New builds bringing market down? (Phoenix, Tucson: sales, how much, home builders)

[jco]

It seems, just from reading through threads on this forum, that people are choosing to build new instead of buying resale. This seems to only encourage a continued saturated market and bring home prices down even more. Do you think that new home builders can be blamed for the bubble and its lasting effects in 2007? Most want to blame investors and investors alone, but I wonder if new home builders should share in that.

[Ponderosa]

Almost all of the builders here are publicly traded companies and are playing with other people's money. So they can undercut the resale market and can continue to build and take losses in anticipation of a return to strength in the market. I think the big boys did not expect the downturn to last so long. There have been a couple of indications that they have realized that continuing to build and sell low is not doing them any good long term. First, permits last month fell to a rate of 1/2 sales. If this persists, then the new home inventory is going to fall. Second, the number of spec homes on the market has gone down very significantly according to RL Brown, local market guru. Both these trends suggest that a bottom may be coming in prices and a peak in inventories. If the economy can weather $90 oil then recovery of the housing sector could follow.

[BillyBaroo]

When we started shopping for a new home earlier this year, we thought people were asking too much for their houses. We found that we could build a new home and get a larger house for less money. Most of the homeowners were trying to get more money than what their house was really worth.

This summer we signed a contract with Pulte for a house in Red Rock. Last month we drove out there to see how things were looking. They told us we could get a bigger house and they'd give us another $30,000 off the price and $10,000 off the price of the lot. We ended up getting an additional 1200 sq ft for almost the same price. We couldn't be happier and just have to wait an additional three months, which actually works better because the kids will finish the school year here before we move.

I think if most people are given the option, they'll build a new home rather than buy an older house for the same price.

[AZBroker]

My experience is that those individuals that like to live within the established areas of Scottsdale or Phoenix are totally fine with buying resale because they prefer location over product. I see the resale market gaining momentum as people start realizing that driving the extra 45 minutes might not be worth the "new house smell". I think it truly comes down to personal preferece..

[Axiom]

I absolutely think builders are partly to blame. You know they were watching the numbers: population growth, investors coming into the market in greater numbers, prices starting to escalate far beyond normal levels; so they started building like crazy, trying to get their slice of the pie.

Then when the market began to cool, like Ponderosa said, they saw it and priced accordingly.

When our house was on the market in PHX the sales numbers in our neighborhood were dismal. We priced very aggressively and still got almost no lookers. We had friends who priced at boom levels and didn't have a single looker in 3 months. (not counting agent previews)

Granted the buyer pool was small to begin with by then, but it certainly didn't help that some of the new home developments in the area were offering agent commissions of 15% or more.
If I were an agent and I knew there were 2 equally nice houses that met the needs of my buyer... I'm thinking it would be pretty easy to show and/or talk up the house where I could make 15% vs. the one where I could make 3%
No?

I don't know enough about RE trends in the area to say for sure whether there was overbuilding in relation to market conditions, but I'm guessing it's a safe bet.

Edited to add:
I would almost always rather buy resale than a new build.
I want an established neighborhood and schools with a history. I don't want the costs that often come with buying a new house all up front ie: pool, landscaping, window coverings, etc. Let someone else take care of all that, and even if it's not particularly MY taste, as long as it's done in good taste; I can live with it for awhile and change things out as I go. That's all in addition to the horrendous commute issue the pp mentioned.
And I won't even get into the whole quality/standards issue in new builds, especially when they're trying to put houses up overnight in an attempt to cash in on a buying frenzy.

[sierraAZ]

Originally Posted by Axiom

I absolutely think builders are partly to blame. You know they were watching the numbers: population growth, investors coming into the market in greater numbers, prices starting to escalate far beyond normal levels; so they started building like crazy, trying to get their slice of the pie.

That's true. They should've known better than the general public.

Right now, though, new construction's come to almost a screeching halt here in Tucson. My builder's certainly not doing any specs and I don't think they'll release new lots after finishing up the section they're working on right now. Their actions reflect the company's last earnings call. They attempt to preserve margins. At this time they have only 4 inventory homes in the whole Tucson metro. Seems like other builders have more quick move-in houses (not that many, though), but I believe they're a result of cancellations in most cases. The permits are waaaay down in town. There haven't been "coming soon communities" in the local paper for a long time with the exception of one or two, but they're sort of phases in an existing development.

