Jan 28 - The latest S&P / Case-Shiller® Home Price Index® numbers were published this Tuesday.

The new report covers home sales during the period September to November 2024. This means the typical home sale closed in mid October, more than 3 months ago. Please remember that Case-Shiller data is fairly old, even on the day it is released.

5 cities show mildly rising prices but 15 cities went down over the month, as did the national average. This the fourth consecutive month in which the national average has declined.

Comparing with the previous month's series we see the following changes:

1. Boston +0.42%
2. Miami +0.26%
3. New York +0.25%
4. Los Angeles +0.04%
5. Phoenix +0.01%
6. Cleveland -0.02%
7. Washington -0.05%
8. Charlotte -0.06%
9. Las Vegas -0.12%
10. Atlanta -0.26%
11. Detroit -0.27%
12. Portland -0.31%
13. Chicago -0.32%
14. Minneapolis -0.35%
15. San Diego -0.43%
16. Denver -0.47%
17. Dallas -0.54%
18. Tampa -0.65%
19. Seattle -0.74%
20. San Francisco -0.76%

Phoenix has fallen from 4th to 5th place over the last month. The national average was -0.09% so Phoenix was somewhat better than this average.

The East Coast was the best performing area.

Comparing year over year, we see the following changes:

1. New York +7.3%
2. Chicago +6.2%
3. Washington +5.9%
4. Las Vegas +5.6%
5. Cleveland +5.4%
6. Seattle +5.4%
7. Boston +5.1%
8. Detroit +4.6%
9. San Diego +4.5%
10. Los Angeles +3.8%
11. Charlotte +3.6%
12. Miami +3.2%
13. Atlanta +2.9%
14. Minneapolis +2.7%
15. Portland +2.0%
16. San Francisco +1.9%
17. Phoenix +1.6%
18. Dallas +1.0%
19. Denver +0.9%
20. Tampa -0.4%

Phoenix stayed at 17th place, and is still stuck in the bottom half on a year over year basis. For the first time a while we one city in negative territory - Tampa. This may be connected with natural disasters and insurance difficulties. We foresee this concern about insurance availability and cost spreading to the rest of Florida and possibly California. New York, Chicago and Washington are looking very strong in the second table.

The national average is +3.8% year over year. Phoenix is at less than half of that percentage, so has under-performed over the last year. Rising Insurance costs are becoming a concern in Phoenix, especially for condos and apartments.

Jan 27 - Those of you who check the monthly affidavit counts for Maricopa will have noticed that the new home market has deteriorated over the last 6 months. New homes have lost market share to re-sales - 28% down to 24% in December 2024 versus December 2023 for example.

It appears that builders are scaling back on their production plans. The monthly permit count for Maricopa and Pinal in December was the lowest monthly total since February 2023.at 1,653. For comparison December 2023 was 2,095. A downward trend in permits has started which may crimp our supply of new homes in coming months.

This decline may be partly responding to a perceived lack of demand, but may also be influenced by home builders' reaction to 2 key elements of government policy which could make life for the developers a little more tricky in 2025 and beyond.

• higher tariffs on materials imported from countries such as Canada, Mexico and China - either option will increase building costs - either paying tariffs on foreign sourced materials or buying American-made products will both be more expensive for builders than the current situation and will put pressure on their gross margins
• a clamp down on undocumented employees engaged in the construction trade could make some skills hard to find and lengthen build times

By far the largest area of employment for undocumented labor in Arizona is the construction trade. It is estimated that about 34,000 such undocumented immigrants are currently working in construction in Arizona, and roughly 80% of them were born in Mexico. These are unlikely to be working directly for the big homebuilders, but they make up a significant percentage of the skilled workers in their subcontractors. It is not yet clear whether or when these people might be deported, especially if they have no criminal record apart from staying and working in the USA without authorization. Less than 4% of undocumented immigrants a believed to have a criminal record. However, if the numbers of construction workers were to be significantly reduced through deportation, the rate of construction of new homes would likely fall. Some of their trades are not popular choices for American citizens. Their working conditions are frequently hard. Home builders have already been sounding alarms about this issue and have claimed that the USA does not have the citizens or legal immigrants who could replace them. It is not clear whether the concerns of the homebuilders will affect government policy.

We should remember that home prices are not determined by the cost of construction or even the cost of the land that homes are built on. Prices are primarily determined by supply and demand in the home market as a whole. New home have to compete with re-sales and if homebuilders are faced with higher costs they may not be able to pass these on to home buyers. Their sales will likely fall as a result.

This is potentially good news for existing home sellers since they will have less competition from new homes and prices may rise because of the resulting shortage of supply. If prices rise enough, home builders will then find it then gets easier to compete, even with the higher costs in place. So the cycle continues.

None of the likely scenarios above are likely to result in lower home prices.

However if deportation of undocumented immigrants extends more widely, then this could cause a noticeable reduction in demand for housing. Estimates vary, but it is believed that about 350,000 to 400,000 residents of Arizona are undocumented. To put this in perspective, the 2023 population of Chandler was only 280,000 and Scottsdale was only 245,000. If all undocumented immigrants were to be deported over a short period, that could have a very disruptive impact on housing demand. Prices might fall in this potential scenario. However such a scenario may not be realistic. In fiscal year 2024, ending September 30, 2024, ICE reported the deportation of 271,000 immigrants from the USA, and this was the highest total since 2015. There was no significant increase in deportations during the first Donald Trump administration. The second administration may very well be different. However, population growth or decline is a fundamental factor in determining housing demand, so we certainly need to pay attention.

Courtesy of the Cromford Report