Builders move homes by taking trade-ins

The Arizona Republic - May 2007

Having trouble selling your house so you can buy that new dream home? No worries.

Some builders will let you trade in the old place as part of the deal for a new one.

Builders frustrated by customers canceling deals are coming up with aggressive ways to keep them. Some are offering trade-in programs. Others are giving sales guarantees on existing homes. It's a switch from their traditional role in the house deal: building and then selling them. Now, builders are taking a more active role in clearing the way for buyers to purchase their homes.

The new programs are driven by a drop in new-home orders and soaring cancellation rates that have left many builders with an excess of unsold homes.

Cancellations shot from 1 percent in January 2005, the midst of the housing boom, to nearly 29 percent in March, according to Hanley Wood Market Intelligence, a real estate and new-home construction consulting firm in Costa Mesa, Calif.

Although some companies are seeing an improvement over last year, cancellations were still running high the first quarter of 2007.

At Scottsdale-based Meritage Homes, cancellations stood at 28 percent. At KB Home, it was 31 percent. Pulte Homes lost 25 percent of the sales to cancellations in its Southwest division, which includes Arizona.

Valley housing analyst RL Brown said a 15 percent rate is an acceptable industry standard, assuming that sales agents who are aggressively pursuing contracts are bound to see some deals fall through.

Customers cancel orders for various reasons. First-time buyers may have lost out on a loan, investors may have walked away because the big appreciation gains are gone, and move-up buyers may not have gotten what they wanted from the resale of their home. Builders have little control over the first two, but they can work to free up buyers in existing homes.

"The resale market is slow right now," said Dan Tartabini, sales director at KB Home. "We want to make sure people who buy from us that have a house to sell get to the finish line."

90% of appraisal

The trade-in program has been working for upper-end builder T.W. Lewis of Tempe.

The company buys select resale houses from buyers of its built but unsold homes. The resale must appraise below $500,000. The company will consider paying 90 percent of that price. Lewis had done three such deals and had five or six in the works as of mid-April, said Kevin Egan, the company's president and chief operations officer.

People can continue to list their resale homes until the new one closes. But that's typically about 60 days because spec homes are completed, or nearly so. Single-family Valley resales sold in an average of 91 days in April.

Egan said the trade program appeals to buyers who don't want to get stuck paying two mortgages when their resale doesn't sell.

"They want to buy our home. They want to live in our home, but they have the burden of selling their home," he said. "This alleviates their fears and lets them go forward."

KB Home started a guaranteed sale program in February. The company, which targets first-time, move-up luxury and retirement buyers, has an agreement with a realty company that will list the resale home of a KB buyer. If the house doesn't sell, the realty company buys it. The price is set with a third-party appraisal, and the house typically lists for close to that cost."It's like getting a free listing out of it," Tartabini said. "They believe they will have it priced right and it will sell."KB uses the program mainly in "dirt builds," houses started from scratch rather than finished-but-unsold homes. That gives the realty company several months to market the house.

Alfredo and Raquel Matute wanted to buy a new house in the north Valley but were concerned about getting a decent price for their current home. They knew resale prices were falling, and they didn't want to "give the house away," Alfredo said.

Yet they also wanted a new, bigger house so they could start a family. They thought the time was right since builders were overloaded with unsold houses and were offering big inducements to buy. The couple decided to buy in a Maracay Homes project in north Phoenix. They signed up for a referral program that set them up with an agent who priced their house at $409,000 in a neighborhood where similar homes were listing for $420,000 to $435,000. They repainted the kitchen and family room with neutral colors and placed some furniture in storage, at the agent's suggestion.

The house sold in three weeks for $400,000. The couple originally paid $220,000 for the house 3 1/2 years ago, so they could afford to be flexible on the price.

