Metro Phoenix Still a Top Market for Home Building Despite High Rates. Here’s Why

Article originally posted on AZ Central on December 19, 2023

Home building in metro Phoenix took a hit like the resale market when interest rates started to ramp up last year.

But the Valley is still one of the top metro areas for home building and is poised to see more new houses go up in 2024.

Just look at the area’s strong job, population and income growth to see why.

“Many people are relocating to Phoenix,” Ali Wolf, chief economist at housing research firm Zonda, told an Arizona Biltmore ballroom packed with real estate industry representatives at the Land Advisors Phoenix housing forecast last week. “Affordability is relative, and many are moving from pricier areas.”

In 2022, about 130 people moved to the Valley a day, according to Zonda.

She said 2023 will end with about 15,500 new houses started in the Phoenix area, but 17,000 are projected for 2024.

That compares to the pre-pandemic level of 21,500 new homes.

Despite the decrease this year, metro Phoenix ranked No. 5 for the most new home starts during the third quarter.

Why the positive forecast for home building?

Population, job and income growth are driving the Valley's home building market. But costs, zoning and water are issues.

“Arizona accounts for only 2.2% of the overall U.S. population,” said Greg Vogel, founder and CEO of Land Advisors Organization. But, he said, the state has captured 4% of the U.S.’s population growth during the past two decades.

The Valley also ranked No. 5 among big metros for the most population growth between 2015 and 2022, according to Zonda and Moody’s. The region ranked No. 14 for the most new high-wage jobs, with a 21% increase in that span of years.

Despite a big jump in home prices, the Phoenix area is still more affordable than other cities, including Los Angeles, Denver and New York, said Wolf.

A tight supply of resale houses and home builder incentives, including interest-rate buydowns, are helping the new home market.

Mortgage rates are dipping and could fall more next year.

Vogel said the West Valley is dominating the home building market with a more than 50% share that is expected to continue for decades because of the available land and growing job base due to Taiwan Semiconductor Manufacturing Co. and other companies expanding in the area.

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