[Axiom]

Originally Posted by sierraAZ

That's true. They should've known better than the general public.

<snip>

Yes, but greed is a powerful motivator.

You're right. There's certainly lag time to consider when you're talking building a house. I think permits were already way down back in the summer when we were on the market, but there was still tons of inventory from the overbuilding that had already happened.

No doubt there were builders who timed things correctly and made a killing, just like there were speculators who did. There are others, who probably came late to the party and jumped in with both feet just when they should have been getting out, who could end up taking it in the shorts.

I don't think anyone ever said timing the market was easy.

I'm guessing some of the independant contractors, who are likely finding work tougher to come by theses days in AZ, will be heading to CA to try and find work re-building after the fires. Maybe so?

[sierraAZ]

Originally Posted by Axiom

Yes, but greed is a powerful motivator.

No doubt about this one! Let's hope they're not like the general public in the way of saving for rainy days, either. After the killings they made, they should be able to weather this storm. As I've said before, though, we have to be a little fair to them, too, as they did take huge losses due to impairments. True... there was greed involved in these commitments as well, but a loss is a loss regardless...

It seems to me there are already plans for "rebooting" the bubble in the works: http://finance.yahoo.com/focus-retir...ment-lifestyle

[NYtoAZ2007]

Originally Posted by Axiom

I absolutely think builders are partly to blame. You know they were watching the numbers: population growth, investors coming into the market in greater numbers, prices starting to escalate far beyond normal levels; so they started building like crazy, trying to get their slice of the pie.

Then when the market began to cool, like Ponderosa said, they saw it and priced accordingly.

When our house was on the market in PHX the sales numbers in our neighborhood were dismal. We priced very aggressively and still got almost no lookers. We had friends who priced at boom levels and didn't have a single looker in 3 months. (not counting agent previews)

Granted the buyer pool was small to begin with by then, but it certainly didn't help that some of the new home developments in the area were offering agent commissions of 15% or more.
If I were an agent and I knew there were 2 equally nice houses that met the needs of my buyer... I'm thinking it would be pretty easy to show and/or talk up the house where I could make 15% vs. the one where I could make 3%
No?

I don't know enough about RE trends in the area to say for sure whether there was overbuilding in relation to market conditions, but I'm guessing it's a safe bet.

Edited to add:
I would almost always rather buy resale than a new build.
I want an established neighborhood and schools with a history. I don't want the costs that often come with buying a new house all up front ie: pool, landscaping, window coverings, etc. Let someone else take care of all that, and even if it's not particularly MY taste, as long as it's done in good taste; I can live with it for awhile and change things out as I go. That's all in addition to the horrendous commute issue the pp mentioned.
And I won't even get into the whole quality/standards issue in new builds, especially when they're trying to put houses up overnight in an attempt to cash in on a buying frenzy.

We've been looking to purchase for several months now and you are spot-on. I wanted, for all the reasons you stated, to purchase resale in an established neighborhood. My husband wanted to purchase new as this was the 1st opportunity we had (couldn't touch new back east with the property taxes). We looked at many, many resales and watched the listings closely. Ultimately, we could not find a resale in the areas we wanted (admittedly, highly desirable areas like Arrowhead and Palm Valley) that was willing to sell at "current market", but we were able to get a GREAT deail on a builder inventory.

Of course, as time marches on, we're seeing the lsting prices for the resale homes we looked at continue to drop, getting closer to what we were willing to pay (and in one case actually made an offer).

But we felt it was our time to make our move, feeling that prices will probably continue to drop. As an owner, I can also see the logic in not taking a low offer (even after 15 months on market!), but working my listing price down slowly...it all depends on how long you can hold out and how much it's costing you to keep the house.

I also felt our realtor was VERY professional and did not try to sway us based on increased commissions being offered from some builders. But I agree with your logic.

Bottom line: the builder's offer was too good to pass up, even with the extra cost of pool and other ancillary purchases I anticipate.

[SOON2BNSURPRISE]

I know that many of the builders are required to finish the projectsm that they have started. The city has them get a bond that they will forfeit if they do not complete what they have started.