Home prices drop dramatically - East Valley Tribune: Business

Home prices drop dramatically

Font Size:
Default font size
Larger font size

Posted: Friday, October 27, 2006 6:25 am | Updated: 2:32 pm, Fri Oct 7, 2011.

Buyers welcome. That’s the message the East Valley’s new home market is starting to send to people looking to buy homes, especially those who held back as prices escalated to new records.

Nationally, the median price of a new home plunged in September by the largest amount in more than 35 years, according to the U.S. Department of Commerce. The median price was $217,100 last month, down nearly 10 percent from September 2005.

Locally, the new home median price in September was $271,606, up from $245,017 in September 2005, according to R.L. Brown Housing Reports.

What’s more telling, however, is the average new home price, which was $331,336 last month, down from $343,116 in August. The average price was $290,162 in September 2005.

“There’s a clear indication of a change in direction in the marketplace, but we’re still higher than a year ago,’’ said R.L. Brown, Valley housing analyst. “The bottom line is prices are soft and softening further in both the new and resale markets, and that’s what’s important to the consumer. That’s good news for the consumer, and bad news for the resale sellers and bad news for the homebuilding industry because it’s going to cut into their profits.”

Among sellers, homebuilders have a clear advantage over homeowners, said James Bortz, a real estate agent with Realty Executives in Chandler.

“They’re giving out a lot of concessions to get these houses sold, whereas the people who are already in them and trying to sell are more or less locked into a price or have a price that they have to have,” he said. “I’ve gone out to new home sales with a buyer and they automatically will give them $40,000 off, then they’ll come back and say we can give you another $10,000 if you use our lender, and we can throw in a washer and dryer, etc.”

As for “flippers,” those who buy and quickly resell properties for big profits, “it means that the risk they assumed when they started speculating in real estate is for real,” Brown said.

“They saw exceptionally high potential returns for little effort in a little time, and they’re seeing the size of the risk for that kind of investment,” he said. “Frankly, they shot the dice. Its a tough time to sell right now.”

A lot of people bought houses thinking they could live in them for a year or two, and then they would double in price, “and it’s just not happening,” Bortz said.

“You have a lot of people who took these low interest rates (adjustable rate mortgages) that are now coming due and they can’t afford the payments now, so they’ve got to get rid of the house,” he said.

Homebuilders already have cut back on new home construction, based on homebuilding permits issued Valleywide, Brown said.

“Permits in September were 2,281, and that’s the lowest we’ve seen since December 2001,” he said.

In August, 3,014 permits were issued, and in September 2005, 5,409 permits were issued.

“Homebuilders are desperate,” Bortz said. “You still see a lot of building, but those were the ones that were already started or were planned, or paid for. They have to move their inventory. Worst possible scenario for them is they’ll roll them all the way back to a break-even point for them, which is still in their favor and not the resale person.”

In the meantime, the number of single-family homes on the Valley market was 45,500 last month, up sharply from about 15,000 homes in August 2005, and lots of homes are just sitting on the market month after month, he said.

“We’re going to see this trend continue until the standing builder inventory is down to nothing . . . and until the excess listings on the resale market have diminished by several thousand units, perhaps as many as 30,000 units,” Brown said.

- The Associated Press contributed to this report.

  • Discuss

'EV Women in Business'

A PDF of the Tribune special section, featuring a mix of sponsored content from our loyal advertisers and newsroom coverage of the East Valley business community.

Your Az Jobs