they can, and they are scrambling to find land so they can grow with the market.  They have raised prices, but these price increases will moderate as the seasonal slowdown this time of year allows builders to come up for air,” said Sage.  “The old adage of ‘be careful what you wish for’ applies to builders, but they are pleased to be dealing with the new challenges facing them with this turnaround.”

See rankings and more about Metrostudy below

Starts By Community
The new-home communities that generated the most new-home starts during the year ending 3Q12 were as follows:

1. Lyon’s Gate (Gilbert) – 344 starts
2. Vistancia (Peoria) – 290 starts
3. Power Ranch (Gilbert) – 286 starts
4. Palm Valley (Goodyear) – 236 starts
5. Circle Cross Ranch (Hunt Hwy) – 201 starts
6. Ironwood Crossings (Hunt Hwy) – 194 starts
7. Seville (Gilbert) – 191 starts
8. Verrado (Buckeye) – 190 starts

Starts By Submarket
By a wide margin, Gilbert remains the top submarket for new home activity.  Starts in Gilbert are up 86%, and it now accounts for 20% of all starts in the metro area.  Here are the Metrostudy submarkets ranked by new-home starts during the 4 quarters ending 3Q12.

1. Gilbert – 2,043 starts
2. Queen Creek* – 970 starts
3. Chandler – 825 starts
4. Phoenix – 815 starts
5. Mesa – 746 starts
6. Goodyear – 679 starts
7. Buckeye – 630 starts
8. Peoria – 625 starts
9. Surprise – 408 starts

Note: These are based on Metrostudy submarkets and not incorporated city boundaries
* Queen Creek includes San Tan Valley in Pinal Co.

Master Planned Community Starts
Of the 9,975 starts in the metro area over the past 4 quarters, 2,745 were in large scale, master planned communities (MPC).  MPCs garnered a larger share of the overall market since the recession, growing from 15% of starts in 2007 to 28% currently.  It has come down a little this year, however, as first-time buyer product, which is not as prevalent in MPCs, is increasing in volume due to the extreme lack of resale supply in this segment.

It is also noteworthy that active-adult communities are not participating in housing’s upward trend right now.  There were 826 starts in this market segment over the past 4 quarters, which is unchanged from two years ago.  The share of active-adult starts has declined from 12% one year ago to 8% currently.  The top active adult communities in terms of starts over the past year are as follows:

1. Trilogy at Vistancia – 161 starts
2. Sun City Festival – 134 starts
3. Pebble Creek – 92 starts
4. Sunland Springs Village – 86 starts
5. Province – 60 starts
6. Canta Mia at Estrella – 51 starts
7. Sun City at Anthem Merrill Ranch – 40 starts
8. Mission Royale – 39 starts

For information contact:
ben sage @ 480.756.9300

About Metrostudy
Metrostudy is the leading provider of primary and secondary market information to the housing industry and related industries nationwide. In addition to providing its own primary housing data for approximately 70% of the United States housing market, the company is recognized for its consulting expertise regarding real estate development, marketing and economic issues, and is a key source of research studies evaluating the marketability of residential and commercial real estate projects. Services are offered through an extensive network of offices located in major metropolitan areas throughout the U.S. For more information, visit