Housing Starts, Permits Decline in Flagstaff

The number of permits issued for new home construction in Flagstaff declined dramatically from 2006 to 2007. The total number of residential building permits issued in 2006 was 675 (single family, townhomes, condos, and multi-family units). In 2007 the total was 175, with no multi-family permits issued. Meanwhile, the latest City of Flagstaff housing study projects that thousands of new homes will be needed in the next fifteen years to accommodate growth.

While Flagstaff home prices – for a combination of resale and new homes -- are down slightly from their peak in 2006, the median price is still substantially higher than 2004 and the median price of single family residences sold in January 2008 was nearly the same as in January 2007. To see the numbers in detail, check out my recent Annual Report on the Flagstaff Real Estate Market and the Monthly Market Report for January 2008, written earlier in this blog.

All of this means that Flagstaff home prices may well have “bottomed-out.”  Projected growth, with little supply becoming available, naturally means prices will go up. The only question is when Flagstaff home prices will begin to rise again from the stable position they have been in the last few months.  Flagstaff is not overbuilt, unlike many areas, but neither is it immune to general economic news. Phoenix is overbuilt and has some catching up to do. The home prices in the Phoenix market affect our market because many of the home purchases in Flagstaff are made by Phoenix homeowners buying a second home in Flagstaff.  If prospective second homeowners feel their first home is down in value, they are less likely to buy a second. Likewise, a national economic recession will affect home buying in Flagstaff. Finally, while home loan interest rates are low compared to historical rates, potential home buyers tend to confuse Federal Reserve rate cuts with the mortgage interest rate market and postpone buying while hoping for lower rates to appear on the scene. All of these factors have the potential to keep Flagstaff prices at their current levels until the Spring of 2009 rather than rising over the course of 2008. Thereafter, pent-up demand and the lack of new home building are likely to begin pushing Flagstaff home prices higher.