"We were kind of aggressive," Alfredo said. "We knew we were taking a high risk, but I told my wife: 'This is the best time to sell this house. The (resale) prices are going down.' "

Scottsdale-based Maracay builds in Phoenix and Tucson. It offers the program in specific communities in the Phoenix area and in certain deals. The agent agrees to reduce the commission, and Maracay pays its buyer an additional incentive when the sale of the new house closes, said Jeff Johnson, the company's vice president of sales. Buyers get a price analysis for their resale house before starting the process of buying the new one, Johnson said, giving them a realistic estimate of the house's worth and helping them avoid losing earnest money and paying other contractual penalties if they don't close.

"We found out that people had entered into a contract and had unrealistic expectations of what the house was worth," he said. "If that was the problem, let's address that at the beginning."

Anything it takes

Some analysts see these programs as a sign that builders are in trouble and doing anything it takes to lock in sales.

"These trade-ins signal the real trouble some Phoenix builders are experiencing now," said Jim Belfiore of Phoenix-based Belfiore Real Estate Consulting "We thought in December home-building was starting to make a real turnaround. But this move signals real desperation by some."

John Burns, a California-based analyst who follows the national new and resale markets, isn't so sure."Builders have to sell homes," he said. "Basically, builders that are somewhat desperate and don't have strong balance sheets need to sell some homes to appease their lenders."But that's the minority in Phoenix, I think. I think the majority in Phoenix has strong balance sheets. The faster they pay down debt, the better positioned they will be to buy land and increase production."

Burns said he has noticed another sales tactic recently: Builders putting mortgage experts into their sales offices. That means builders are trying to eliminate cancellations, and the pressure they place on inventory and finances, before they happen.

"They don't even want to go into contract with people who can't close," Burns said.

Excess in resale-home supply puts burden on seller

The Arizona Republic - May 2007

One of the challenges Mary Hennecke is facing in selling her house in Gilbert is competing against incentives being offered by homebuilders.

But, those incentives are also a major reason why she plans to buy a new house in Gilbert after her current one sells.

"Anything that they can offer is certainly beneficial," she said of her next purchase. "I'm hoping that the existing area will help me sell my home."

Hennecke bought her home in the Higley section of Gilbert with her husband in November, and said she benefited from an $85,000 price reduction.

She said she's hoping that margin works in her favor, as she has to sell because of a divorce.

The Valley's real estate market has 20-25 percent more inventory than it needs, said a real estate agent working in Gilbert. She said its probably going to take 9 to 12 months to clear the excess inventory.

She said as long as the inventory doesn't spike, sellers such Hennecke should have better chances as the market hits the traditional summer peak home-sales season.

The pricing and condition of a house is vital, she said. "Have your house look as nice as you'd like it to look if you were coming in looking through buyer's eyes."

Buyers are looking for homes in good condition that are well priced for their neighborhood, said Jay Butler, director of Realty Studies at Arizona State University's Polytechnic Campus in Mesa.

But the condition of the home may not be enough.

"Obviously your home has to be in good condition, but the neighborhood has to be in good condition, and that you may not have a lot of control over," he said. "Most buyers make up their minds about whether they want to look at the home by the time they get to it.

"While houses can move quickly, Butler said this is a "hard market."

"It may be finally settling in with sellers and agents alike that this market is where its going to be, and you better be realistic about that price," he said.

If sellers need to lower their asking price, they should limit it to one significant cut, Butler said.

"I tend to favor the big move a little bit," he said. "If you do a lot of little increments, their question is when do you actually stop? There's no incentive for them to make a move on it.

Hennecke still is concerned about the market. She set the price for her four-bedroom, 23/4-bath home at $345,000 with her real estate agent after figuring in factors such as square footage and amenities.

In the meantime, Hennecke is patient, and is continuing to live in the home with her two children, ages 2 and 5, while they wait for it to sell.

"It has to be show-ready at all times," she said. "It's an extra hour in the morning to make sure the house is ready before we leave.

"We spend a lot of time out now on the weekends."

