Builders offering customers more incentives

Glen Creno and Jonathan J. Higuera
The Arizona Republic
Mar. 30, 2006 12:00 AM

Home builders are wheeling and dealing like county-fair carnies trying to win over nervous buyers.

They’re offering incentives like free cars or thousands of dollars to knock down closing fees or to put toward flooring, cabinets and other decorative touches for anyone who will buy an unsold house or sign a contract to have one built.

Steep incentives are a stealthy way to cut prices in a cooling market without actually chopping the base cost of the house.

Builders who had to turn away buyers during last year’s housing frenzy now must offer bigger and bigger freebies to keep shoppers coming to the sales office. The biggest discounts are on standing inventory of homes called “spec,” or speculative, houses.

There’s even more pressure right now for publicly held builders to book sales. The end of March marks the close of the fiscal year for some of them, and they want their annual numbers to look good to Wall Street.

“This is proof that the market has turned from a sellers’ market to a buyers’ market,” said RL Brown, a home-building analyst and publisher of the Phoenix Housing Market Letter.

Incentives are not new to the sales toolbox of most local home builders. Many have offered some form of them for years, even during last year’s buying frenzy.

What’s different now is the size of the carrot they are using to lure new buyers.

In February, Scott Communities began offering a Honda Civic, Honda Element or $15,000 off the base price of a home.

Another home builder was selling a completed spec home with such upgrades as granite counter tops, for $386,000, while the base price of the home in the builder’s brochure was $415,000.

In another case, a builder offered only a $3,000 discount on a home with a base price of $276,000. And that was eaten up by a $7,000 lot premium.

“It varies by community,” said Roger Lewis, vice president of Scott Communities, a local home builder. “At (one local community) we’ve never offered them. But at most communities, we offer 2 or 3 percent off base price.”

So far, only one person has opted for the car, with most choosing to apply the discount to the final price tag, Lewis said. That particular incentive was offered only on completed spec homes, Lewis pointed out.

Builders have more spec homes on their hands as buyers back out of contracts, many because they can’t sell their existing homes.

The median new-home price rose from $262,759 in January to $268,232 last month, Brown said. The average new-home price rose from $306,821 to $323,449 in the same period.

Incentives give builders a way to cut prices without actually reducing the base cost of their homes. Earlier customers could be upset to learn that the base price of the model they bought months ago now has fallen several thousand dollars because the builder miscalculated the market.

That happened to Tim Perez when he bought a KB Home at Dobbins Creek in South Mountain Village a few months before the Sept. 11 terrorist attacks. When home prices dipped the following year, he and other residents circulated a petition to protest the lower prices and sent it to the home builder.

“A neighbor basically bought my model for $16,000 less than I paid,” he recalled. “For the first year and a half, it was real touchy.”

That has since changed with the price appreciation of the last couple of years. His house has doubled in value.

Offering incentives is “better than having a crisis of dramatic oversupply,” said John Foltz, president of Phoenix-based Realty Executives. “It helps to protect neighborhoods pricewise by making adjustments gradually. . . . The worst thing they could do is not recognize a change in the market and let gross oversupply produce a fire sale later on.”

At Standard Pacific Homes, incentives are averaging between $7,000 and $10,000. That’s up from about $5,000 to $6,000 offered a year ago, said Pat Moroney, the company’s Arizona division president. But home buyers get it only if they are willing to use Standard Pacific’s mortgage-lending company.

At three of Standard Pacific’s subdivisions, completed spec homes come with an incentive between $20,000 and $25,000, Moroney said.

Even with incentives, consumers are being very cautious, said Margie O’Campo de Castillo, a broker and owner of Arizona Dream Realty, which represents buyers seeking new and existing homes.

“The incentives help, but I don’t see people jumping up and saying, ‘Let’s go buy,’ ” she said. “Right now, there’s a lot of gun-shy buyers.”

Analysts don’t see the incentives as a sign of panic.

“I have looked at real estate busts in the past,” said Ben Sage of the consulting group Metrostudy. “They usually are preceded by a very severe economic downtown. The Phoenix economy is just too strong now.”

By Mica Thomas Mulloy, Independent Newspapers

North Valley residents are fetching 25 percent more money for their houses than they did one year ago, but taking up to twice as long to make the sale.

An analysis of real estate statistics for January and February 2006 compared to the same time last year shows the average home in North Valley zip codes is selling for 23-41 percent more, which equates to tens of thousands of extra dollars.

The 85308 zip code topped the sales growth list with an average home garnering $350,915 in January and February, up 41 percent from $248,215 last year.

However, while retail values increase, so does the time “for sale” signs adorn front yards.

The average 85027 home was on the market for 43 days in the first two months of this year and 21 days in 2005.

Houses north of Happy Valley Road and south of Carefree Highway in the 85086 zip code sold in an average of 61 days in 2006 compared to 32 days last year.

Anthem homes take the longest to sell, although the time increase is proportionately lower. The average 85086 home sold in 77 days through this January and February 2006 compared to 59 days in 2005.

Despite the change in sales statistics, real estate agents believe the market is not in trouble.

Century 21 Realtor Neil Brooks said the greater Phoenix housing market is stabilizing after “unprecedented” resale rates in the past several years.

“We’re in a 90- to 120-day market right now, whereas last year at this time we were in a two-week market,” he said.

Mr. Brooks said there was a definite shift in the market last summer that started the stabilization trend.

He noticed around June and July many speculative investors who were artificially increasing demand — and therefore prices — pulled up stakes seemingly overnight and headed to Texas or Idaho. Mr. Brooks said prices were becoming so high investors either could not flip the house for a profit or could not rent it for enough to cover the mortgage payment.

