11 Feb As real estate prices go up, land sales are speeding up fast.
As I was reading today’s newspaper this article stood out showing how the land market is starting to make it back into the headlines and how in just the last few weeks most of the available land inventory is being bought by builders.
This is an example of what is happening in Arizona but it is a reflection of all that is going on around the country.
Read it now.
Today’s Land Sales, Tomorrow’s Growth
Steady improvement in metro Phoenix’s new-home market has developers and homebuilders scrambling to buy property for dozens of new subdivisions projected to spring up over the next few years.
Their land purchases offer a road map for population growth in the region for years to come. Where houses are planned, schools, retail and service businesses and other employers soon follow.
Mesa, Gilbert, Chandler and Queen Creek, along with north Peoria, are the hottest spots for new-home sales now, but Surprise, Buckeye and Goodyear are expected to move up quickly.
With new-home building up 71 percent in 2012 over 2011 and the number of available lots dwindling, homebuilders sealed nearly 100 land deals in December alone that will create thousands of homesites. Based on those deals, as well as hundreds of others between builders and landowners in 2012, it’s clear homebuilders are now buying more land in more moderately priced areas in the northwest and southwest Valley as prices continue to rise in the southeast Valley.
The land rush is further evidence that metro Phoenix’s homebuilding industry is recovering from its devastating six-year slump. The area is leading the U.S. for home-price increases, according to S&P Case Shiller. The number of empty lots ready for construction has shrunk to its lowest level in more than a decade, with only enough lots in hand to last builders a year. The shortage, particularly in the southeast Valley, has sent land prices soaring.
In Arizona, the housing recovery is especially important to the broader economy. For decades, the homebuilding industry has been one of the state’s biggest economic engines, with at least one out of every three dollars generated statewide tied to housing, according to Arizona Republic research.
“When I look at what’s going on in the Phoenix-area housing market, I am bullish. Employment and population growth are up. Buyers are purchasing new homes, and builders are making a mad dash to buy more lots to keep up with demand,” said Charley Freericks, president of Scottsdale-based developer DMB. “We have gone over the numbers carefully and see 17,000 new homes going up this year.”
In 2012, nearly 12,000 new houses were built in the region, a 71 percent increase over 2011.
The land purchases are mostly in communities started before the crash and in some ways echo growth in the boom years, except the developments farthest from Phoenix’s core aren’t yet attracting builder or buyer attention. Most of the land purchases are inside the outermost freeways.
A shortage of labor could become a factor. And home prices are projected to keep rising.
In other ways, this is a new era. Growth is projected to continue at a steady pace for the next few years, with the number of houses built to stay below 50 percent of the number that went up in the peak boom year of 2006.
Avoiding a repeat of the 60,000 houses built in the region during 2005-06 is good news. This time around, new-home construction is based on real demand from homeowners and not speculation by investors and builders. Metro Phoenix homebuilders began to see more people checking out their model homes and sales start to rise in spring 2012, six months after the resale market had begun to recover.
Most recent new-home buyers had been looking at foreclosure and short-sale homes but were frustrated after getting outbid by investors paying cash. The region’s resale prices plummeted more than 60 percent during the crash but climbed back almost 35 percent in 2012. Thousands of homebuyers suddenly realized they could buy a new home in the area or school district where they wanted to live, for not much more than the top bid on the last short-sale home on which they had made an offer.
The number of new homes built in the Phoenix area climbed 71 percent to 11,600 in 2012. New-home sales followed the trend, with buyers closing on 10,034 new houses last year, up 41 percent from 2011. These are the biggest jumps for the new-home market since 2006. The median price of a new house climbed almost 15 percent during 2012 to reach $240,000.
“The recovery in the home market is real. It’s not about wishing and building for buyers who aren’t there or can’t afford the house,” said Arizona real-estate analyst RL Brown, co-publisher of the Phoenix Housing Market Letter.
Housing analysts, including Brown and Housing Market Letter co-publisher Greg Burger, forecast that homebuilding will increase each year until at least 2016. In 2016, at least 30,000 new houses will be built in the Phoenix area, Brown and Burger project.
Real-estate analyst Mike Orr believes builders must construct more houses in the Phoenix area this year to keep up with buyer demand. Another reason: The number of houses offered for resale has hovered near a record low for the past year.
“It seems many people may have decided to hang onto their homes in an effort to let values keep going up. I also anticipate another possible drop in supply this spring,” said Orr, of Arizona State University’s W.P. Carey School of Business. “Unless homebuilders can start keeping up with rising demand, we may have a chronic supply problem.”
Flurry of deals
Builders had been able to keep new-home prices relatively low until late last year because they had inventories of inexpensive lots purchased during the recession. Now, most builders must buy more expensive land to replenish their supply, which housing analysts say led to 1,000 deals between builders and landowners in 2012, with more to come.
Fewer than 21,000 lots remain ready to be built on in metro Phoenix’s planned communities, compared with 75,000 in 2003, according to a new analysis from RL Brown Reports.
Land broker Nate Nathan, president of Scottsdale-based Nathan & Associates, said that based on new-home building projections, there are only enough lots in the pipeline to last builders a year.