Experts: Growth will keep Scottsdale housing prices high

Tribune - May 2007

More than 50,000 additional people are expected to be living in Scottsdale by 2020, while vacant land that can sustain residential development in the city continues to disappear. The result will be high housing prices in the long term because of a high demand to live here, according to economic and business officials.

Population projections recently released by Scottsdale indicate that by 2020, almost 290,000 people will call the city home. At the beginning of the year, the city had about 239,000 residents. That's about a 21 percent increase in population in a little more than a decade.

Over the last 17 years, however, Scottsdale's population increased by about 86 percent, from about 128,000 at the beginning of 1990.

Rick Kidder, president of the Scottsdale Area Chamber of Commerce, attrib- uted the slowdown in growth to the decreasing amount of vacant land suitable for residential development. Scottsdale only has about 3,000 acres left, and most of it is zoned for acre lots or larger, he said.

"We're running out of space. We're running out of open land," Kidder said. "That would account for the relatively dramatic slowdown (in population)."

Dave Roderique, the city's economic vitality director, said the type of housing being built in Scottsdale has changed as well.

"Back in the 1990s, we still had a lot of tract development occurring. You had a lot of available land. We're pretty much done with that," he said. "It's been consistently getting slower, and it's going to continue to slow down until we reach buildout. We don't have the land."

Now, new residential construction consists mostly of custom homes in the city's north and condominium development downtown, he said.

However, the demand for housing here is expected to remain high because of Scottsdale's healthy commercial sector.

"Demand will continue to stay very strong despite market fluctuations," Kidder said. "As long as demand remains strong and the supply is weak, the prices are going to remain high."

Realistic prices are beginning to help the ailing resale market

The Arizona Republic - May 2007

The standoff between home buyers and sellers in metropolitan Phoenix could be nearing an end.

The wide gap between what a home is listed for and what it sells for is shrinking, which means Valley home sales could start to pick up if more buyers and sellers agree on prices.

Real estate analysts say it's an early sign the ailing housing market could be on the road to recovery.

"Both buyers and sellers are readjusting their expectations," said University of Arizona economist Marshall Vest. "Buyers are coming back into the market with reasonable offers. More homeowners are pricing their homes to sell."

Vest analyzed data from the Arizona Regional Multiple Listing Service and found that the spread between what Valley home prices sold for in March and what they were listed for is the narrowest it has been since mid-2004. The gap hit a high in mid-2005.

Valley home listings recently hit a new high of 50,000. But housing-market watchers say many of the listings are sellers who put their home on the market last year based on price run-ups from a few years ago. Those houses are languishing on the market with little chance of selling for the listed prices.

Some sellers are taking note.

Thomas Herz realized there was a glut of homes for sale when he decided to sell his central Phoenix home earlier this year. He originally wanted to list it for $340,000, the price he believes his home is worth now. But Herz didn't want to wait months while it sat on the market and then have to go through the process of lowering his price one or more times. He and his real estate agent watched as the comparable sales in his neighborhood started coming in lower. "

After watching what was going on with the market, I wanted to list it at $319,000 but decided to go with $314,900, hoping it would sell faster," said Herz, who put his three-bedroom home in the Woodlea historic district on the market a few weeks ago. "Two years ago, homes like mine were selling in the high $300,000s. This house is a great deal for someone."

Buyers and sellers should watch carefully what is happening in their areas now and not base prices on sales a few miles away or on the other side of the Valley. In some parts of metro Phoenix, houses are going for the full asking price. In other parts, particularly on the fringes, buyers have more negotiating power."

Home prices need to be looked at neighborhood by neighborhood now," said an east valley real estate agent.

In 2005, Valley home prices climbed 50 percent. Since then, prices have been flat in most neighborhoods or have dropped. "People are realizing this isn't a fad," said another real estate agent. "Listing prices have to come down for homes to sell, and buyers have to be realistic. It's good to see it finally happening."

Tighter credit is hurting agents, lenders, builders

The Arizona Republic - May 2007

Tighter lending restrictions that are cutting back subprime loans come at a bad time for the Phoenix-area housing market.

