For those closely watching the Phoenix housing market, the latest data on new home sales and construction permits reveals some significant shifts. Over the past six months, the new home sector has been losing market share to re-sale homes. In December 2024, new home sales made up just 24% of the market, a decline from 28% in December 2023. This trend indicates that buyers are increasingly opting for re-sale homes over new builds.
Builders Scaling Back Production
The slowdown in new home sales is reflected in a decline in new building permits. In December 2024, the number of permits issued in Maricopa and Pinal counties fell to 1,653—the lowest monthly total since February 2023. This is a notable drop compared to December 2023, when 2,095 permits were issued. The downward trend in permits suggests that builders are becoming more cautious, which could lead to a tighter supply of new homes in the coming months.
Factors Influencing Builder Decisions
Several key factors are contributing to the slowdown in new home construction:
- Higher Tariffs on Building Materials – Government policies are increasing tariffs on materials imported from Canada, Mexico, and China. Builders will either have to pay higher prices for foreign-sourced materials or purchase more expensive American-made products. Either way, these increased costs will put pressure on builder margins and could lead to reduced construction activity.
- Labor Shortages Due to Immigration Policy – A potential clampdown on undocumented workers in the construction industry could further disrupt the new home market. Currently, approximately 34,000 undocumented immigrants work in Arizona’s construction sector, with about 80% hailing from Mexico. While these workers are primarily employed by subcontractors rather than major homebuilders, they still represent a significant portion of the skilled labor force. If deportations increase, a shortage of construction workers could slow down homebuilding efforts and extend project timelines.
Builders have already voiced concerns about the difficulty of replacing undocumented workers with American citizens or legal immigrants. Many construction jobs involve tough working conditions that are not widely sought after, making labor shortages a real possibility.
Impact on Home Prices and the Market
Although rising construction costs are a concern, it’s important to remember that home prices are dictated primarily by supply and demand. If builders are unable to pass on higher costs to buyers, new home sales will likely decline further.
However, this situation could present an opportunity for existing home sellers. With fewer new homes being built, re-sale properties will face less competition, potentially driving up home prices due to limited supply. If prices rise enough, homebuilders may eventually find it easier to sell new homes at higher prices, even with increased costs, thus continuing the housing market’s cyclical nature.
Final Thoughts The Phoenix housing market is entering a phase of transition. With new home construction slowing and potential labor challenges on the horizon, the balance between new builds and re-sale homes is shifting. Buyers and sellers alike should stay informed and watch these trends closely, as they will shape the market dynamics in 2025 and beyond. For those considering selling a home, the current conditions may work in your favor as inventory tightens and demand increases.
