Homebuilding forecast muted despite tax credit

The federal homebuyer tax credit helped new-home sales in metropolitan Phoenix, but it was only a temporary boost.

Real-estate analysts RL Brown and Greg Burger have updated their forecast for homebuilding in the region during 2010. Despite increases in new-home sales during the months before the tax credit's June 30 deadline, the publishers of the "Phoenix Housing Market Letter" aren't changing their earlier forecast for area homebuilding. The pair still expect 8,500 single-family permits for new homes in metro Phoenix this year.

That level of new-home permits would make it the slowest year for housing construction in the Phoenix area for decades. Last year, there were 12,500 housing permits issued in metro Phoenix.

Through the first half of this year, 4,118 homebuilding permits were issued in the area. That includes the increase in new-home sales from the tax credit. Permits dropped to 583 in June, the lowest monthly level so far this year.

Burger said resales must fall greatly in metro Phoenix for homebuilding to really climb.

"There's not much more room for builders to bring new-home prices down to compete with the foreclosures being resold by lenders," he said.

The median price of a new home is now $195,736, compared with $214,000 at the beginning of the year.

To survive Phoenix's housing crash, builders have cut costs and home prices to compete with foreclosures. If resales' prices continue to fall because of foreclosures, it will make it even tougher for the new-home market to compete. New-home lot prices have already begun to climb in some areas, where buyer demand is strongest. Prices in parts of Gilbert and Chandler have tripled in the past few years.

Brown and Burger expect the new-home market to improve. Their forecast is for a 45 to 50 percent increase in homebuilding in 2011. By 2012, they see homebuilding permits exceeding 20,000.

by Catherine Reagor The Arizona Republic Aug. 11, 2010 12:00 AM




Homebuilding forecast muted despite tax credit