Posted on 11/07/2006 5:39:16 AM PST by yoe
PHOENIX — Until recently, this fast-growing area was a paradise on earth for home builders. Fulton Homes’ developments, for example, were so popular last year that it was able to raise prices on its new homes by $1,000 to $10,000 almost every week.
“People were standing in line for lotteries,” recalled Douglas S. Fulton, president of the company, one of the largest private builders in the Phoenix area. And they were “camping overnight begging to be the next number in the next lot in the next house.”
No more.
Today, it is the company’s sales agents that do most of the waiting. Not only are there few new customers to talk to, but many buyers who put down a deposit are not even bothering to come back for the walk-through.
“All of a sudden, they just don’t show up,” Mr. Fulton said, noting that such cancellations often mean the buyers forfeit as much as 5 percent of the price. The reason? The prospective buyers got cold feet or simply could not sell their old home.
The striking contrast tells the tale of a housing bonanza turned bust. Today, the number of unsold homes in the area has soared to almost 46,000 from just a few thousand in early 2005. And builders are pulling back as fast as they can.
They have little choice. Sales cancellations among big builders, not just here but around the country are running as high as 40 percent, double the rate a year ago.
[snip] Local officials issued 60,000 single-family permits in the metropolitan area in 2005, twice the number issued in 2000.
(Excerpt) Read more at nytimes.com ...
I guess we won't need all those illegal alien construction workers anymore. I'm sure they'll all go back to Mexico now, right? We should make the construction companies pay for the medication, education, and incarceration costs for all their illegal employees instead of having the tax drones doing it for them.
They jacked up the prices so high no one can afford to buy. Killed the goose that laid the golden egg, so to speak. My house more than doubled in "value" since 1986, but so did any replacement house I would have to buy to replace it.
Drive 45 miles west of Phoenix on Interstate 10, take exit 98 and go south. The first sign you see advertises a new housing development with prices "from the high 200s." Way out in the middle of nowhere. What a joke.
More communities need to go the Hazelton, Pa. route or face destruction by illegal immigration.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
People's salaries here do not even come close to being able to afford these homes. Not sure how they do it, though.
We bought our home in late '95 for 85k, and today it is selling for over 210k.
Phoenix is run by a democrat mayor.
I think Californians are moving to Phoenix. They think these homes are real bargains but their salaries will not even compare.
AZ will recover because it has demographics on its side. People will continue to move out of CA,NY,MI,OH etc. and move to the Southern US. There are probably some good deals long term in AZ now. If you read the whole article is states houses are selling for between $60-80/sq ft. You CANNOT build a house anywhere near that price especially in that market. It is a CLASSIC correction in an overheated real estate boom where too many short term investors got into real estate similar to the stock market bust of 1999. If you can buy a house and rent it to cover your cost it could be a good LONG TERM investment.
I am moving to Arizona in February. I cannot buy a home yet, but I think Arizona is going to be a great move for me.
Now they will go on welfare.....illegals on welfare...great
Imagine that. Prices went up and up to a point where folks stopped buying. What could possibly explain that?
Where in Arizona?
Where in AZ do you want to live? I live in Bullhead City. We bought a new condo right on the Colorado River in late 2003. We got one of the last units meaning it was sold out before they even broke ground. Last April, they started building Phase II of the complex, and now, with the units more than 1/2 way complete, they haven't even sold half of them. Everything that effects Southern California, effects us. When SOCAL went bust, so did our little town. Lots of new home inventory.
The one thing that developers refuse to do is to migrate their business from a "bubble" business to a "long-term strategy" business.
That is, they have mastered the art of building cheap and cheaply-made, high-margin homes on small lots. The extra expense comes in by adding many additional angles to the design, both inside and outside. That is, non-right angle corners are far more expensive than right angles. typically, prices for these crackerboxes start at $350k.
However, they make a strategic error by just halting production during market slumps. They could take advantage of a weak market by combining lots and building well-made, expensive houses. Instead of building three houses to sell for $300k, build one house to sell for $1.2M.
By taking their time with each house, and throwing in lots of luxury finishing, they both use up the slack time of the slump, and still get healthy margins.
By "luxury finishing", I mean everything from above standard electrical, plumbing and sewage; to expensive inlaid tilework; to custom-built kitchens; elaborate swimming pools; complex landscaping; panic rooms; even basements, which are rare out West.
The idea is not to build "speculation homes", but to build unique houses, designed to last and be inherited, not sold.
Architectural style would also come into play again, with homes designed for particular purposes, like very high energy efficiency emphasizing solar power; high-security homes; groups of homes built in a cluster to create a greater sense of community with neighbors; child-oriented homes; homes that have a cultural architectural style; and high-tech homes.
While developers make some gestures to specialization like this, they steadfastly avoid expensive and time-consuming quality, and go for the cheap and cheerful, production model gimmicks and trendy items.
But the great secret is that when a housing bubble explodes, it does not effect all housing; just the housing that was part of the bubble. There are still plenty of buyers with plenty of money. And the best part is that building materials cost far less during a slump.
Builders are adapted to the business environment that the Federal Reserve forces upon them. If they didn't pay respect to the almighty Fed by cutting back on supply, they and the rest of the economy would get crushed.
Other than that, there is specialization among homebuilders, especially at the high end of the market. A builder with a reputation for low end homes wouldn't have a chance trying to break into the high end market on a temporary basis.
Big builders have staff...and staff need work to get bonuses..the more paper shuffled..the more they keep their job.....would you want to be the Economist employee that would say we should quit building houses...he would be the first one fired....
That's been true in California and NYC for decades, and in the DC Metro area for 10 years at least. Becoming that way in the Delaware Valley/Philly/Wilmington area, and Charlotte, most of Florida, Boston (again after a period of reasonable prices in the 90s) and the Seattle Metro.
That's exactly the problem. In these overheated markets, a house with a $2400 mortgage payment will only fetch $1600 in rent a month.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.