New home sales fare better in Phoenix metro than rest of the nation

By Angela Gonzales 

As national economists see mounting headwinds in the U.S. housing market, metro Phoenix has a different story to tell.

While new home sales fell 5.6% nationwide in October, they increased in the Valley, according to research by R.L. Brown Housing Report.

The metro had 1,854 new home closings in October, up 4.04% from 1,782 in October 2022, according to the Phoenix housing report.

Another indication of a strong recovery in metro Phoenix was a resurgence of permit activity, where R.L. Brown Housing Reports counted 1,833 new homebuilder permits issued in October, up from 785 in October 2022.

These numbers strongly suggest that homebuilders in metro Phoenix have managed to recover significantly from the shock of dramatically increased mortgage rates and construction costs of a year ago, according to the report.

During the second half of 2022, homebuilders in metro Phoenix saw a significant slowdown as a result of the jump in mortgage interest rates, said Alan Jones, Phoenix division president for Miami-based Lennar Corp. (NYSE: LEN).

Jones said his Phoenix division is seeing strong sales activity — an increase of more than 15% year over year.

"A big reason for that is we're making it so payments work for the buyer," he said. "We're buying down the interest rate."

The big question: How long will homebuilder incentives last?

But how long homebuilders can offer these incentives remains to be seen, said Daniel Vielhaber, an economist with Nationwide Mutual Insurance Co.

"Rate incentives from builders have helped to ease the financial burden for buyers and made new homes more appealing amid the many headwinds currently facing the housing market, but it's unknown for how long builders can continue to offer such incentives," Vielhaber said.

Jones is expecting a 10% increase in home closings for Lennar's Phoenix division, which closed on 2,444 homes in 2022.

He said he's encouraged that major employers are expanding to metro Phoenix, pointing to Taiwan Semiconductor Manufacturing Co.'s $40 billion chip plant being built in north Phoenix, Intel Corp.'s $20 billion expansion in Chandler and LG Energy Solution Ltd.'s plans to spend $5.5 billion to build two battery plants in Queen Creek.

"There is a strong demand for housing," Jones said.

Don Barrineau, Phoenix division president for Mattamy Homes, said sales are up a few percentage points over this time last year for the Florida-based homebuilder.

Over the past several years, Barrineau has been buying vacant land surrounding TSMC's plant in north Phoenix.

Mattamy's Sendero community near Anthem and Sereno near the Vistancia master-planned community will serve that submarket, he said.

"We have three more under development that will serve that TSMC deal," he said.

"This Phoenix SMA has got a good job engine underway with all the manufacturing, distribution and relocations to this market," he said.

In addition, the Queen Creek and San Tan areas in the southeast submarket are healthy sales markets for Mattamy, Barrineau said.

Housing resale activity declines

This increase in new home sales comes at a time when resale activity in the region continues to decline, suffering a further 10.91% drop from the same month last year and a nearly 32% drop from the year-to-date comparison, according to R.L. Brown Housing Report.

Meanwhile, home prices nationwide increased 3.9% in September, according to the S&P CoreLogic Case-Shiller Indices released Nov. 28.

In metro Phoenix, home prices inched up 0.5% between August and September, but they were still down 1.2% year over year in September, according to the Case-Shiller report.