Although it is for the new home market, RL Brown’s new estimate is the market won’t turn around until 2009.
Okay, let’s look at the numbers.
Elliot Pollack, another famous Arizona analyst, estimates metro Phoenix needs about 45,000 or more new single family units built a year to handle growth.
During 2004 and 2005, however, Arizona home builders built 20,000 EXCESS homes! That’s nearly an extra half a year’s supply.
There were 42,460 building permits issued in the Phoenix area in 2006. So theoretically, under this scenario, the oversupply of new homes fell to about 17,500.
If 2007 building permits are 34,000 as estimated by RL Brown, that will draw down the oversupply going into 2008 to 6,500 units.
I doubt Arizona home builder will cut production that much but if they did, the Arizona new home market could potentially be back in “balance” by late 2008.
Back to RL Brown;
Brown expects the market to remain at the same level in 2008 before beginning its rebound in 2009.
Builders pulled more than 60,000 permits in both 2004 and 2005, a pace Brown said was unsustainable. He said the market still is flooded with homes for sale. The market has perhaps 70,000 to 90,000 of them, including the more than 52,000 on the Arizona Regional Multiple Listing system typically cited as a baseline inventory figure, Brown said.
But Brown also noted that there is other inventory on the market aside from the MLS listings, though he said it is difficult to know the precise numbers. He estimated there are as many as 10,000 to 20,000 builder speculative, or “spec, ” homes for sale, along with a similar number of investor-owned homes that are either vacant or being rented until they can be sold. Only some of those spec homes and rentals are on the MLS, too.
“That’s a huge number,” Brown said. “The point is that there are a lot of homes that are going to have to be sold or occupied before the market is back in balance.”
“What do you do? Do you shut down the (production) line?” Brown asked. “The home-building industry has never done that.”
That supports my theory is that production won’t slow significantly until some Arizona home builders go out of business and built no more.