Unusually high prices for new homes (Casa Grande: lease, mobile home, to buy)

[asufan]

Originally Posted by Zippyman

If the median sale price is $200k (ish), than how could $400k be anything but "luxury"? Pretty sure the median income in Phoenix isn't $100k, but closer to $60k.

And there isn't hardly any product at all out there under $200k right now.

If there is hardly any product below $200k, then how can $200k be the median? The median means the mid point, an equal number of sales above and below that number. There is product out there sub $200k, think manufactured, condo, townhomes and single family homes in lower priced areas. The median household income may be $60k, but what is the median household income of owners of single family homes? This is why I hate such broad stats. In my zip code, the median household income is ~$100K and I don't live in PV or anything, I live in a middle class suburb. A $400k home here is a nice home, but not luxury. This is why I think a $400k home is middle class, or perhaps on the cusp of upper middle class.

[sh9730]

What will happen is the "drive until you qualify" will start again - maybe is already. DR Horton has been pretty steadily building down here in Casa Grande at the lower price points (compared to in the valley per se) for a few years now. Averaging about 90-100 per SF. They just opened up their 3rd subdivision down here.

Meritage never stopped building the Mission Royale senior community and just opened up new models for that community. They expect it to close out in the next 3-5 years. LOTS of higher end mobile homes being built in the nicer parks these days also for the retired side.

[Potential_Landlord]

Originally Posted by asufan

If there is hardly any product below $200k, then how can $200k be the median? The median means the mid point, an equal number of sales above and below that number. There is product out there sub $200k, think manufactured, condo, townhomes and single family homes in lower priced areas. The median household income may be $60k, but what is the median household income of owners of single family homes? This is why I hate such broad stats. In my zip code, the median household income is ~$100K and I don't live in PV or anything, I live in a middle class suburb. A $400k home here is a nice home, but not luxury. This is why I think a $400k home is middle class, or perhaps on the cusp of upper middle class.

That's a good question but if you check trulia etc. it tells you <200k for median sales price.

[Potential_Landlord]

Originally Posted by CodyW

If you ask the builders, or anyone in the development community, they'll tell you that it's a market response. Builders, trying to weather a still struggling housing market, are looking a profitable segments with customer bases that are actually growing. There are surprisingly few "starter home" neighborhoods online throughout Phoenix right now - builders are taking their product up-market in response to families leaving their starter homes to move up to the next segment.

Another segment that is growing by leaps and bounds is active adult. These communities are, by far, experiencing the fastest growth among new builds - again, as a response to current demographics and market conditions.

That's interesting. I see quite a bit of applications from candidates who want to spend there final working years here and then retire here as well. At least that's what my best guess is, or my profiling. No wonder active adult is doing well.

[eqttrdr]

"...its different this time..."

[Potential_Landlord]

Originally Posted by ajonesaz

Land prices are still pretty crazy to, they need to build more expensive homes to recoup. Any newer build under $250ish in a desirable area is going to be zero lot line. If your budget is under $200k there is A LOT of competition for resale in nicer areas. A house a few doors down went up on Saturday for about $210 and they had 3 offers to look at Sunday. The resale market for houses over $250 is not that great.

I don't understand why builders don't want to build some smaller houses and get a piece of that market.

That may be true in some areas but if I look at the home builder communities across North Phoenix, for example along I-17 or Cave Creek road, many of these had been started before the downturn and then reopened afterwards. Lot prices by my guess weren't as high when these were originally purchased (ok still a guess). Also in these communities lot sizes are quite small so you can hardly put a pool in. It's quite densely built.

[smoochaz]

Originally Posted by Potential_Landlord

To me it seems that builders only build for the well to-do right now. They don't even seem to target middle-class home buyers any more. Back to renting for the peons.

That's not true - there are a lot of new builds that have decent base prices- even when you add on top of the base price the 15-30% for the lot, upgrades, etc. you can find decent priced new builds- in some developments they have waiting lists (because they can only release 3-5 lots/month)!!

[MN-Born-n-Raised]

Originally Posted by Potential_Landlord

I came across this interesting facet of our housing market in this current cycle. Overall, new construction activity is still very low, probably because of the over-build in the housing bubble and the reluctance of first-time home buyer to dare the purchase. However, new homes are being sold at record price-to-median-income ratios across the country. Somehow, builders seem to have a lot of pricing power and build only where they see good margins. Compare, for example, with the 1990s cycle.
Do you see the same across the Phoenix metro area? It seems to me home-building here is mostly happening from the 400k range on. What are your experiences? -Thanks.

The big reason why builders are charging a lot more is because of the limited Valley labor supply. Thousands of people in the PHX area left the trades. So the lead time to build new homes are now LONG and labor prices are going up. New homes compete with existing (used) home prices which are significantly less. In short, the demand of new sales is limited by the labor supply and builders cannot afford to pay them more or new houses won't sell. In other words, the budget curve for people willing to pay the premium for new build is a fairly steep slope (bank appraisals also help control what builders can charge).

So no, builders don't have a lot of pricing power. They are managing their inventory and selling to people willing to pay a premium because they have a labor shortage. In most developments and $250K-$350K mid level builds, if you pick a lot and want it start, it is currently an 8 month lead time. Hence, builders have some partially finished spec homes to reduce that long lead time. The big rise in new home prices can be summarized is two words: labor shortage.

[Potential_Landlord]

Originally Posted by smoochaz

That's not true - there are a lot of new builds that have decent base prices- even when you add on top of the base price the 15-30% for the lot, upgrades, etc. you can find decent priced new builds- in some developments they have waiting lists (because they can only release 3-5 lots/month)!!

OK, thanks for your insight. I have not really studied individual developments. Would you share with us where you see these budget new-builds? Are they significantly below the median new home prices? -Thanks.

[Potential_Landlord]

Originally Posted by MN-Born-n-Raised

The big reason why builders are charging a lot more is because of the limited Valley labor supply. Thousands of people in the PHX area left the trades. So the lead time to build new homes are now LONG and labor prices are going up. New homes compete with existing (used) home prices which are significantly less. In short, the demand of new sales is limited by the labor supply and builders cannot afford to pay them more or new houses won't sell. In other words, the budget curve for people willing to pay the premium for new build is a fairly steep slope (bank appraisals also help control what builders can charge).

So no, builders don't have a lot of pricing power. They are managing their inventory and selling to people willing to pay a premium because they have a labor shortage. In most developments and $250K-$350K mid level builds, if you pick a lot and want it start, it is currently an 8 month lead time. Hence, builders have some partially finished spec homes to reduce that long lead time. The big rise in new home prices can be summarized is two words: labor shortage.

Thanks for your insight, MN! You are one of our best experts here. I was just going from the national statistics and they do not show the underlying causes. The public home-builders are not doing too bad right now in general. Profitability is good IMO.