home building

The various colors in this map represent the history of home-building patterns in the Valley for more than 50 years. The deep purple spots indicate future areas for development.

The inventory of homes for sale in the Valley has reached the lowest levels in modern history, real estate experts say.

And that means that while the few homes that are on the market are drawing multiple offers – sometimes scores of them for one house – anxious buyers may soon be forced to look far from the center of the Phoenix Metro.

During Land Advisors Organization’s annual presentation last month that assessed the state of the Phoenix real estate scene, two experts saw no end to the home buying frenzy or the accelerating upward trend in prices.

Rick Palacios Jr., director of research for John Burns Real Estate Consulting, and Land Advisors CEO Greg Vogel, indicated homebuyers may have to look as far away as Casa Grande, the Lake Pleasant area and Florence.

Only the northeast part of the county likely will not be part of this land rush, Vogel said, explaining, “We’ll continue to see meager permitting in the northeast because of low supply and, of course, higher price point.”

None of this comes as a surprise to the Cromford Report, which also closely watches housing trends in the Valley and recently observed, “The supply situation is the worst we have ever recorded.”

“It is difficult to describe the state of the housing market in Greater Phoenix these days,” it said. “Just quoting the raw facts makes many people feel you are exaggerating wildly. There are those who seem to believe it cannot really be true when so many people are struggling with their daily lives, battling the worst pandemic we have seen for many decades.”

“Variations in demand are almost insignificant,” it continued. “This is because the supply of re-sale homes is so poor it crashes below all-time record lows almost every week.”

Cromford said the ratio between homes under contract and homes for sale without a contract is so out of whack that “we have never before had to invent a description” for it.

It noted that as of Feb. 1, listings were 56.7 percent below total listings a year earlier, the median sales price jumped nearly 17 percent and the average price per square foot climbed over 19 percent.

That will be good news for homeowners. 

Cromford said, “The annual appreciation rate has already surpassed 19 percent and could easily reach 30 percent by the time we are well into the second quarter.”

It noted last week, “The speed of appreciation is about to step higher, not lower. It will not take much for appreciation rates to exceed 30 percent and possibly 40 percent over the next few months.”

“New home builders are trying as hard as they can to create more supply, but there are many physical, financial and legal limits to how quickly they can do this,” Cromford also said. “These additional homes are sure to be priced well above the current level.”

Palacios said “the ridiculously strong” housing market in the Valley is evidenced by the fact that home sales in 2020 were 80 percent higher than the norm for the years 2014-2019.

Indeed, he advised homebuilders sales were so strong that “it is going to be tough to get your growth this year” and said that any overall sales growth, primarily for new homes, will not occur before the second half of 2021.

And new-home communities will be getting bigger from the start – and extending the boundaries of the major Phoenix market well beyond what they look like today.

“You’ve got to think about community count growth, but then you also have to think about how communities are going to be bigger than they were a year ago,” he said.

Palacios said that prices and demand not only will be driven by a seemingly no early end to “crazy cheap money” in the form of low mortgage rates but also by the unrelenting influx of out-of-state residents and the growing trend toward working at home.

“I’ve talked a lot about work from home,” he said. “It is going to be trigger. It is triggering a massive catalyst for housing demand. …So, affordability will get stretched beyond what you think is the norm.”

Vogel said it’s not just home sales market that has entered into new territory but land sales as well, saying he sees the market going “from a chronic shortage that we were experiencing for several years into a panic that’s leading to rapid appreciation.”

“Even when we look at the 500,000-$2-million price range, we’ve gone from 283 days down by 90 to 26 days,” he said of the time houses are staying on the market before coming under contract.

“We have outsized appreciation,” Vogel said. “I think this is too much. We are going to have a real hard time adding enough supply to curtail this but this can get quickly unaffordable.”

Vogel noted that the number of building permits soared last year primarily in the West Valley and Pinal County, as available land in the East Valley has all but vanished except for huge tracts of State Trust Land in far east Mesa.

He noted that the current inventory of finished lots in the Phoenix Metro market totals about 13,000 after 28,700 building permits were issued in 2020.

“It’s a little bit frightening related to the supply that is being burned off,” he said. “The builders bought 21,000 lots this past year. Some of those are larger supplies that will last several years, but there’s clearly a deep shortage and the shortage is not only looming but growing.”

He said builders and developers “have to buy land differently than they did in the years prior, where they were able to buy morsels or be able to digest 60 lots and have an option on another 60. 

“They need to buy big platforms and we’re seeing that occur very often at this point. It is not unusual for a builder to come in and buy 300 to 600 units. That was not occurring even just pre-COVID,” Vogel said.