Valley Homebuilders Are Getting Creative
IT'S HAMMER TIME
While some are bullish, other builders have concerns about the future of the Valley's residential market amid high interest rates and rising construction costs
By Angela Gonzales | Phoenix Business Journal | Feb 28, 2025
Now two months into 2025, Phoenix’s housing experts have developed a feel for how the market is shaking out. But one thing is clear: every sector of the residential real estate market is built differently.
After numerous conversations in recent weeks, we’ve broken down all the trends to see how homebuilders, multifamily developers, luxury brokers and build-to-rent specialists foresee the Phoenix market rising to challenges and seizing opportunities in 2025.
Homebuilder sentiment: Bullish, and then some
Despite some potential hiccups, homebuilders are bullish in metro Phoenix, an area seeing more job and population growth, but the cost to build a home is rising, which negatively impacts affordability for homebuyers.
“Phoenix has such a high quality of life and is seeing continued job growth,” said Alan Jones, Phoenix division president for Miami-based Lennar Corp. “Those two positive points together are very impactful on our housing market.”
High rental rates in the metro are making it easier for builders to sell their homes, as high rent “can definitely push more individuals toward home ownership,” Jones added. Even so, the cost to build a home remains a pain point, he said.
“That cost encompasses the price to buy the land, develop it, build the home and pay the increasing cost of permit fees,” Jones said. “As all these items continue to increase, it becomes harder and harder to have an affordable housing market in the Phoenix area.”
Another challenge in 2025 is mortgage interest rates, said Charley Freericks, president of the Phoenix region for Texas-based Howard Hughes Holdings Inc. Builders also continue to face lingering supply chain issues, with pain points including electrical and mechanical components, a skilled labor shortage amid threats of deportations, he said.
“Phoenix remains undersupplied in virtually all residential product types, particularly when you look at specific submarket,” Freericks said.
Adding to the supply will be Howard Hughes’ 37,000-acre Teravalis master-planned community in Buckeye. A grand opening is scheduled for the first village at the community this fall, with model homes opening in the summer, Freericks said.
Scottsdale-based El Dorado Holdings Inc. also has several master-planned communities under development and in the pipeline, spanning thousands of acres in metro Phoenix that will add more inventory to the market.
Some of the Valley’s supply is limited by concerns that certain areas of Arizona don’t have enough water to support growth, said Michael Ingram, founder and chairman of El Dorado Holdings, who added that the company has water rights “already established in most of our deals.”
He continues to eye land where water isn’t an issue.
“There are areas where they have a lot of water,” Ingram said. “I’m sure those areas are going to be doing very well in the next several years. They have a good runway.”
Don Barrineau, Phoenix division president for Florida-based Mattamy Homes, said he has a positive outlook for the long-term housing market, having recently closed on land buys throughout the metro.
“This market is going to continue to be a great housing market,” Barrineau said. “In the present moment, we’re duking it out for sales every week. We’re throwing in more incentives than I’ve ever done in my life. It ties back to that clash between affordability and interest rates.”
Multifamily: Impact of fewer starts takes effect
Over in the multifamily sector, the Valley has a whopping 37,000 multifamily units under construction, while a historic amount of apartment supply has already been delivered in the Phoenix market over the past year, leading to flat rents and rent concessions.
“The supply concerns have led to minimal new development,” said George Maravilla, partner at Scottsdale-based Tower Capital, which helps developers and investors find financing for multifamily projects.
Starts are down 80%, he said.
“Most developers agree that there will be a gap in supply somewhere down the road,” Maravilla said. “I believe the mindset will transition to focusing on that supply gap and more developers will prepare for and/or resume development.”
Despite concerns about overbuilding, absorption could outpace expectations as a result of Phoenix’s unique combination of in-migration, job growth and its status as a high-income growth market, said Adam Finkel, co-founder and managing partner of Tower Capital.
“While many expect multifamily demand to cool, lower-than-expected deliveries beyond 2025 — 6,200 in 2026 and fewer in 2027 — could create a supply crunch sooner than anticipated, giving a second wind to rent growth and property values,” Finkel said.
Mansion mania: High demand for luxury homes
While interest rates continue to negatively impact affordability for first-time homebuyers, the luxury segment is on fire in metro Phoenix.
“The demand is high right now for product, and the inventory continues to remain low, which is making it difficult for buyers to find the right home,” said Scott Grigg, owner of Grigg’s Group Powered By the Altman Brothers. “People who have continued to wait on the sideline to expect prices to decrease will be very disappointed that they have not moved forward with a purchase. Our prices will continue to flourish in the luxury sector as the demand will not decrease any time soon.”
Adding to the inventory are spec home builders selling luxury homes for more than $15 million. Robert Joffe, co-founder of Compass Arizona and founder of The Joffe Group, said these ultra luxury spec homes are relatively new for the metro as prices continue to soar — and introduce a degree of uncertainty.
“I am a bit concerned by the number of $10 million-plus homes being built on spec and by investors,” Joffe said. “I’m just not sure we have the pool of buyers for the number of homes coming available.”
Investors are projecting extremely high prices and Joffe said he’s not sure how realistic that is.
“Again, with so many ultra luxury units coming available, I’m concerned that we will not have enough buyers, and that can cause an increase in days on market as well as a bit of a panic,” he said.
Still, he expects a few submarkets, including Paradise Valley, Silverleaf and Arcadia, to reach $2,000 per square foot on exceptional properties — which has never been seen before.
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