This is a change he believes will ultimately benefit local residents, especially first-time buyers who had been priced out of the market.

Mr. Brooks also said anyone interested in selling should not worry about taking less to the bank.

“We’re still getting the prices, it’s just taking a little bit,” he said.

Realty Experts consultant Tanya Judd said she also noticed a shift in North Valley demand toward summer’s end. She credited the change to an increase in federal interest rates and investors buying elsewhere, much like Las Vegas investors did months earlier.

That said, she believes there is no need for concern.

“I think it’s just going back to normal,” she said.

Ms. Judd said she considers a regular sales time to be about 90 days, so anything below that is still better than average.

North Phoenix resident Amy Tamanaha put her Amber Hills Estates house on the market last October, but after three months, plenty of foot traffic and a failed offer, decided to wait on the sale.

Ms. Tamanaha recently put her home back up for grabs and is confident it will sell — albeit in a longer amount of time.

She said throughout this process she has seen a change in buyers’ attitudes.

“I haven’t noticed the amount of people as toward the end of last year, but the people who have gone through and looked seemed to be more serious” she said.

Overall, she believes the market is stabilizing, not declining, but also expects to see more North Valley homes put up “for sale” signs.

Ms. Tamanaha said as many residents like her reach a one- or two-year mark in their newly built homes, they surpass a no sale clause and can sell the house without costly developer fees, which were put in place to deter investors.

“I think it’s because people can do it now,” she said. “People try to make a little bit of money.”

Glen Creno
The Arizona Republic
Mar. 1, 2006 12:00 AM

The Valley’s luxury-home market is staying strong as wealthy buyers continue to pay big money to move into the growing number of elite addresses across the city.

Executives, sports stars and investors locally and from across the country like what they see in the Valley’s million-dollar home market. Demand for luxury properties remains hot even as the Valley’s mainstream housing market slows.

“The market is real strong,” said Bob Hassett of Russ Lyon Realty. “We’ve got people looking at the $5 (million), $6 (million), $7 million stuff.

There were more than 1,800 sales of houses worth at least $1 million last year in listings posted on the Arizona Regional Multiple Listing Service, according to MLS chief Bob Rucker. Most of them occurred in the Phoenix area though the service extends into Pinal County.

That’s an increase from nearly 1,000 in 2004. Through mid-February of this year, more than 200 of these big deals had taken place. And the standard of luxury is rising. Traditionally, $1 million was big money for a house anywhere in the Phoenix area but that has become almost an entry point in some parts of Paradise Valley and Scottsdale where the land the house sits on is worth that much.

“Depending on what area of the Valley you are in, $1 million doesn’t always buy a wonderful home,” said Sandy Baldwin of the Equitable Real Estate Co. in Phoenix.

Paradise Valley traditionally posts big house-sale numbers and last year was no exception. The median price for a typical house in the town hit $1.39 million last year, the highest in metropolitan Phoenix, according to an Arizona Republic analysis of home sales data from the Information Market.

Prices climbed 68.4 percent between 2000 and the end of last year. That includes a nearly 43 percent jump just between 2004 and 2005 as buyers smitten by the town’s large lots and central location paid top dollar for prestige homes or bought older properties, leveled them and built new mansions.

Scottsdale, with its resorts, golf and chichi shopping, always scores well on the luxury scale, too. The overall median price, combining new and resale homes, for a house in the city exceeded $570,000 last year, up 100 percent since 2000.

But the numbers are much higher in north Scottsdale, the city’s most expensive neighborhoods. Overall median prices in 85262, 85255 and 85259 ZIP codes were $725,000, and higher last year. That market is being driven by a dwindling supply of land that can be developed and steady demand for executive and vacation housing, some of it in the region’s most exclusive golf communities.

The extension of Loop 101 freeway was particularly important for housing in north Scottsdale. Buyers had a quicker way to get to other parts of the Valley for business meetings, sports or cultural activities.

Still, some real estate agents say they’re seeing homeowners selling their north Scottsdale houses and moving closer to the center of the Phoenix area. These sellers want to be closer to jobs, sports and entertainment, or their children’s schools.

That is putting more buying focus on such Phoenix neighborhoods as Arcadia, North Central Avenue and the Biltmore area, luxury havens in their own right that happen to be closer to the center of the metropolitan area.

Baldwin called the buyers leaving the northeast Valley “snowbirds of a sort” who are disenchanted with long drives.

“They want to live in a neighborhood where you can be anywhere in 15 minutes,” she said.

Barry and Kathleen Monheit had convenience in mind when they built their custom home in the Judson section of Paradise Valley.

They figured the spot southeast of Mummy Mountain was close to their favorite restaurants and shopping and not far from downtown and Phoenix Suns’ games.

Barry, chairman of gunmaker Smith & Wesson, said the couple think about the investment potential of a house but don’t make it the overriding factor when deciding to buy. He said livability also is crucial.

“Investment is different than living,” he said. “You look for areas that are growing and hot. But we wanted to live in a community where we did most of our things. This is quiet, private, close to everything that is important to us.”

Tony Calvis, one of the founders of Calvis Wyant Luxury Homes, said luxury buyers are attracted to the Valley by its climate, economy and home prices that appear affordable compared with traditional elite neighborhoods.

“These folks can live anywhere they want,” said Calvis, whose company built the Monheit home. “But they come here. There’s lots of golf, shopping, natural beauty, an excellent airport, and we’re close to Southern California. With technology, people can live anywhere and this is one of those spots.”

New frontiers of pricey housing are opening around the Valley as the established luxury neighborhoods turn over.

One spot to watch: the West Valley, with its large new planned communities that set aside acreage for expensive, custom homes.

“The west is the only real next place to go,” Baldwin said.