The Arizona Republic - March 2007
Three opportunistic home builders are jumping into metro Phoenix's new-home market, undeterred by the glut of unsold houses and high prices left over from the housing boom. Newcomers Mattamy Homes of Canada, John Laing Homes of California and Orleans Homebuilders of Pennsylvania say that now is the right time to stake their claim in one of the most competitive housing markets in the country. They're grabbing cast-off land at bargain prices from the established players and picking up executive talent with years of experience at local companies.
Mattamy and Orleans are working on their first models, Mattamy in Pinal County and Orleans in Gilbert.All three multistate builders plan to target move-up buyers, people looking for their second or third homes. Mattamy is also building homes for first-time buyers. Both Laing and Mattamy have yet to set prices, while Orleans homes will start in the $300,000 range. Metro Phoenix's median new-home price was $306,355 last year. The builders say they realize the challenges of the local market and plan to start small, building just a few homes as they get their feet on the ground. The Valley is ruled by production builders that knock out thousands of houses a year. Market leader D.R. Horton alone racked up more than 5,600 new-home permits last year across its three Phoenix-area divisions, according to Home Builders Marketing. They also say they're in it for the long haul. "This is a great opportunity for a builder to get into a market that has been tough to get into for the last five years," said Mark McHone, president of Mattamy's Arizona division.Housing analysts say there is a risk in moving into a home-building market that is trying to get back on its feet after the excesses of a boom. An estimated 10,000 spec homes are on the market here. That is in addition to the more than 45,000 existing homes for sale. Bringing more houses to the market without a significant reduction in inventory could prolong what is already a painful slump, analysts say. "It's always risky coming in," said Jay Butler, head of realty studies at Arizona State University. "How much does the market have on the downside? But if you are coming in as the new builder, you don't have the image issues. You're the new kid on the block, doing something different."
Expecting a rebound
The market may be struggling now, but the newcomers expect it to rebound and be a profitable place to do business.They see the current downturn in an opportunistic way, similar to investors who buy beaten-up stocks at low prices. One of the big attractions is the excess land being dumped by builders who overbought during the boom.
The new builders are going after finished lots: land that already has streets, sewers and other off-site improvements that is ready for a building permit. That lets them get their houses on the market faster, rather than starting with vacant dirt and taking it through city approval processes.McHone said his company recently bought 240 lots from Engle Homes in the Queen Creek area and submitted requests for building permits. Mattamy will start building there in about four months. The company also is under contract for lots in the West Valley and northwest Valley. John Laing Homes is expected to announce Monday that it is coming to the Phoenix area. Laing was bought by Emaar Properties of Dubai for $1.05 billion in cash last year and has money for expansion. Phoenix was its first choice.Hiring superintendents
There not only is a land-buying opportunity now but the chance to hire superintendents in short supply during the boom, said David Walls, Laing's Phoenix division president and a former executive at Monterey Homes, a luxury home builder in the Valley. Superintendents supervise construction for the builders, dealing with everyone from trade contractors and sales offices to city inspectors and home buyers. There also is less pressure now on trade contractors than during the boom, when soaring demand pushed delivery times to nine months or longer. Analysts say that delivery times have fallen below six months but that builders aren't putting up too many new homes. They're trying to sell the ones that already are built or under construction for buyers that canceled contracts.Small builders now will have a better chance of staffing their jobs now that subcontractors aren't overloaded. Builders now hold pricing leverage, too. Ray Leppien, head of Orleans Arizona and a former DMB Associates executive, expects quality to improve now that subcontractors aren't just scrambling to fill jobs. "Finding those bodies meant they were not the most qualified people to do the work," he said.The national and local housing markets face some big unknowns in addition to cleaning up their inventory and their finances in the wake of the housing boom. Mortgage fraud and subprime lending pose threats of foreclosure and reduce the pool of first-time buyers. RL Brown, the analyst who heads Home Builders Marketing, said the newbies will have a tough go if the market falls into a prolonged slump."The risk is that the overall U.S. housing market would collapse for an extended period of time," Brown said. "That's the ultimate risk. But the potential is that when the market normalizes at whatever that is, it will be one of the best housing markets in the world - the world, not the nation."
