PHOENIX (By Glen Creno and Catherine Reagor Burrough, Arizona Republic) February 27, 2004 - New-home building across metropolitan Phoenix charged to another record last year as eager buyers lined up to buy houses even as prices jumped and commuting times climbed.

There were 60,872 building permits pulled for new houses across the metro area in 2004, a stunning 27.5 percent increase above a 2004 total seen as unbeatable by many analysts. The surge puts Phoenix in position to steal Atlanta's title as the country's top new-home market.

The pace isn't expected to slow a great deal this year, and that raises concerns about a housing industry that one study shows has grown to account for one in three dollars of the Valley's economy.

The resale market was equally hot. A record 112,813 existing homes changed hands in Maricopa County last year, a 29.5 percent jump from 2004's total of 87,109, said real estate analyst R.L. Brown, publisher of the Phoenix Housing Market Letter.

The year's final tallies have come out in two waves this month. But the trend in both cases is higher, a strong indicator of the market's direction and pace. Brown's resale numbers differ from those issued by the Arizona Real Estate Center at Arizona State University because of different methodologies.

Topping the list of concerns about whether the housing market is overheated: Speculators are pushing up prices and burdening the market with rental houses that can quickly be dumped at a loss if they can't find tenants.

In this scenario, a rash of homes hitting the market at bargain prices could drive down all Valley home values. The median price of a new Phoenix-area home hit $202,672 in December, a 14.7 percent jump from $176,582 in December of the previous year. The median price of a new U.S. home is approximately $215,000.

But although it raising concerns, most Arizona economists and industry experts don't see a bubble about to burst.

"We are not seeing any irrational exuberance in Phoenix's housing market," said Steve Hilton, co-chairman of Scottsdale-based Meritage Homes Corp.

Brown is concerned about the rising prices, but he said that plentiful land and a steady stream of newcomers should keep the market healthy. He doesn't look for much slowing in new-home construction through 2009.

"The bottom line is that housing is driven by population," Brown said.

Metro Phoenix drew 104,000 new residents last year and almost 111,000 are expected to move to the area this year, according to data complied by market-watcher Elliott Pollack. Many newcomers are enticed by the Valley's relatively affordable housing prices, though the deals are on the fringes of the city, stretching driving times for workers with jobs in Phoenix.

Maria Campos embodies many of the trends driving Valley housing. She and her husband moved to Avondale from Fontana, Calif., at the end of last year after he took a job with a company that repairs underground piping.

The Fontana house was a fixer-upper more than 15 years old that the couple bought for $170,000 in 2001. California's hot housing market let them sell for $287,000 last year. They spotted a KB Home subdivision in Avondale on a house-hunting trip and slapped down a $10,000 deposit that day.

They got lucky. The salesman told them a deal had fallen through and the house would be ready in a month. Material and labor shortages have in some cases added several months to the usual five-month delivery time for a new Valley house.

Campos said she thought she would never be able to afford a new house. But Phoenix's prices changed that assumption.

"When we saw this one and heard the price, I said to my husband, 'Whoa, we can almost pay cash,' " she said.

Instead, they put a total of $25,000 down and paid off their loans on a year-old Dodge truck and two jet skis. They're thinking seriously of buying another new house to turn into a rental.

"I said, 'Let's do something with that money rather than letting it sit in the bank,' " she said.

They will have plenty of emerging new-home hot spots to choose from this year. Areas to watch, according to Brown: a big stretch of land called Sun Valley, west of the White Tank Mountains; a sleeper spot on the western side of those mountains near the Loop 303; along Interstate 17 north of the Deer Valley Airport; and Laveen, Tolleson, Avondale and Goodyear.

"The Phoenix housing market is sitting in an advantageous situation," Gadi Kaufmann, chief executive officer of Maryland-based real estate consulting firm Robert Charles Lesser & Co., told a group of Valley real estate executives at an Urban Land Institute conference on housing last week.

He said the area's housing affordability will continue to draw new residents, but he cautioned home builders to keep housing prices from skyrocketing like they did in Las Vegas and California.

"Don't get greedy," he cautioned.

In California, prices have raced to such heights that many residents there are abandoning the state mainly to find affordable housing, according to news reports.

One of the favorite refuges is Arizona.

Las Vegas' price growth has backed off slightly from its searing pace of early 2004 but is still strong. Some home builders were overly aggressive and had to cut prices to bring them back within reach.

In the Valley, the reading on a key housing affordability measure by ASU hit its lowest level in November in 15 years, meaning it's more difficult for a typical buyer to afford a median-priced house at the prevailing interest rates.

If prices continue to soar and interest rates creep up, more prospective buyers will find themselves squeezed out of the market.

One key indicator to watch: the percentage of homes sold to first-time home buyers.

In California, the figure has dropped to 26 percent, the lowest in at least 24 years, according to the California Association of Realtors.