By Mike Bodeen · 3 August 2020
Last week we looked at the resale and rental markets and the price ascension of both since 2011 and 2014 which is at or nearly at double digit annual increases. This week, we’re going to consider the new home market as the 3rd leg of our housing market which is also on an upward trend with a lot going on with this industry.
New is nice! Get what you want and don’t sweat making any changes or major repairs – for years!
Since COVID-19 happened on the scene, earlier this year, the new home market has become VERY interesting for a number of reasons related to the pandemic virus.
First, there’s not been any pause in new home construction in Maricopa County. The number of new homes which sold in the 2nd quarter 2020, surpassed the number for the same period in 2019. Governor Ducey declared the real estate industry, including new home construction, an essential service. National builder Taylor Morrison, based in Scottsdale, reported a 94% sales increase for Arizona, Texas, and Florida, some of the hardest hit, pandemically speaking, for the 2nd quarter. Phoenix Business Journal Article
Second, the median sales price for newly built homes is increasing, though at a slower pace than the resale market. How long that will be the case, is, well, unknown. The median price gap between new home pricing and resale price is now about $60,000. That’s a lot of money, but in terms of a monthly payment at today’s historic low rates, that’s only about $250 per month.
Third, trend watchers, including us, are wondering how the pandemic is changing new home buyer desires. Kenneth Leon, global director of equity research at CFRA Research thinks Covid-19 is the “catalyst for a secular shift in housing from expensive, urban living to either the suburbs or to further out rural areas.”
Because of Covid, employers and employees are now looking at the current and future reality of distance working. The “where” employees need to live is changing, as the need to be close to Silicon Valley, or Chicago, or New York is no longer mandatory for many homeowners. Just in our little world, Jonathan and I have sales this past year from folks relocating from the Bay Area and Washington State, plus a Chicago attorney who commented that if she was to be quarantined in January, she’d rather be in her DC Ranch townhouse than Chicago. Reliable WiFi internet is one of few imperatives.
With new home construction, buyers determine what floor plans, upgrades and finishes can best lend to “working in place” at home. An office or two within the home may be imperative for distance workers.
Besides being more expensive is there any other downside to new builds? Yes.
Location: In the Phoenix Metro area, the more affordable (tract) new homes are located further away from city center. (read: commute)
Time of Construction: Tract home building completion is a minimum of 6 months out, and often 8-9 months. Larger, or custom homes can be a year or more.
Smaller lots: The new home tract communities are typically smaller lots than older resale neighborhoods.
Low Convenience: In new build communities, stores, schools, churches, recreation, medical, etc., are also in the construction phase and having shopping and services close by will take time.
A Neighborhood Dustbowl. The construction zone is all around you, unless the builder is nearing the end of the build-out project, construction noise, dust, and loads of worker vehicles may abound.
Though Phoenix Metro continues to grow, and new home sales are increasing, it will not be enough to satisfy the continued demand for housing – of all kinds, which is why all housing costs are rising!