Mark Henle/The Arizona Republic Carlos Marcus (bottom) and Gustavo Capiano frame a Meritage Home under construction in Gilbert. New homes are going up again in the southeast Valley.Amid the worst home-building slump in more than two decades, location has once again become the most important factor for metropolitan Phoenix's new-home buyers.
After being pushed to the extreme edges of the region during the housing boom, young buyers are finding that prices have come down far enough to make homes in popular suburbs affordable.
The lower prices are driving sales of new homes in the more-desirable areas of the East Valley, and those sales may signal the beginning of the next cycle in the home-building industry, which has traditionally fueled much of Arizona's economy.
Nearly half of the 6,000 new houses sold in the region so far this year are in the southeast communities of Mesa, Chandler and Gilbert. First-timers, who no longer have to go out to the Valley's farthest flung developments to afford a new house, are the biggest group of buyers in those areas.
Because fewer homebuyers are heading out to the region's fringes, homebuilders trying to make money in the downturn and compete with foreclosures have had to find land in closer-in communities and cut costs and prices to be able to sell houses.
The strategy shift has helped several of Phoenix's homebuilders survive the real-estate collapse and keep the area's once huge new-housing industry alive. It also has opened the door for younger buyers to afford new houses in southeast Valley neighborhoods near freeways, shopping centers and better schools that only three or four years ago were out of their financial reach.
"People can now buy new homes in Chandler and Gilbert for half of what they cost during the boom or even pre-boom," said Jay Butler, director of realty studies at Arizona State University. "Most of the homeowners who paid the higher prices years ago aren't leaving, either."
Residents who bought in these East Valley suburbs before the downturn are likely upset at the drop in home values. But they still like their neighborhoods, and with fewer foreclosures, their more-established communities remain attractive places to live - another benefit drawing new buyers.
Homebuilding-cycle stalls
New homes in most parts of Mesa, Chandler and Gilbert were too expensive for first-time buyers until last year. Those communities grew rapidly during the 1990s with new residential developments, freeways, malls and commercial hubs that drew employers. Families flocked to these suburbs for their schools with higher test scores. Home values in the southeast steadily climbed, and new houses grew bigger and more expensive.
Under the region's "drive until you qualify for a mortgage" formula, most first-time homebuyers then had to head farther out in the southeast Valley to Queen Creek, the city of Maricopa and other parts of Pinal County or to the West Valley communities of Goodyear, Avondale, Surprise and Buckeye to find new homes they could afford. And often they ended up several miles from a grocery store or school.
A home-buying cycle evolved in metro Phoenix that revolved around first-time buyers starting with a new house in the far southeast or southwest that they would hold onto for three to five years and then sell for a profit to buy a home closer in, often in the southeast. As a result of rising land and home prices in Tempe, Mesa, Chandler and Gilbert, the region's west side overtook the east side for home building.
But the cycle stalled with the start of the real-estate crash of 2007, as did home building in all parts of Phoenix.
At the peak of the housing boom in 2006, new-home prices in parts of Mesa, Chandler, Gilbert and Tempe had climbed above $400,000. Now, prices are less than half of that in many of those neighborhoods, except in Tempe, where little available land for home building keeps most new-home prices higher.
Suddenly, affordable
Although home prices in these southeast suburbs haven't dropped as much as in other parts of metro Phoenix, they are still low enough to attract first-time homebuyers.
A combination of low prices, not having to worry about selling another home, and qualifying for historically low interest rates is spurring many first-time buyers.
Many in this small but growing group of buyers also are discovering that their mortgage payment is less, or not much more, than their current rent.
Nicole Pryde and her fiance, Dan Johnson, recently bought a new Chandler home.
"We didn't think we could afford to buy in Chandler and would have to go much farther out to Queen Creek," said Pryde, who was renting in Scottsdale.
Johnson, who teaches in Chandler, proposed to her in April on the lot they picked for their $270,000 house, built by Meritage Homes.
"We looked at foreclosure homes, but they all needed so much work," she said. "We realized we could afford to buy new and get the home we really wanted for the family we want. We are minutes from the freeway, a shopping center with a Super Target and great schools."
