Builder’s choice: Impress Wall Street today or take profit later?

By Mike Sunnucks | Rose Law Group Reporter

Home builders are taking different approaches to the current wave of high buyer demand for new homes.

Some builders are booking home orders well before new homes are built and in some cases before lots are even improved.

“You’ve got a percentage of big builders who are starting sales way earlier than they have ever before,” said Jim Belfiore, president of Belfiore Real Estate Consulting in Phoenix.

Belfiore said he has seen some instances where new homes are being sold before water and utilities are installed at the lot. “It’s going to take them 12 to 16 months to build the house they have sold now,” Belfiore said.

Belfiore said the early sales could help publicly traded builders impress shareholders and Wall Street. “They perceive Wall Street wants to see increased orders on their books,” Belfiore said.

The early sales approach is a stark contrast to other major home builders who have been limiting sales at some new developments because of high demand and low supplies of homes, lots and construction labor.

“Other builders are limiting sales to four to six per month,” he said.

The past several months have seen strong demand for home sales — despite the coronavirus pandemic. Buyers have been taking advantage of historically low mortgage interest rates.

The result has been strong sales for builders and appreciating home home prices. “It seems all but certain that home prices are going to continue appreciating and it’s going to be at a significant level,” Belfiore said. “We have no supply in the marketplace.”

Belfiore said low supplies of homes could continue to raise prices which could price some first-time and entry level home buyers out of the market. Those segments have been driving strong home sales in Phoenix and Tucson.

We have finite lots. We have finite homes. We have finite labor,” Belfiore said.

The regional real estate expert also said he’s seeing builders selling homes prior to opening model homes. “There are a bunch more that are pre-selling two to three months prior to opening model homes,” he said.

Belfiore said on first glance continued price appreciation benefits the approach of limiting home sales rather than early pre-sales.

“It’s really interesting to see the different strategies,” Belfiore said.

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November 2020