Phoenix market expected to return to normal after a robust 2005

New-home sales rise despite falling prices
Phoenix market expected to return to normal after a robust 2005
New-home sales soared in March but prices declined in a national new-home market that is expected to cool this year as interest rates rise.

In metropolitan Phoenix, demand for new homes is expected to continue to slow from last year's record pace as builders sell through "spec" or speculative-home inventories caused by buyers backing out of deals. Analysts say the local housing market is returning to a more normal pace after last year's frenzy.

Nationally, the Commerce Department reported that sales of new single-family homes rose 13.8 percent last month to a seasonally adjusted annual sales rate of 1.213 million units. The increase represented a recovery from a 10.9 percent plunge in sales in February.

The Valley's new-home market has slowed as prices and mortgage rates rise. Builders have been offering incentives to unload spec homes. Many of those homes were under contract to be sold but buyers backed out when they couldn't sell existing homes in a resale market suddenly flooded with listings.

Valley new-home permits fell more than 20 percent in February, according to housing analyst RL Brown. He said it was a reflection of buyers hitting a "price wall" and canceling sales contracts. Brown says the median new-home price in the Valley rose from $262,759 in January to $268,232 in February.

Nationally, the median price of homes sold in March dropped to $224,200, down 2.2 percent from what homes were selling for in March 2005. It marked the first time home prices dropped over a 12-month period since December 2003. In metropolitan Phoenix, the median price of a new home in February was $268,232, up a bit from January.

Home prices last year were soaring as eager buyers bid more to get into a sizzling home market. However, analysts believe that sales, which set records for five straight years, will decline in 2006 as the housing boom cools under the impact of rising mortgage rates.

Brown and the Commerce Department use different criteria to measure demand in the new-home market.
Glen Creno
The Arizona Republic
Apr. 27, 2006 12:00 AM

http://www.historiccentralphoenix.com/