By Callan Smith | Rose Law Group Reporter
Communities are selling out faster; demand is much stronger, Jim Belfiore, President of Belfiore Real Estate Consulting, said before an audience of industry insiders at the quarterly Belfiore Phoenix Market Update.
Homebuyer traffic was up eight percent last year with more people visiting sales offices throughout Metro Phoenix, numbers not seen since 2007, and traffic has continued to rise this spring.
Taking the total number of new home sales from mid-March to mid-April, “We sold almost two-thousand homes, that’s sales contracts,” Belfiore said.
Sales per subdivision are healthy and the strongest since 2013, with 3.5 sales per subdivision on average last month.
“I think builders, publicly traded builders in particular that are priced where they should be relative to the market and relative to closer in markets, sales per subdivisions are actually much healthier than three and a half.”
The average sales per subdivision have ranged from 2.0 and 2.8 over the last five or six years with the peak in 2013 at 3.8 sales per subdivision during two months of the year.
Belfiore noted there were far fewer subdivisions in 2013, compared to 554 active subdivisions in the Metropolitan Phoenix area now.
Belfiore expects subdivision counts to go up, “despite the number of pending potential sell-outs of communities because we’ve been opening communities in the first three and a half months, according to communities we’ve surveyed, we have fifty new home communities opened up, thirty-nine percent more than a year ago.”
The active subdivisions doing the best throughout the Metro Phoenix market are Taylor Morrison’s Discovery & Encore at Adora Trails, D.R. Horton’s Rancho Cabrillo, Lennar/CalAtlantic’s Inspirian Park at Eastmark, KB Home’s Villas at Copper Crest, Meritage Homes’ Innovation Park at Eastmark and Fulton Homes’ North Shore at Ironwood Crossing.
“Taylor Morrison’s Discovery & Encore at Adora Trails is an entry point for buyers with 50 to 55-foot lots, priced some might argue a little lower than that market. They bought that land during the downturn and continue to plug away, selling almost a thousand of these homes. The product is still the same as it was four or five years ago, but they’re turning through it at a very high volume,” Belfiore said.
The Estates at Eastmark is bringing a significantly higher price point and amenity difference. Initial sales volumes appear low, “we’ll see how the market adjusts to the price point and the amenity difference,” he said.
Belfiore talked about the prior concern in the market about price points above $300,000 when the Eastmark subdivision opened in Mesa a few years ago, “there was a lot of initial visiting, then a period of stagnation where sales were low, and people were adjusting to the price point, and there was a lot of talk of once you get above three-hundred-thousand it’s hard to sell.”
Homebuyers are shifting from Gilbert, which is now at 47 active subdivisions down from 60, five or six years ago, to Williams Gateway North, Eastmark, Blandford Home’s Mulberry community, Pulte’s Calabria community and into Queen Creek and the Hunt Highway area.
New product has been rolled out at Fulton’s Ironwood Crossing in San Tan Valley, adding lofts to a lot of newer floorplans, sales are very strong Belfiore said.
“One thing that they’ve done really well outside of bringing amenities into the community is that they have inventory on hand to deliver at all times.”
Belfiore spoke of an experience visiting a D.R. Horton product in South Buckeye, Watson Estates at three-o-clock on a Monday afternoon with a line of people waiting to talk to a salesperson, writing contracts for homes starting at $195,000 for twelve hundred square feet.
“We see that in Hunt Highway, we’ve seen it in Maricopa, maybe not to the extent that we saw it in Buckeye, but that is where a large portion of the opportunity lies on forward basis, we have a tremendous population that is going into the market today looking for a home, whether they’re millennials, people that are boomerang buyers or older buyers that are moving down, a considerable portion of that buyer population is looking for a more affordable house. And we’ve got to figure out how to meet their needs.”
Top performing submarkets are West Mesa, Pulte’s Red Rock Village, Sky Harbor South, Tolleson and Eloy.
Top Builders in the Valley are Garrett-Walker Homes, Pulte Homes, D.R. Horton, LGI Homes, William Lyon Homes, K. Hovnanian and KB Homes.
In the Metro Phoenix area, total finished lots are at 40,432, with most in inactive subdivisions in tertiary markets such as Coolidge, Florence, Casa Grande, South Buckeye and North Buckeye. Eight percent of finished lots are in Queen Creek and Hunt Highway area.
An audience member asked a question about the cost of lot prices on a new home with an answer of $840 per square foot from another audience member. The cost does depend on the area, such as buying finished lots in Maricopa, Casa Grande and Florence where builders can take advantage of the present opportunity and purchase lots below replacement value.
“When we go back to the late 90’s early 2000’s when we had Rancho El Dorado kick up and we had San Tan Heights and Johnson Ranch, those kicked off at about the same time in 2001, there were price points starting at eighty-five, ninety-thousand dollars with asphalt shingle roofs,” Belfiore said.
“We went way up, then we deflated to prices that were seventy-four percent lower than they were at the peak and now all of a sudden we’re back at the situation where the new housing in these market areas have prices at two-hundred thousand, it’s going to be difficult to replace those lots due to current development costs,” he concluded.
Lot developers are experiencing increases in costs and time involved to develop the land.
Belfiore is projecting 23,500 permits for 2018. Permits in 2017 came in at 20,551.
Homebuilders are borrowing some of the demand from the resale market due to tight supply.
Existing home sales in the Valley are up at 9,531 sales at 5.4 percent YOY, and 14.5% MOM, comparing the last thirty days, from April 15th through the same period in 2017, according to the Cromford Report.
“We have a real issue as it relates to existing supply which is extremely low with twenty-two thousand units total on the marketplace today, as of last week according to the Cromford Report data.”
Supply is down 11 percent YOY, with only a 2.3-month supply on the market. In hot markets supply is at six weeks. It is anemic Belfiore said.
Existing home prices are up seven percent YOY, and two percent over last quarter.
The laws of supply and demand suggest existing home prices should be rising at a faster rate and expects some level of hyperinflation come soon, absent of any dramatic increase in mortgage interest rates he said.
For infill builders, buyers are more particular and “you have to give them something that they don’t have presently,” Belfiore said, noting similar issues for attached product builders, buyers want something for their money.
Rental subdivisions are gaining in popularity and opportunity Belfiore said, citing Christopher Todd rental communities in Surprise, offering smaller rental units in a subdivision format.
“Over the next seven, eight years we’re going to have twenty-five thousand, thirty-thousands of these units that are going to affect the larger market and work really well in suburban areas.”
Employment and population numbers are strong at 65,000 net new jobs in the last 12 months through March 2018. There is an expected slowdown due to projected lack of people to fill jobs.