Real estate agents and lenders are losing deals because buyers can no longer qualify for the riskier loans. And builders, already struggling to unload built-but-unsold homes, fear that the fewer number of buyers will stall efforts to get back to higher production.

Doug Fulton of Fulton Homes said his company expects to lose 10 percent of the sales of the 700 homes in its construction and delivery pipeline as buyers lose subprime loans.

"Builders are going to get a bunch of inventory back, and I am, too," he said. "You don't want to get one (house) back if you don't have to. You're kind of scratching for sales as it is. "

The National Association of Home Builders said in April that the subprime crisis pushed builder confidence to its lowest level since December 2006. The trade group said tighter lending standards were rattling consumers and builders.

The subprime fallout is hitting the resale business, too. Agents and lenders say it's harder to qualify buyers and some deals are collapsing midstream as lenders tighten borrowing rules.
The changes in lending standards have been swift.

David B., an agent in northeast Phoenix, closed a house with a subprime loan just two months ago in which the buyers had a bankruptcy and a foreclosure but still got 100 percent financing. David said the buyers wound up putting less than $300 into the deal after securing $8,300 in closing-cost money from the seller, some of which was used as a fee to secure an interest rate lower than the market rate.

"They got in under the wire," David said of the buyers. "They got 100 percent financing. . . . That's a lot harder to get now. They can afford the payment. By making the payment, it will improve their credit. They're living the American dream: home ownership."

For Californians, Phoenix area is hot housing market

Los Angeles Times - May 2007

Kyle Campos does not look like a pioneer, standing behind the counter at Main Squeeze, tossing frozen berries into a whirling blender. And "go East, young man," doesn't have quite the same ring as the 19th century version.

But when he transplanted his family from Santa Barbara, Calif., to this scorching slice of Sonora Desert three years ago, Campos accomplished something he never could have done if he'd stayed on the California coast: He bought a house. He started a business.

And he unleashed a flood of family members who followed him here to the Phoenix suburbs to fulfill the same thwarted dreams. First came Aaron, his brother and business partner, with wife and four children in tow. His in-laws, who could never afford a house, came next and bought two. And last year, his mother joined them, buying a home for the first time since her divorce nearly a decade before.

"Living in Santa Barbara, you get used to nothing being under a million dollars, and a million-dollar house is really small," Campos said. "Here, I could build my dream house for less than $300,000. At some point, you weigh the beach versus a realistic life someplace.

"These days, that "someplace" is likely to be Maricopa County. For the first time since Nevada became a magnet for Californians in the 1990s, the Phoenix area has nudged Las Vegas aside as the No. 1 destination for people fleeing the Golden State and its soaring home prices.

In fact, the Arizona-bound are actually at the head of a long parade of bargain hunters marching out of expensive urban California and settling ever eastward -- Riverside and San Bernardino, Calif.; Buckeye, Glendale, Phoenix.

Tax returns for 2005, the most recent data available, show that a net 11,375 households -- representing nearly 29,000 people -- moved from California to Maricopa County in 2004. At the same time, a net 10,657 households with about 23,000 members moved from California to Clark County, Nev.

"Housing isn't cheap in Vegas anymore, nor is it in Phoenix, compared to what it was. But it's still cheap compared to California," said R.L. Brown, publisher of the Phoenix Housing Market Letter. "We're averaging 9,000 Californians a month changing their (drivers) licenses to Arizona. To me that's a phenomenal number.

"As much as California has beckoned adventurers throughout its history, the state has had an equally long tradition of defectors -- in search, at least in the last generation, of destinations with fewer cars and cheaper houses.

In the 1980s, the Pacific Northwest decried the hoards of "Californicators" who snapped up real estate and filled freeways in Starbucks' stomping ground. Since then, Las Vegas and its non-neon environs have reigned supreme -- no state income tax; no brainer.

