Metro Phoenix new-home market is on mend, experts say

Metro Phoenix's homebuilding market is on the second step of a five-phase recovery process, according to one of the nation's top housing analysts.

During a Wednesday Urban Land Institute panel discussion on the future of homebuilding, California-based real-estate consultant John Burns laid out the five stages the current market must go through to rebound: job growth, reduced housing vacancies, a market in which demand exceeds supply, increases in rents and home prices, and then, finally, new construction.

"Phoenix is on its way," Burns said at the real-estate think tank's national spring conference held in downtown Phoenix. "The area has job growth and is firmly in Stage 2."

With Phoenix's new-home construction slower than it has been in at least three decades, existing demand is slowly consuming the supply of empty houses, many built speculatively during the boom.

Homebuilding had been metro Phoenix's biggest industry and economic driver until the housing crash. During the boom of 2006, more than 64,000 new houses were built across the region. At the time, Phoenix rivaled Atlanta for the highest number of homebuilding permits in any metro area in the U.S.

This year, only 2,064 homebuilding permits were issued across metro Phoenix through April, according to new data from RL Brown's "Phoenix Housing Market Letter." That puts the homebuilding market on track for fewer than 6,000 new houses this year.

"The homebuilding market is confusing now," Burns said. "How can we have the best affordability levels in my lifetime and the lowest number of new-home sales?"

The next steps in Burns' recovery map are still further off.

- Demand exceeding supply: Hampering demand for new homes is many buyers' inability to obtain mortgages.

Almost half of all homebuilders surveyed by John Burns Real Estate Consulting Inc. said too many potential buyers don't have high enough credit scores to qualify for a loan, while other potential buyers don't have enough money for a down payment.

Mortgage giant Fannie Mae's chief economist, Douglas Duncan, also part of the panel, said that consumer confidence hasn't begun to rebound enough yet and that homebuilders are feeling the impact of that sentiment.

- Increasing home prices: When home prices do climb, that could entice buyers who are now on the fence.

"Most consumers say they don't like the economy much more than they did a year ago," Duncan said. "Consumers are uncertain about their employment and where home prices are going, so they wonder why now would be a good time to buy."

Fannie Mae's data show that a record number of people 35 and under bought homes during the boom and that, now, because of foreclosures, the biggest drop in homeownership is among that age group.

Duncan said many people in that age bracket want to rent now and won't consider buying until they feel more confident in the economy and home prices.

- New construction: New-home builders now compete against an oversupply of foreclosure homes in metro Phoenix. As foreclosures slow, prices will rebound and home construction will begin again.

"New-home buyers are value-conscious now," said the third panelist, Steve Hilton, chief executive of Scottsdale-based Meritage Homes. "They are no longer interested in granite countertops and great rooms."

But he said it's a myth that buyers want smaller new homes. A 4,000-square-foot house priced below $280,000, located not too far from a metro area, will draw buyers now, he said.

According to the survey of 30 U.S. homebuilders conducted by Burns' firm, new-home buyers are more interested in houses near good schools, job hubs and shopping centers than amenities such as golf courses.

All three panelists were reluctant to forecast when the homebuilding market will rebound.

Greg Vogel, chief executive of the Scottsdale-based Land Advisors Organization, moderated the panel and proposed a 2015 recovery. Hilton agreed.

"I thought the homebuilding market would be in better shape by now," Burns said. "We are in a recovery. It's just a slow and long one."

by Catherine Reagor The Arizona Republic May. 19, 2011 12:00 AM



Metro Phoenix new-home market is on mend, experts say