Elliott Pollack used to say Arizona home builders built an extra half-year supply of homes during the boom. I have used that number here many times.
It was probably 2 years ago that I heard Pollack say half-year. (I could search this blog for the post on it.) I assume that since then the inflow of new residents into Arizona has slowed and perhaps they found out the non-investor demand for homes during the boom was over stated so he updated his estimate of overbuilding.
Arizona home builders, as I often rail here, build until they run out of money. They have been terrible about getting their inventory under control. The over supply of new homes is still way too high which is mind boggling to me because it’s been clear the sales peaked 3 years ago in the summer of 2005.
The “they built an extra 2 years worth of homes during the boom” factoid explains a ton about the current market for new and resale homes in Phoenix.
Since Arizona home builders build until they run out of money, the best thing that can happen to the Phoenix real estate market is for more builders to run out of money and stop building.
There’s no doubt that too many new homes went up across metropolitan Phoenix during the 2004-06 boom. What has been in dispute is just how “overbuilt” the housing market is now.
New research from the firm of Arizona economist and real-estate investor Elliott Pollack shows the housing market built up to 75,000 more homes than there were buyers for in the Valley. That figure is based on “demand” for 35,000 homes a year in metro Phoenix.
In 2005, almost 64,000 new homes went up, according to RL Brown’s Housing Market Report. Home building has slowed considerably since then. Last month, only 970 single-family permits were issued Valley-wide, making it the slowest month since the real-estate crash of 1991. And though home builders are on track to build only about 15,000 homes this year, there’s still overhang from the boom.
Pollack estimates there are still 30,000 to 50,000 new homes that need to be “absorbed” or bought and lived in Valley-wide.
But he said these factors are slowing the absorption of new homes: a decline in population growth, too many homes for sale, rising foreclosures and the continued construction of homes.
The surplus of new homes will put off the housing market’s recovery, but by how long depends on all those other economic factors.