But then home prices in the Silver State took off like a drunken gambler's dreams. Between 2003 and 2004, the median price of a Las Vegas-area house jumped 40 percent, according to DataQuick Information Systems. Phoenix started looking better and better.

February's median home price -- the level at which half of all home sales are above and half below -- speaks volumes about California migration patterns. Los Angeles County: $528,000. Las Vegas area: $300,000. Phoenix area: $253,000.

Maricopa County, here we come.

At least that's what the extended Campos family thought when they moved to the western suburbs of Phoenix, a vast, wind swept expanse that looks like the Central Valley with saguaro. Most of them ended up in Verrado, a New Urbanist development in the shadow of the White Tank Mountains. Real estate experts here would place the subdivision at the "higher end" of Phoenix's offerings; unlike most other new developments, which look as raw as a fresh haircut, it boasts its own tree-lined shopping district. There's a grocery store and a pharmacy, a bank and restaurants like the Campos' juice and smoothie bar, where Kyle and Aaron sell drinks named after California beach towns.

Still, an earth-tone bungalow with a red tile roof, a Craftsman-style front porch and two to five bedrooms will set you back somewhere between the $200,000 and the $300,000 range. For anyone house hunting in greater Los Angeles, that pretty much qualifies as a steal.

At least that's what Patricia and Joe Ornelas thought. She's 34 and an architectural designer who grew up in Chavez Ravine and loves the Los Angeles Dodgers. He's 33 and a construction manager, who had a chance to move his job to Tempe. A couple of years ago they adopted Penelope from China.

In January, they stepped into the quintessential CA-to-AZ story line, which goes something like this: Buy a fixer-upper in Alhambra for $240,000. Sell it five years later for $600,000. Pay off all your debts. Buy a four-bedroom house, complete with office, gym and pool 25 miles outside of Phoenix. Have enough money left over so mom can stay home with baby and start adopting child No. 2.

"I never thought we'd leave," said Ornelas of her Los Angeles-area home. "I'm a metropolitan girl. But it was a rat race for us ... Our ultimate goal was to move to South Pasadena. But we'd still have to work like dogs to keep up with the house. It just wasn't worth it.

"But real estate prices unheard of in metropolitan California aren't the only reason that Maricopa is now the fastest-growing county in the fastest-growing state in America. The other part of the equation is jobs.

Unemployment runs on average at about 4.2 percent, said Barry Broome, president and chief executive of the Greater Phoenix Economic Council, and "would be lower, but we add 100,000 to 130,000 people each year.

"Skeptics argue that the local economy leans too heavily on the building industry, and Broome acknowledges that the region is far more reliant on construction jobs than the nation as a whole. Still, a boom in commercial building has helped ease the pain of a housing market that has cooled considerably. And Arizona has benefited greatly from a particular brand of California export: the young tech worker.

Construction aside, the No. 1 industry sector in Arizona is professional and business services. That's a fact that Ray Aleman could easily have explained from his seat in section 108 at Chase Field, home of baseball's Arizona Diamondbacks.

Aleman is originally from East Los Angeles, a graduate of Garfield High. But back in 1996, when California was struggling to shake off a recession, his bosses at Wells Fargo told him he could move along with his job to Arizona or look for work in his hometown.

It was a pretty simple decision: Los Angeles, unemployment. Maricopa County, a job in the Wells Fargo imaging department. Los Angeles, a lifetime of renting. Arizona, a four-bedroom house with a pool on half an acre in suburban Mesa, purchased for $140,000 in 1999.

"Can you get anything for $140,000 in L.A.? Not even in Compton," Aleman insisted. "My house doubled in five years. It was like, wow. That's the main reason people from L.A. come here.

"Sure there are things he misses about Los Angeles, and he ticked them off in precise order: The Dodgers. The Lakers. Tommy's. Shakey's. King Taco. Oh, and his parents are still there. But it's only six hours away, and he visits twice a year.As for the future: "I won't go back."