January 28th, 2008 by Michael Oliver

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The Phoenix, Arizona, real estate market is, in my opinion, much worse shape than Tucson’s. Phoenix experienced more speculation for a longer period of time than Tucson. During the boom, I remember speaking with agents in Phoenix who talked about the wave of speculators arriving and buying Phoenix up for a full two years before the same type of speculators came to Tucson in droves. When they came to town, the buying frenzy only lasted roughly 8 months, whereas Phoenix experienced well over two years of blatant overbuilding and speculation. However, just because the Phoenix AZ real estate market is in worse shape than Tucson’s, it doesn’t mean the market is dead.

The Phoenix real estate market and especially the new home marketplace (the largest in America) have had a rough time the past two years, but the numbers are still staggering. The Phoenix market is just a juggernaut and is many times larger than Tucson’s. 2008 will be a slower than normal year for the Phoenix new home builders. Only 22,000-24,000 home building permits are expected to be issued. That’s about a 20% drop from 2007, which was even much slower than 2006. By comparison, I believe the Tucson home building numbers come in around the 6,500 mark for 2007, down from 7,831 in 2006 and 11,270 in 2005 when the housing boom reached its peak. The leading homebuilder by number of sales in Phoenix for 2007 was D.R. Horton. They logged over 5850 sales last year alone! Coming in second was Pulte Homes, and they had sales figures in excess of 4250 sales! Those numbers are still huge. In Tucson, the leading homebuilders top out around only 600-800 total sales. It’s easy to see the Phoenix market is still churning out a large number of sales.

It is expected that the Phoenix real estate market will stay in its current downtrend for at least another two years. Some predict longer. There is just way too much inventory in the Phoenix area to be burned off by natural demand from expanding families and population growth. Look for 2010 to be the year that the Phoenix market starts to stabilize and starts to once again produce net appreciation in home prices that beats out inflation. Some areas of Phoenix like Scottsdale and Fountain Hills are still somewhat sheltered from the major downturn because of their exclusivity and way above average homebuyer types who can wait out downturns. Many of these homes are in the highest of price ranges and were obviously not purchased on speculation with the intent to rent the home out and double their money in 3 years, like so very many others tried to do.