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The metro Phoenix housing market is rebounding just as mortgage interest rates are expected to dip as 2024 unfolds.
Local analysts are optimistic that any drop in mortgage interest rates will be the catalyst needed to spark a surge in home closings.
"We are expecting a positive outlook for housing in 2024," said Tina Tamboer, senior housing analyst for The Cromford Report. "The positive outlook is not necessarily in properties appreciating a bunch. The positive outlook is that more people may be able to participate in the housing market as a seller or a buyer."
The Business Journal spoke to several of the most influential residential real estate industry executives in Arizona and around the country to get their predictions for the housing market in 2024. Cautious optimism abounds after a year in which home prices generally declined across the board, as the market showed signs of life in the final weeks of the year. Industry experts are now hopeful that sales will continue to trend upward as interest rates begin to come back down to earth.
Special report: Home sales don't tell the full story of Phoenix's residential real estate outlook. Homebuilders are scooping up Valley property right and left.
Mortgage interest rates currently hover around 6.75%. Tamboer estimated they would need to drop below 6% to boost buying and selling activity.
"We're coming into 2024 with hope as opposed to despair and skepticism like last year," she said. "We're not quite to 'relief,' but we do have good reasons to hope."
Homeowners who purchased their homes several years ago with a 3% mortgage interest rate don't want to sell their homes only to purchase another with a nearly 7% interest rate, said Elliott Pollack, CEO of Scottsdale-based Elliott D. Pollack and Co.
"As interest rates come down, that oddity will go away," he said. "But it's going to be a while. The only way interest rates will come down dramatically this year is if the economy is poor. The worse the economy is, the more interest rates will come down. The better the economy is, the slower interest rates will come down."
Homebuilders bullish on land buys
With an eye toward the future, homebuilders are bullish on land and lot purchases in metro Phoenix as 2024 gets underway.
"We're in growth mode," said Jeff Gunderson, senior vice president of land operations for Miami-based Lennar Corp. (NYSE: LEN). "In order to do that, we've got to buy land. We're going to be very aggressive buying land this year. Our goal is to be nearly double in size in three to four years in home closings."
On Jan. 3, Lennar was the winning bidder of an Arizona State Land Department auction, dropping $32.2 million for 79.85 acres just east of Six Flags Hurricane Harbor Phoenix water park near 43rd Avenue and Pinnacle Peak Road in Phoenix. Gunderson said he's also in escrow for several other parcels throughout metro Phoenix.
"Historically, Phoenix has been a strong homebuilding market," he said. "The job creation in the recent past and continuing strong in-migration numbers really points to Phoenix's strength as an overall homebuilder market."
Despite traditionally focusing on the East Valley, Tempe-based Fulton Homes is now turning its attention to the west. Norman Nicholls, president of Fulton Homes, is developing four new communities in the West Valley to add nearly 3,600 homes.
"We're East Valley builders," said Nicholls, who has overseen the construction of 35,000 homes since he joined the homebuilder in June 1981. "But you really see the growth potential. All of our land selection in the West Valley is focused along Loop 303."
Master plan developers optimistic
Developers of master-planned communities also are optimistic for an improving housing market in metro Phoenix.
Health Melton, president of the Phoenix region for Howard Hughes Holdings Inc. (NYSE: HHH), said strong sales in the third and fourth quarters of 2023 offered positive momentum for 2024.
"Phoenix is probably one of the most constrained markets for new home sales as far as lot supply," Melton said. "We haven't gotten back to equilibrium. We're getting close to vacant lot supply within the market."
The Woodlands, Texas-based developer in December received final plat approvals to begin moving forward on the first piece of its 37,000-acre master-planned community in Buckeye. Called Teravalis, that project is Howard Hughes' largest proposed master-planned community to date.
With about 5,000 single-family lots on 3,029 acres, the first village of Teravalis is called Floreo and represents the entryway into the giant community. The entire 3,029 acres of Floreo has certificates of assured water supply.
"That gives us a long path for growth," Melton said.
Michael Ingram, founder of Scottsdale-based El Dorado Holdings Inc., expects to see at least a 10% to 15% increase in new home sales and homebuilding permits in 2024 over 2023. That trend already started emerging in the back half of 2023: homebuilder permits increased 126.26% in November 2023, with 2,154 single-family homebuilder permits issued compared to 952 during November 2022, according to Phoenix Housing Market Letter.
"If we see a softening of at least 1% of interest rates, I think we'll easily reach that level," Ingram said of the continued growth. "Nothing would help more than if we get back to under 5% for permanent financing."
El Dorado, which has developed several master-planned communities in Arizona, recently sold 461 lots to homebuilders at Bella Vista Farms, its $2.1 billion master-planned community in Pinal County.
Meanwhile, Jim Daniel, president of R.L. Brown Housing Reports, forecasts 23,000 new home closings and 22,000 new homebuilding permits in Arizona this year.
He expects the housing market to remain flat in 2024.
"We're going to continue in a flat market with positive job growth and positive migration, so people are still moving here," Daniel said. "Jobs are still being created about the same level as they were last year. Right now, my biggest concern would be a national event or worldwide event that would put a stick in the spokes."