Land generally changes hands several times before a house is built on it. First, it’s often part of a larger tract sold through a land broker to a developer or investor. Developers then plan a community and sell lots ready for construction to homebuilders such as Pulte, Meritage, Fulton and Shea. Homebuilders typically then create their own subdivisions, with model homes and sales centers, and begin selling houses to consumers.
The price for a standard 60-foot lot is increasing from housing-crash levels of 2009, rising more than 100 percent in many areas of the Valley in just three years. Nathan said the region’s home-lot prices are rising faster than in any other part of the country.
Because of builder demand, the prices for bulk land sales also are increasing, which means new houses likely will cost more, no matter where they are located in the region. In February 2012, Maracay Homes paid $50,000 a lot for land in Chandler. In late December, K Hovnanian Homes paid $88,000 a lot for land in Chandler, according to public real-estate records.
“It’s hard for many buyers to hear, but home prices are going up,” said Ken Peterson, vice president of Shea Homes’ Arizona office. “But it’s a good time to buy, because prices are going to keep rising for a while.”
What’s driving rising prices
Metro Phoenix’s homebuilding recovery began in the southeast Valley, and Mesa, Gilbert, Chandler and Queen Creek are expected to draw the most new-home buyers again this year. Nearly 50 percent of the region’s new homes were built and sold in the southeast Valley in 2012, and the area is expected to draw almost 40 percent of this year’s buyers. Maracay Homes plans to open 13 new communities in the Phoenix area this year, and eight of those will be in the southeast Valley.
“We moved early to buy land in 2009, when prices were low,” said Andy Warren, Maracay president. “Now, we have lots ready for new homes where buyers want to go and don’t have to get in bidding wars with other builders for land in the southeast Valley.”
The typical lot in the southeast Valley sold for $35,000 in 2009, according to Nathan & Associates. At the end of 2012, the average price for the same type of lot in the area sold for $75,000.
Kim Underwood, who now rents in Tempe, has been shopping for a new home in the southeast Valley for the past few months. Prices are higher than she expected, so she’s expanding her search.
“I know a couple who bought for under $300,000 in Gilbert last summer. I looked at houses in their neighborhood, and prices were $20,000 to $30,000 higher,” she said. “I wanted to be close to my job in Tempe and buy a new home, but now I am looking in the north Valley or even the southwest as long as the community is close to a freeway.”
Several homebuilders say land prices are climbing too high in Chandler to build houses that most current shoppers can afford.
Most of the less-expensive vacant lots left in the southeast Valley are in Gilbert, Mesa and Queen Creek. The Gilbert developments Elliot Groves at Morrison Ranch, near Elliot and Recker roads, and Layton Lakes, at Queen Creek and Lindsay roads, have several hundred lots available. Builders bought 700 lots in the new community Eastmark, near Phoenix-Mesa Gateway Airport, and plan to start selling homes there this year. Thousands more new-home lots in the development are planned. In Queen Creek, Nauvoo Station at Ocotillo and Crismon roads and Hastings Farms at Ellsworth and Cloud roads have hundreds of lots available as well.
The recovery of the homebuilding market will have little impact on Scottsdale, where there’s not much vacant, developable land.
There is available residential land in north Phoenix but, as in Chandler, lot prices there are higher.
The southeast Valley dominated homebuying as a region in 2012, but Vistancia in north Peoria was Arizona’s top-selling community. And homebuilders are purchasing more land in the northwest and southwest Valley, betting on those areas attracting more buyers.
Although new-home lot prices in Peoria are similar to those in the southeast, current land costs in Surprise or in the southwest communities of Buckeye and Goodyear are at least $20,000 less per homesite. More lots are also available for purchase in these areas.
Whether new-home buyers flock to the West Valley like they have to the southeast isn’t a sure thing. And so far, neither builders nor home shoppers are doing any serious buying in most parts of Pinal County or west of the White Tank Mountains. New-housing developments in Pinal and the far southwest Valley were hurt the most by the crash.
Brown said a geographic shift in homebuying will depend on whether the communities are close to freeways, jobs and retailers, no matter how much more affordable the new houses are.
“The ‘drive until you qualify’ homebuilding trend worked before because the mortgage market didn’t really require borrowers to qualify for the loans they were taking out,” Brown said. “Lending guidelines are much tougher, and borrowers will really have to be able to afford the payments on a new house.”
Land purchases are continuing in early 2013, and early indicators show new-home sales and prices continue to rise. After the housing crash and the long climb out, metro Phoenix’s major developers and builders hope to cash in on the continued growth.
The region’s top-selling homebuilders — Pulte, Lennar, Richmond American and Maracay — have the most land. Tempe-based Fulton Homes reports selling 52 houses during January. Builders that shuttered Phoenix operations during the crash also are buying land in the region, hiring employees and trying to compete with builders still here.
DMB owns some of the communities with the most available land ready for new houses: Eastmark in Mesa, Marley Park in Surprise and Verrado in Buckeye.
“We sold 87 homes in the Phoenix area during the terrible year of 2009,” DMB’s Freericks said. “Last year, 364 new homes were sold in our Valley communities. We are expecting 637 new-home sales this year.”