Analysts predict milder price jumps

Glen Creno
The Arizona Republic
Jan. 24, 2006 12:00 AM

Metropolitan Phoenix’s new-home market charged to another record last year, and a top analyst says it could maintain a similar pace for the next five years.

Rising prices, government bottlenecks and construction delays didn’t stop the market from racking up 63,570 permits for new homes, about 4.4 percent more than the 2004 record, analyst RL Brown said. He expects the market to slow to about 60,000 permits this year, but that isn’t much of a falloff in what typically is one of the country’s top home-building cities. And Brown said he wouldn’t be surprised to see permits hit the 65,000 milestone in the next five years as population expands.

“This town will continue to grow and grow rapidly,” he said.

Brown made his remarks at a market forecast Monday that drew more than 1,000 builders, developers, land brokers, bankers and government officials to a north Phoenix resort.

Housing forecasts are drawing particular attention these days as the Phoenix market cools and the players look for consensus on what happens next. Predictions at another recent housing forum said that from 35,000 to 45,000 homes would be built in the Valley this year, a much steeper decline than the one Brown foresees and one that could damage a local economy that relies on housing as its top industry.

Brown, publisher of the Phoenix Housing Market Letter, doesn’t think the market will fall that far. He based his prediction on an expectation of continued growth in jobs and population and house prices that appear affordable compared with other Western cities.

Price increases are a constant concern in a city that has been known for affordable housing. Brown said the median price for a new home in the Valley rose $98,000 to $299,000 in 2005, increases he said would not be sustainable. He predicted that new-home prices would increase by a much-milder 4 percent this year. Analyst Steve Bottfeld, who shared the podium with Brown, said prices will rise 5 to 8 percent this year.

Builders have been hit with higher costs across the board as the subcontractors who put together the homes pay more for basic materials. Land prices also have soared.

Brown said parcels that cost $7,000 to $8,000 an acre at the beginning of last year sold for $80,000 at the end of the year. Still, he said, builders’ margins were running 20 to 25 percent in the Valley, a record for the area.

Brown cast some skepticism on the city’s growing condominium craze. He said some apartment buildings that are being converted to condominiums have little chance of selling well and predicted that 15 to 20 percent of the announced “vertical” or high-rise condominium projects will be built.

“Condos will not become the dominant lifestyle choice for consumer in this marketplace,” Brown said.

He expects that the shakeout of speculators in the resale market will continue, another trend that will stabilize prices. Among Brown’s big worries, or “deal busters,” that could derail the market: terrorism, further erosion in affordability, interest rates above 8.5 percent, a “dump and run” by housing investors, and growing transportation snags.

By Janet DelTufo

Town Planner Miles Johnson unveiled an ambitious 10-year annexation plan last week when the Wickenburg Town Council and the Wickenburg Planning and Zoning Advisory Commission met for a joint session on growth.

The plan advances the town’s corporate limits from its current 25-square mile boundary to a sprawling 750-square miles, larger than the current 514-square mile City of Phoenix.

Projected boundaries stretch beyond Congress to the north, Forepaugh to the west, Whispering Ranch to the south and just short of Morristown along the Grand Avenue corridor.

The plan was designed in conjunction with updated figures from the Maricopa Association of Governments (MAG), which is projecting explosive growth in Wickenburg and the Phoenix metropolitan area.

Johnson appeared confident that the goals and objectives of the plan could be met within the projected time frame, if not earlier.

“My staff and I feel comfortable that we can do this successfully,” Johnson said. “We have several strategies we are working with.”

Johnson said the plan was created to address future needs of the community and to combat “known threats” such as the cities of Buckeye, Surprise and Peoria.

He also touched on the Congress area, describing it as an “unknown threat.” Johnson said Congress, currently an unincorporated area of Yavapai County, has the ability to incorporate as its own municipality. He said the Town of Wickenburg needs to become mindful and proactive if it wants to preserve its identity.

“These 750 miles will take into account the customs, values, and lifestyles of the Wickenburg community,” Johnson said. “Our goal (planning staff) is to protect the destiny of Wickenburg.”

Town Manager Shane Dille told the audience when the town’s department heads looked at the plan, they all questioned if the town could financially afford to expand its borders to such an extent. The majority of the proposed annexed property would be vacant and would not create much revenue.

However, after looking at the inevitable growth of the state, they realized the town could not afford to ignore the need to grow.

“We will be doing this primarily for self protection,” Dille said.

The annexation plan is segmented into four portions, beginning with a three-year plan, a five-year plan, a seven-year plan and finally a 10-year plan. Current annexation projects include portions of State Trust Land west of town, the area known as Stonehedge, the area known as North 40 and an area along U.S. Highway 60/Grand Avenue.

Johnson said census data predicts 50 million more people will be living in the state by the year 2050, and the corridor from Wickenburg to Prescott will be experiencing explosive growth as well as the Phoenix/Tucson corridor and the obvious Wickenburg to Phoenix corridor.

Several comments were made during the meeting regarding both the ability to maintain Wickenburg’s equestrian lifestyle and the need for more commercial properties.

Mayor Ron Badowski said if the community wanted to preserve an open space, equestrian type of environment, it must be prepared to accept some higher density housing and larger commercial projects. He said this is the only way large portions of open space can be maintained by the town.

“But for those concerned about development, I don’t think we want to look at the dollars it will bring to the town or to the developer, but if it will be a first-class development,” Badowski said.

Johnson and Planning and Zoning Advisory Commission Chairman Bill Cowles agreed with Badowski. Johnson then elaborated on the issue of horse property and those who enjoy trail riding.

“We have put a lot of thought into the issue of controlling growth, and our proposed plan will control our destiny,” Johnson said. “If we do not grow, we will be carting our horses a long way to ride them. I do not think this is what we want.”

It was also suggested by Commissioner Darrel Stadel that the town hire a full-time person to work on annexation projects only.