The couple moved into their new home at the end of June. Several other young, first-time buyers are their new neighbors.
Many of the new homes going up in the southeast Valley are in subdivisions started four or five years ago but weren't finished because of the downturn. They typically have some houses, parks and maybe a school, but they also have several empty blocks.
Tiffany Sullivan is buying a new home in Gilbert. The mother of two recently relocated to Phoenix from central California, and her first concern was finding a house near schools with good athletic programs and after-school activities.
"I thought we would have to rent to be near the schools I want them to go to," said Sullivan, who recently divorced and is concerned about living in a safe area near other families with young children. "When my real-estate agent drove me into our new neighborhood, I saw the children in the park and then the prices for the houses. Both surprised me."
Sullivan is paying less than $200,000 for a new, three-bedroom house. It's her first home. She's looking for a job at the Chandler Fashion Center mall, which is about 10 miles from home.
Jim Belfiore, a Phoenix housing analyst, believes homes in Mesa, Chandler and Gilbert are also popular among buyers because of those communities' "high concentration of suburban employment."
"Unlike the West Valley, where employment is spread out over a relatively large geographic area, the bulk of East Valley employment is concentrated in employment hubs," he said. "Chandler's Ocotillo has Intel and several other technology firms. That's a big draw for homebuyers."
Coming around again?
New-home lot prices already have started to climb again in the popular southeast Valley communities. Arizona land brokers say lot prices almost have tripled during the past two years in parts of Chandler and Gilbert. Home sites are selling for more than $80,000 in some areas of Chandler, prices similar to what builders paid in the pre-boom years of 2003-04.
Rising lot prices eventually will translate into higher home prices for these communities, which could signal the start of a repeat of metro Phoenix's home-buying cycle of the mid-1990s, when first-time buyers were priced out of the southeast Valley.
Housing experts say the land purchases and rising new-home sales in close-in developments could be an early sign that the region's home-building industry, which downsized and regrouped after the real-estate crash of 2007-09, is entering the first stage of its next growth cycle.
"The federal homebuyer tax credit definitely helped Phoenix's new-home market," said Arizona real-estate analyst RL Brown. "We'll see how much of a boost in the coming months if homes sales fall off again. Many in housing have their fingers crossed that recent increases in sales are a sign the market will slowly improve and not collapse again."
The homebuyer tax credit originally expired on June 30. It has been extended until the end of September for buyers who had signed contracts by April 30 but needed more time to close the deal.
During the first half of this year, homebuilders spent $90 million buying up land in metro Phoenix, much of it in the southeast Valley. It's the most builders have invested in land in the region in any year since the peak of the housing boom in 2006.
Now that lot prices are heading up again in Chandler, Mesa and Gilbert, homebuilders also have begun to buy less-expensive land in other parts of metro Phoenix.
Areas along the Interstate 17 corridor north to Cave Creek and in Avondale and Goodyear in the southwest Valley are attracting builders' interest, and during the past few months, new-home sales have begun to climb again in the southwest.
Home-lot prices in these areas are climbing as well, but lots are still typically selling for below $40,000.
Housing analysts and builders are cautiously watching to see how new-home sales fare in these areas outside the southeast Valley to gauge where buyers are willing to go and what they are willing to pay for new homes.
"We are only buying land closer in now. Buyers are willing to pay small premiums for new homes but only in certain locations," said Chairman Steve Hilton of Scottsdale-based Meritage Homes, one of the 20 biggest homebuilders nationally. "We aren't buying lots in any far outer peripheries of Phoenix now."
On the edges of the Valley, land in places such as Buckeye west of the White Tank Mountains and the Pinal County communities of Coolidge and Eloy still isn't drawing much homebuilder or buyer attention.
"The homebuilding market is still down but shows some signs of stabilizing in certain areas of the Valley like Chandler and Gilbert," Brown said. "Homebuyers who have jobs and feel secure are finding great deals on homes in communities closer in. We'll see how long it takes for the trend to extend to communities farther out."
by Catherine Reagor The Arizona Republic Aug. 8, 2010 12:00 AM
Arizona real estate: East Valley housing more affordable
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