Tuesday, February 7, 2012

Arizona housing experts guarded but hopeful

No one at this year's Urban Land Institute conference predicted when metro Phoenix's housing market will rebound.

The annual Arizona conference, where real-estate industry leaders convene and predict the market's movements, has been the most important summit on Valley real estate since the beginning of the housing boom nearly a decade ago. But this year, the conversations and atmosphere were different.

The many experts who spoke were more low-key and pragmatic than they'd been during the last five years. Few offered any guesses at when home prices might rebound to boom levels.

That may have been because so many past predictions have been wrong.

At the conference in 2007, the forecast was for metro Phoenix home prices to recover to boom levels by 2010. Instead, prices continued to drop until late last year.

Year after year, as the housing crash and economic downturn worsened, analysts and investors tried to forecast when the market would rebound. By 2011, the mistaken predictions had become a subject of some wry humor.

This year's panel discussions with local and national real-estate investors and developers, held last week in downtown Phoenix, revolved more around hope that the housing market had finally bottomed out. That's because, just as housing helped pull down the rest of the real-estate market, economists and experts believe its recovery will help lead other sectors out of the crash. This idea was echoed again and again during the event.

"Many people believe we are three-fourths through the foreclosures," said Greg Vogel, CEO of Land Advisors, during a discussion on homebuilding. "There's anticipation this spring will be better for housing."


Metro Phoenix home prices ticked up at the end of last year but are still below 2000's level.

No one at the ULI conference ventured a guess at how long it would take the region's median existing home price to rebound to $267,000, the record it reached in late 2006. The last home-price prediction from the event was last year, when housing analysts called for metro Phoenix home prices to return to pre-boom levels by 2015.

Phoenix's current median existing-home price is $120,000, where it was in 1999. The last pre-boom median is considered to be the 2003 figure -- $155,000.

"Phoenix is in the middle of the pack for a housing recovery," said Steve Hilton, chairman of Scottsdale-based Meritage Homes, comparing the region with other parts of the country.


For the past few years, the consensus at the ULI conference was that foreclosures would have to slow for home prices to climb and for homebuilding -- a major Valley industry and a source of many jobs -- to begin recovering to pre-boom levels.

Fewer than 7,000 homes were built across the Valley last year, according to the Phoenix Housing Market Letter. That compares with a record 64,000 in 2006. A pre-boom building pace for new homes in the region is closer to 35,000.

Homebuilders at the conference agreed building will pick up this year but said it will be a while before buyers go back out to the fringes of metro Phoenix, no matter how inexpensive the home is or how low gas prices go.

"There are fringe parts of Phoenix where we couldn't make a profit on a new home even if the land was free," said Hilton.

Builders and investors continue to buy land in metro Phoenix in anticipation of the homebuilding market's recovery.

Vogel said $95 million was spent on Phoenix-area home lots ready for construction in 2011.


Investors are also buying metro Phoenix apartments again. Developers are building multifamily housing projects, but only in prime central locations. These are positive signs, but none of the apartment experts went as far to say the market was on the rebound.

New complexes, with smaller units and pricier-than-average rents, are going up in central Scottsdale and Phoenix's Biltmore area.

Alliance Residential is building apartments at 25th Street and Camelback Road, where Donald Trump once planned a condominium tower.

Jay Hiemenz of Alliance said when his company committed to the site last year "it was a leap of faith" because Phoenix's apartment market was still struggling.

But Jerry Brand of apartment developer Greystar said Phoenix has great rent-growth potential during the next few years due to the region's increase in renters who either lost homes to foreclosure or don't want to buy no matter how low prices and interest rates fall.

Commercial real estate

Metro Phoenix's retail market started to struggle as soon as residential foreclosures jumped, and it became evident too many speculative homes had been built. Empty shopping centers still dot the Valley in neighborhoods with too many empty homes.

Dan Gardiner, a retail expert with Phoenix Commercial Advisors, said new retail centers went up on the region's fringes right behind the construction of new homes. But when no one moved into the houses, the retailers left or decided not to move in.

He said those neighborhoods will have to fill up before retailers return to those suburbs.

The markets for office and industrial space are more closely tied to Phoenix's job market than its housing market. As the region lost jobs during the recession, offices and warehouses emptied out. The vacancy rate for Valley office space is hovering around 20 percent, according to Phoenix real-estate brokerages.

These two sectors of the real-estate industry are expected to be the last to recover, and the timing depends on metro Phoenix's job growth.

"It's all about putting butts in seats for the office market," said Pete Bolton, managing director of Grubb & Ellis Phoenix. "Phoenix continues to be a cheaper alternative than California for companies transporting and warehousing products."

Christopher Toci of Cushman & Wakefield joked that his market predictions for office and industrial from a few years ago would be correct if you turned them upside down now -- his forecasts for increases were about as big as the market's actual decreases in leasing and sales.

The final takeaway from the conference was that growth would continue in metro Phoenix, but it would be slower than expected and different from past cycles.

"The balance between new housing near new jobs is more important than ever," said Steve Betts, chairman of ULI Arizona.

Unlike last year or 2009, the experts gave up on predicting the timing of a recovery and focused on the first real positive market signs they have seen in years.

"The new homes we sold in 2005, we re-bought in 2007," said Drew Brown, chairman of Scottsdale-based DMB Associates, developer of Verrado in Buckeye and DC Ranch in Scottsdale. "Now, we are finally selling those homes again."

by Catherine Reagor - Feb. 3, 2012 11:21 PM The Republic | azcentral.com

Arizona housing experts guarded but hopeful

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