Growing interest from buyers, reduced inventory and a slight uptick in construction has homebuilders with communities across the south East Valley cautiously optimistic about 2009.
Homebuilders are in the middle of what is traditionally the busiest time of the year for new home sales. However, continued anxiety over the economy, as well as stiff competition from foreclosure homes, is keeping new home sales to a minimum.
However, homebuilders say slow progress is being made in the new home market.
"We are pleased with an apparent increase in consumer demand and interest, but it is premature to count on a few recent months' numbers for any long-range conclusions about the local market conditions," said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb, which has 18 communities in the East Valley.
Last week, housing analyst RL Brown reported the Valley's new home market appears headed for recovery at a much faster pace than the existing home market. Prices have stabilized and the new home market is no longer plagued by oversupply unlike the existing home market, he said.
The new home market will slowly improve as 2009 progresses, but it's still going to be a tough year for builders, said Steve Hilton, chairman and CEO of Meritage Homes, which recently opened a new community in Queen Creek.
"We need to have a healthy resale market before we can have a healthy new home market because most people have to sell a home before they can buy one," he said. "There's so many foreclosures out there, so many (existing homes) for sale that we're competing against more than we are competing with other builders. We need that inventory to clear in the resale market in order for the new home market to be healthy again."
THE MYTH OF INVENTORY
Contrary to popular belief, homebuilders don't have a big inventory of new homes just waiting for buyers, Hilton said. Throughout the market downturn, Meritage's communities have only included a handful of vacant homes, he said.
"At least the public builders that I know of ... they have a lot of land, they have a lot of lots, but they don't have a lot of standing homes on the ground," he said. "There's certainly a lot of resale homes and foreclosure homes for sale, and a lot of those are empty and available."
Ken Peterson, vice president of Shea Homes, said the company started the year with an inventory of 94 homes and that has since dropped to 28 homes. It has communities in Gilbert and Queen Creek.
"We do not build speculative homes or inventory homes," he said. "The inventory resulted because people canceled on their homes. I talked to many of the builders across the Valley and the fourth quarter of 2008 was one of the worst quarters for cancellations that we have seen. That was really scary to see people just walk away from a home that they wanted us to build."
Meritage has been attracting buyers by aggressively lowering its prices and redesigning its product to compete with the foreclosure market, Hilton said.
"Most of the homes that are being sold today in Maricopa County are foreclosures," he said. "If we want to survive and compete as a new-home builder, we've got to be able to match those prices and in many cases we have."
Out in Maricopa, buyers can get into a new Meritage home for a monthly mortgage payment of $700, including principal, interest, taxes, insurance and homeowners association fees, Hilton said.
"We're selling homes," he said. "We do have traffic in our communities, but I'd also say it's at record low levels."
OUT OF THE GROUND
New home construction permits plummeted starting last fall and remain at an all-time low, according the Phoenix Housing Market Letter. There are signs, however, that permit activity will be increasing in the coming months.
Standard Pacific Homes recently sold seven homes at its Vincenz community in Gilbert, and not at reduced prices, said Cathy French, vice president of sales and marketing. The message is getting out that the new home market seems to have hit bottom and "you don't know where the bottom is until prices start going up and then it's too late," she said.
"We did real well in the East Valley last month," she said. "In four communities we have about seven total (unsold homes) left, which is not very many."
With inventory down, Standard Pacific will be ramping up construction early next month, French said.
"In the East Valley ... I anticipate about 20 to 25 homes under construction in the Gilbert area and Queen Creek," she said. "We didn't start many homes in January or February, but now we have seen more people coming out. Plus, there's a lot of people moving here from out of state and I'm very happy about that because they can't find speculative homes to suit them, so they're doing new builds."
Also, numerous winter visitors from Canada are in the market for new homes, French said.
Shea started construction on 14 homes this month and will have another 20-plus homes under construction in the near future, Peterson said.
"We had very few homes under construction," he said. "We now have homes under construction in Seville in Gilbert, at Old Stone Ranch in Chandler, and then out in Cabrillo Canyon (in Pinal County)."
Meritage has homes under construction, but it remains minimal as fear continues to grip consumers, Hilton said.
"We need to get people to feel confident that they're going to be able to keep their jobs and that they're going to get a loan," he said. "There's 40,000 homes that need to be (built) every year in Phoenix just to provide housing for the births over deaths."
Pulte and Del Webb continue to sell homes and build homes, Petroulakis said.
"Consumer confidence is an issue that has affected the housing industry and many others," she said. "We have been doing all we can to provide incentives for consumers to take advantage of the great home prices that exist right now. We've had several sales events and traffic generators at our ... communities in recent months and weeks, and we've been very pleased with the large amount of traffic."