A local housing research expert says a number of factors led to the current state of the metro Phoenix housing market as national home price growth continues to climb.
Thomas Brophy, national research director at Colliers in Phoenix, said the current housing market inventory is “just above” a one-month supply and he doesn’t expect prices to level off until Phoenix reaches a more normal supply of three months of inventory.
According to a published report, home price growth in the U.S. soared to new highs in July.
Standard & Poor’s said Tuesday its S& P CoreLogic Case-Shiller national home price index posted a 19.7% annual gain in July, up from 18.7% in June — the fourth straight month of record growth. The 20-city composite posted a 19.9% annual gain, up from 19.1% a month earlier. The 20-city results were just shy of analysts’ expectations of a 20% annual gain, according to Bloomberg consensus estimates, the report said.
“Anything less than a three months supply, (the market) is suffering from lack of supply,” Brophy said.
The S& P report said all 20 cities during July recorded home price increases. Home prices in 19 of the 20 cities are now at all-time highs. Only Chicago is an outlier, at 0.3% its 2006 peak.
“Phoenix’s 32.4% increase led all cities for the 26th consecutive month, with San Diego (+27.8%) and Seattle (+25.5%) not far behind,” the report said.
Brophy said housing inventory is especially depleted in the price point of $300,000 or less. The typical price paid by people currently in Phoenix for new houses is between $400,000 and $450,000. Those moving here from major metro areas are spending more, buying properties between $600,000 and $650,000 on average.
Since 2016, Brophy said multifamily developers have feverishly added 36,000 units — which includes leased properties and build-to-rent homes — within the Phoenix area. In that time, the occupancy percentage has increased by 230 basis points, he said.
By the end of 2021, Brophy said he estimates Valley developers will add another 11,000 multifamily units — the highest output since 2009.
Developers are still going through labor shortages, Brophy said, and while lumber prices have declined, other parts used in single-family homes — such as aluminum, drywall and plastics — have remained at inflated levels.
“Other components used in single-family homes are at or near peak pricing,” Brophy said.
Brophy said August home inventory is up, according to the latest numbers.
“(The) current month’s supply of inventory (in Phoenix) (as of August) is 1.34, up slightly from July’s 1.24 and March 2021’s low of 0.92, but still 1.5 months below more ‘normal’ market conditions,” Brophy said.
Nationally, the published report said total housing inventory at the end of August was 1.29 million units, down 1.5% from July’s supply and down 13.4% from one year ago. At the current sales pace, unsold inventory sits at a 2.6-month supply, unchanged from July but down from three months in August 2020, the report said.
But the research director said Phoenix is one of the most affordable markets compared with other Sun Belt cities such as those in California, Florida and Texas.
Still he said the market is going through a shift where people are choosing to rent rather than buy in the region.
Millennials are more skeptical of buying homes because they lived through the financial crisis of 2008 and are thinking twice about homeownership, Brophy said.
Instead, he said, they are opting to accumulating the experiences of living in different places while typically paying more renting. Developers are including options such as hardwood floors and an in-unit washer and dryer to lure renters.
“What we are seeing is a pronounced shift into a more renter-centric society,” Brophy said.
Last month, Brophy said rental occupancy rate is 97.1% — the highest since that number topped out at 96.8% in 1978, just before a construction boom in the early 1980s, he said.
Through the end of September, that number is still hovering around 96%, according to Brophy.
The percentage of home owners versus renters could go from 70%-30% in favor of home owners to 60%-40% with homeowners remaining on top.
“That impacts hundreds of thousands of people,” Brophy said. “We still haven’t answered that demographic change. ...It’s enough to create a significant difference. We are way more renter-centric than any time in our history. Where does this evolve?”