Builders Bullish on Local Housing Market

Tuesday, September 4th, 2012

Metro Phoenix's housing-market recovery has spread to the new-home market. Building permits, new-home sales and prices have been climbing steadily this year. All are long-awaited positive signs for one of Arizona's biggest and most-important industries.
Last week, seven builders finalized deals to spend more than $50 million on home lots in the new Mesa community Eastmark, a project being developed by DMB Associates.
The executives visited The Republic to offer details on the project, but the conversation was much broader, including forecasts for the Arizona housing market, homebuyers' evolving needs, homebuilding's economic impact and the construction industry's future. Some of the key points made by the group:

The number of new homes built across metro Phoenix is expected to nearly double this year compared with 2011, to 14,000.
The construction of one new home creates two to three jobs.
Metro Phoenix's housing market has become a bellwether for a national real-estate recovery.
The group included: Charley Freericks, president of Scottsdale-based DMB; Dea McDonald, general manager of Eastmark; Charlie Enochs, division president, Taylor Morrison; Michael IlesCremieux, vice president of land acquisitions at Meritage Homes Corp.; Paul Kroff, division manager of Woodside; and Andy Warren, president of Maracay Homes.
Question: Describe the state of Phoenix's housing market now. How does this region's recovery compare to the rest of the nation?
Enochs: "Phoenix is definitely on the leading edge of the recovery. We have seen remarkable sales velocity and price increases."
Warren: "We are very fortunate in Phoenix because investor demand has cleared out the backlog of foreclosures. That has helped us transition out of a distressed market to more healthy one quicker than other parts of the country."
IlesCremieux: "Many investors locally and nationally are saying Phoenix is the bellwether for a homebuilding market coming out of the recession."
Kroff: "We are bullish on Phoenix's homebuilding market. We knew the pendulum would swing back, and investor demand for foreclosures helped the market recover faster."
Freericks: "It's always easy to over judge Phoenix on the upswings and downswings. But now we are seeing positive signs on every front (of real estate)."
McDonald: "There is shift from resales to new-home sales. We don't manufacture the market. We follow builders closely to see what deals they can do and what makes sense for their business and homebuyers."
Q: What about new-home prices? Builders have been able to keep new-home costs low due to inexpensive lots that were taken back by lenders, but there are few of those lots left in metro Phoenix.
Enochs: "We have been working off a supply of lower-priced lots for a while, but prices are now gradually going up. But even with lot and home prices going up, Phoenix homes are still an incredible value compared to six years ago."
Freericks: "We are a wholesaler of a product that goes into builder machine and becomes another product. There's always a point in a cycle when inexpesive land starts running out. I think we are in the middle of that transition."
Warren: "Consumers hear about great foreclosure and short sales in metro Phoenix, but then they get out there and are outbid by investors. Those are the people buying new homes."
Q: Have too many investors bought homes in metro Phoenix during the crash?
Freericks: "Most investors are paying cash and not concerned about sitting on an investment they have to move. Those investors have no incentive to dump houses. Also, I don't see the person buying a new home competing with investors."
Warren: "My hunch is there won't be a glut of investor-owned homes that go on the market at once. My hunch is investors will moderate out the sale of their homes. People get scared of investors because of the last round of those buyers from the boom. But these investors paid cash, and their homes won't be foreclosed on."
McDonald: "Look at all the people renting homes now. They don't qualify to buy and need to rent."
Q: Are metro Phoenix home prices recovering enough for more regular homeowners to finally sell?
Kroff: "I have noticed in the past couple of weeks more new for-sale signs in neighborhoods. More owners are likely putting their house on the market and seeing what its value actually is now."
Q: Why buy land in a new community like Eastmark now? Homebuilding is picking up but still well below what is considered a healthy market for metro Phoenix.
Kroff: "Homebuilders have been making a living on these broken projects buying from banks and investors who don't have a comprehensive plan. What has been missing is a comprehensive master-planned, thought-out-from-beginning-to-end project that a builder can partner with a developer on."
IlesCremieux: "When DMB launches a new community, most builders' ears perk up, and they pay attention. It's competitive for homebuilders to get into a DMB community. We are in Verrado (in Buckeye) and have had great success selling higher-end homes during this downturn."
Freericks: "It's been more than five years since we have been in our core business of selling lots to homebuilders. It's nice to have money coming in again. We are an innovative company because we like to be. At Eastmark, we saw opportunities of taking examples of all the live-work communities we have have done in the West. We are very excited to take this community to our next level of place making."
Enochs: "We started talking with DMB about Eastmark almost two years ago. Then, it was way over our pricing scheme. But we signed up on the basis of DMB's reputation. Now, we are all trying to take credit for such a good move."
Warren: "Maracay built in DMB's north Scottsdale DC Ranch community and Verrado. It was an easy decision to sign on at Eastmark."
Q: The Supreme Court's ruling on SB 1070 came out last week. Do you think the parts of the law that were upheld will hurt Arizona's ability to re-grow its construction industry? How will the homebuilding market rebound without enough workers?
IlesCremieux: "We can't control the situation with SB 1070. We have to be creative and price-driven. Obviously, we want what's best for the economy, and a lot of us do talk about labor shortage. Every home that's built creates two to three jobs. If we go out and double homebuilder-permit activity, and the demand is out there to buy homes, it would be real shame if we can't take advantage of it."
Warren: "It's just like every other kind of changing market. There's going to be stress points, but American workers are pretty intelligent, ingenious and creative problem solvers. In other parts of the country where people are out of work, they will see openings for construction jobs in Arizona and move here.
"There might be some challenges here and there if we double our permit activity to 14,000 this year, but I see industrious people coming here to take advantage of construction jobs."
Freericks: "Homebuilding is a very efficient market, and construction traders are mobile. People might not be happy to move, but they will move for jobs."
Enoches: "We are having growing pains now, but they won't last."
Q: Over the past several years, builders have had to compete with foreclosures and add value with green-energy efficiencies and other amenities. Will it be more costly to build homes in Eastmark and compete with resales?
Enochs: "Most resales are listed at attractive prices But after multiple bids, those homes sell for 30 to 40 percent more, and then the buyers have to put another 30 percent in to fix them up. That makes the true cost of buying a resale closer to new-home prices, and resales don't come with new-home features like energy-efficient building."
McDonald: "Builders will soon begin submitting their plans for homes in Eastmark. It's too early to pin down pricing."
Freericks: "We are trying to do something interesting and unique with Eastmark. We made a conscious decision early in life as a community builder to be thoughtful of the natural environment of our communities. We think that matters to the consumer. We think even though we are kind of nerdy about it on the design level, consumers get it at a gut level and appreciate it. The building block for our communities since our early days as DC Ranch is great neighborhoods. It will also be in Eastmark."

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