Homebuilders Busy Again in Corners of Metro Phoenix
by Catherine Reagor on Apr. 13, 2012 – Arizona Republic
Homebuilding, metro Phoenix’s biggest industry before the housing crash, is on the rise again.
Unlike in the past, this burst in the region’s homebuilding isn’t being driven by buyers going farther and farther out to find a house they can afford or investors looking for bargains.
In some areas of metro Phoenix, including Chandler and Gilbert in the southeast and Peoria and Surprise in the northwest, short-sale home prices are climbing so high due to multiple offers that resale home prices are rivaling new-home costs.
At the same time, builders are able to put up new houses for costs that let them compete with foreclosure-home prices. Many picked up empty lots in prime locations for bargain prices during the crash and can keep construction costs low.
The results: Among buyers, a growing number who have been outbid multiple times on short sales and foreclosures are opting to purchase new houses instead. And among builders, who have seen several dismal years of slow sales and deep losses, some are now reporting profits or at least their highest monthly sales in years.
Amy Baum had been outbid on seven short sales on homes in Chandler and Gilbert when her real-estate agent persuaded her to look at new homes in Gilbert.
Baum, an occupational nurse who treats employees at Intel, wanted to be near her job and her parents, who live in the southeast Valley.
“The prices on short sales were being bid up so high, I would have ended up paying $215,000 for a home that would take another $15,000 to fix up,” said Baum. “I could get a new house for $215,000 and not have to worry about fighting some other buyer for it or renovating it.”
New-home sales and permits to build homes are up significantly in metro Phoenix from last year, due mostly to buyers like Baum.
“There’s no question the new home market is finally on its way back,” said RL Brown, publisher of the “Phoenix Housing Market Letter,” a monthly newsletter tracking homebuilding. “But no one knows whether it will come back rip-roaring like the boom of 2006 or a more normal market like 2003.”
For the first two months of this year, new home permits are up 84 percent compared with the same period in 2011, but the overall numbers are still low by metro Phoenix standards.
In January and February, there were 1,460 single-family permits issued in the region. In 2003, there were about 2,500 permits issued a month. In 2006, new homes went up at an average rate of 5,300 a month.
New-home sales are up 34 percent, but again, there were only 1,099 during the first two months of the year.
Several builders are reporting March was their best month for sales in years, and the uptick in the new-home market is likely to continue for at least a few more months.
Homebuilder Taylor Morrison sold more than 100 metro Phoenix houses in three weeks, making March its best year for sales in four years, said Pierrette Tierney, the company’s vice president of sales and marketing.
She said buyers who have lost bidding wars on short-sale and foreclosure homes are Taylor Morrison’s biggest group of buyers now.
“People call after looking at one of our houses and say, “If I write you a deposit check right now, can I get that lot?’ ” Tierney said.
“They are so happy when we tell them yes because they have been turned down so many times trying to buy existing houses. Of course, we are thrilled, too.”
Not all areas of metro Phoenix’s new-home market are drawing buyers. The areas with the most homes being built are also the areas with the fewest existing homes for sale. The fringe parts of the Valley, the communities farthest out, continue to struggle.
“Real-estate agents are beginning to steer clients to new homes again because, in certain areas, it’s the only option for their buyers,” said Marcie Jarnagin-Beckham, a sales associate with Meritage’s Villages at Val Vista in Gilbert, where Baum purchased her home.
The majority of new homes sold in metro Phoenix during the past year have been in Gilbert and Chandler. Buyers are drawn to those areas for the schools, jobs and shopping.
Other popular areas are Peoria and Surprise in the northwest. Several large employers have moved into the areas, and the expansion of Loop 303 has made commutes easier.
“It’s all about location for homebuyers now,” said Brown. “People will no longer drive until they qualify to buy a house.”
Perry Dion has been trying to buy a house in Peoria for the past year. He has bid on dozens of short sales and even gone to the foreclosure auctions in front of the Maricopa County Courthouse.
“I have been going month-to-month on my apartment paying more because I kept thinking one of my offers would be accepted,” he said. “But recently, I realized I have saved enough money that I can buy a new home in the area.”
He’s been checking out new subdivisions in Peoria and north Phoenix for the past few weekends and hopes to sign a contract this month.
Dion wants to sign a deal soon because he is already seeing some slight increases in the prices of the new homes he’s checked out.
There’s a shortage of home lots in the areas of the Valley where most new houses are being built. That, along with demand for more buyers, could push up overall new home prices this year, say real-estate analysts.
“I don’t think any homebuilders are jumping up and down yet, but it feels good to be selling homes again,” said Carl Mulac, president of AV Homes and chairman of the Home Builders Association of Central Arizona. “I am just concerned about how long this window of opportunity will last.”
Some builders are expected to try to draw buyers in other parts of the Valley where they still have inexpensive lots. But there’s no guarantee that strategy will work.
Building costs could rise if new-home demand continues to increase.
Subcontractors had to cut what they charged builders to survive the downturn, and most are ready to raise their fees as soon as they can, said Brown. Those higher fees will push up new-home prices.
And bargains on empty lots in foreclosure are mostly gone, so builders’ land costs will continue to rise.
“My biggest concern for the market,” Mulac said, “is whether the price appreciation of new homes can outpace the cost appreciation builders will soon be facing.”