Buying a new house in the Phoenix area in 2017? It's gonna cost more

• Valley new homes priced climbed about 2 percent in 2016
• Demand from buyers, particularly Millennials, is picking up in metro Phoenix
• Rising interest rates mean many buyers can afford a little less house

Shoppers for newly built homes will likely see higher prices in metro Phoenix this year.

Don’t expect a big jump, but builders are poised to start raising prices to offset rising costs of land and labor.

Arizona housing analyst Jim Belfiore predicts new-home prices in the Valley will climb an average of 7 percent to 9 percent this year.

In 2016, new-home prices in the area climbed about 2 percent.

“Appreciation is the biggest issue for the home-building industry now,” Belfiore told a packed room of home builders, developers and others in the real estate industry at his annual Valley housing forecast on Thursday.

That’s because the cost of building has climbed 50 percent in the past two years,” he explained.

Costly construction

A panel of metro Phoenix home builders and a developer with more than 60,000 acres in Arizona spoke before Belfiore and emphatically made the point about home-price increases not keeping up with building costs.

“The market’s recovery feels good now but not great,” said Meritage Homes Corp. CEO Steve Hilton. “Home costs are up, but margins are low.”

Valley builders are out of the bargain land they were able to buy during the housing crash in the Great Recession, and a shortage of construction workers has driven up building costs.

The median price of a new Valley home was about $311,000 in November, according to RL Brown’s Phoenix Housing Market Letter. That’s only about $1,000 more than it was in June of last year.

Home builders also  can likely raise prices more this year because demand from buyers has picked up.

The new-home market’s recovery to boom levels is still years away, but about 18,000 houses were built Valleywide in 2016. That’s the most since the end of the boom when more than 60,000 were built during 2006-07.

Belfiore is predicting more than 21,000 houses will go up in the Phoenix area this year.

Building for buyers

Based on what the builders said at the forecast, most of the new homes will be more affordable and geared toward first-time buyers, particularly Millennials.

Mark Moskal, division president of Gehan Homes, said rising interest rates mean buyers can afford less house.

The average rate on a 30-year mortgage climbed from 3.5 percent in August to 4.3 percent last week, according to Freddie Mac.

The home builders on the panel all agreed they would focus on more affordable homes to try to tap the growing number of first-time buyers in metro Phoenix this year.

“Millennials are the biggest opportunity that lies ahead for the housing market,” said Greg Abrams, vice president for Pulte Homes.

And rising rents are propelling more Millennials to buy. But it’s not clear yet how much more they are willing to pay for a new home.

That’s the million-dollar question for Valley home builders now.