Sunday, July 24, 2011

Phoenix-area homebuilders adjust to market

A deep plunge in both home foreclosures and pre-foreclosure notices in the second quarter ultimately could lead to a boost in business for Phoenix-area homebuilders, who have settled into a slow-but-steady sales pattern during the past two years.

However, builders and analysts said there were several other hurdles to be negotiated before the homebuilding industry could experience anything resembling a recovery.

Those challenges include the inability of many prospective buyers to obtain financing, lack of buyer confidence in the economy's future, a growing shortage of skilled labor in the homebuilding sector and continued stagnation in the Phoenix-area job market.

Executives at locally active builders, including Shea Homes, Taylor Morrison and Robson Communities said they had scaled back costs and are prepared financially to endure the remainder of the foreclosure era.

The builders said they did not expect to see a meaningful increase in sales for at least another year.

Still, they pointed to a number of positive trends that could turn out to be the seeds of a future uptick in new-home sales.

Those trends include the growing number of Baby Boomers reaching retirement age, increased foot traffic at new-home sales offices in the Phoenix area and a mild price recovery under way in the existing-home market.

Maricopa County home foreclosures decreased significantly in the second quarter, shrinking from 15,831 transactions in the second quarter of 2010 to 10,875 transactions, according to Mesa-based real-estate market research firm Ion Data.

Likewise, notices of coming foreclosure decreased from 19,664 notices in the second quarter of 2010 to 13,311 notices, Ion Data analyst Zach Bowers said.

It's not clear whether the lower numbers signify a decrease in unsustainable home loans or mortgage lenders taking a moment to catch their breath, analysts said.

Even if the drop in foreclosures continued, it still would be a long time before area builders felt the positive effects, said Jim Belfiore, a Phoenix-based analyst who covers the homebuilding industry.

"The foreclosure numbers are just so high," said Belfiore, president of Belfiore Real Estate Consulting. "We would need them to go down by 50 percent, and it's just not going to happen overnight.

"We still have 100,000 foreclosures to go, in my opinion."

There were 4,000 new-home permits issued in Maricopa County in the first quarter, down about 10 percent from 4,546 permits during the same period a year earlier, according to the most recent data available from the realty-studies program at Arizona State University's W.P. Carey School of Business.

Home-construction activity remained slow in the second quarter, commensurate with the lower sales volume that builders have experienced, said Pierrette Tierney, vice president of sales and marketing for Scottsdale-based homebuilder Taylor Morrison.

"Permits are down, but it's necessary to balance out the supply-and-demand scale," Tierney said.

Still, Tierney and other builders said sales per subdivision were tracking almost identically with 2010 figures, and that the year-over-year drop in sales is due primarily to the closing out of several subdivisions in 2010.

Belfiore confirmed that assessment, saying that average sales per subdivision in the second quarter was 1.7 homes, exactly what it had been during the same period of 2010.

The consistency of sales per subdivision belies a significant boost in foot traffic inside home-sales offices and model homes, which Belfiore described as both a blessing and a curse.

The good news, he said, was that the average number of potential buying parties per subdivision per week reached its highest level in three years during the second quarter.

The bad news is that as many as half of those interested buyers were denied a mortgage loan, Belfiore said.

"Thirty percent to 50 percent of the people who want a new home don't qualify for financing at this time," he said.

Ed Robson, founder and chairman of Sun Lakes-based Robson Communities, said financing had not been a problem for buyers approaching retirement age, the demographic on which Robson focuses most heavily.

The company's sales have remained steady this year compared with 2010 and are up 16 percent from 2008. Robson said Baby Boomers' lack of confidence in the country's economic future had been the primary factor preventing home sales in the age-restricted market.

Another problem Robson Communities has run into lately is a shortage of skilled labor, he said.

Robson said community rebuilding efforts in regions torn apart by floods or tornadoes have lured away many of the state's best contractors, some of whom were struggling in Arizona due to a lack of steady work.

Still, Robson said there was reason for homebuilders in the "active-adult lifestyle" market to be optimistic.

Their target audience, adults age 45 to 64, has swelled to more than 81 million, compared with just over 31 million in 2000.

Ken Peterson, Arizona vice president of sales and marketing for Walnut, Calif.-based Shea Homes, said recent home sales inside the company's Trilogy active-adult communities had outpaced sales in Shea's family-oriented neighborhoods.

But in general, Peterson said, homebuilders in the age-restricted market were no closer to a boom-era renaissance than those selling to buyers of all ages.

Builders and analysts said the key to surviving the next year or two was not some magic bullet but a constant effort to be more efficient, resourceful and responsive to market changes. Eventually, they believe, things will get better.

Robson, whose Sun Lakes development is one of the largest active-adult communities in the state, said there always will be people who want to buy a home and settle down in Arizona.

"We've got the sun and the weather," he said. "Where else are people going to go?"

by J. Craig Anderson The Arizona Republic Jul. 24, 2011 12:00 AM

Phoenix-area homebuilders adjust to market

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