The East Valley’s housing market is sizzling. And despite a bustling construction industry, buyers can’t seem to get enough of either new or existing homes.
While that may be a boon to the Valley’s overall economy, the hot market creates its own problems.
Low inventories of new and existing homes is creating bidding wars among buyers as new financing instruments, low interest rates and a mediocre stock market push more people into an already crowded field.
With lumber fetching top dollar and labor in short supply, developers are building as many homes as time allows and have instituted waiting lists or lottery systems to handle the demand.
"The single -family home market is frenzied at this point, but there’s not a bubble here like Boston or San Jose or San Diego," said Elliott Pollack, a Scottsdalebased economist.
"In the 18 years I’ve been doing this, it has never been like this," said Elaine Sans Souci, a real estate agent with Keller Williams Realty South East Valley in Gilbert.
STORY BEHIND SIGNS
While "For Sale" signs abound across the East Valley, they may not be indicative of what’s on the market, she said.
"A lot of these homes that you see the signs on are already sold. Agents don’t always hang a "sold" sign because they want buyers to call them so they can find them something else," Sans Souci said.
As Sans Souci reads off a working list of available properties used by agents across the Valley, the housing crunch becomes clear.
In all of Gilbert, there are just 14 properties available between $100,000 and $150,000; 73 of the 94 listed properties in the $150,000 to $200,000 range are under contract, meaning that a seller has accepted an offer, but the sale is on hold until final paperwork and documentation can be signed and filed.
Sixty of the 84 listed properties are between $200,000 to $250,000. Of the 43 properties in the $250,000 to $300,000 range, 22 are under contract,
"I’ve got a cash buyer who wants a single-level, four bedroom, 3,000 square-foot house with a pool. He can pay anywhere from $300,000 to $350,000. And there is nothing for me to show him," Sans Souci said.
Doug Hopkins, a partner in Mesa’s Red Brick Realty, had four offers for an east Mesa home and sold it for $10,000 more than the list price within three hours of it being put on the market this month.
"It’s the fact that people are still able to afford a house here. When people come here from out of state and see what their money will buy, they’re very impressed," Hopkins said.
BANG FOR THE BUCK
Out-of-state dollars from the sale of a house can translate into a palatial estate here, Hopkins said. A client recently sold a 50-year-old, 900-square-foot, 3-bedroom house in New Jersey for $300,000 and bought a 4-bedroom, 3.5-bath house built in 2001 in east Mesa, Hopkins said.
"They actually put $60,000 in their pocket and upgraded to twice the size of house. I think that happens with a lot of people," Hopkins said.
Pollack, Hopkins and Sans Souci said investors — those who are either buying a home for the sole purpose of renting it or plan to sell it within five years — are also adding to the market’s volatility.
"People are pulling their money from the stock market and putting it in real estate to balance out their portfolios. The housing market has been doing better than the stock market recently," Sans Souci said.
Low interest rates, no-down or low-down payment loans and other financing options are also making the housing market attractive to buyers, said Kevin Kosisky, a branch manager with Great Southwest Mortgage in Mesa.
A new and popular instrument is an "interest-only" loan, where payments are made on the interest during the loan’s first five years.
"Even on a regular 30-year mortgage, little money goes to the principal in the first five years, so if they’re just going to hold it as an investment, they’re going to save a lot of money and can buy more of a house," Kosisky said.
While they comprised about 3 percent of his branch’s business last year, interest-only loans now comprise 40 percent of his volume, Kosisky said.
"I just bought a new house in Gilbert, and I personally went interest-only," Kosisky said.
Real estate experts say the current market is unusual because there is strong demand for both existing and new homes. And builders say they are doing the best they can to keep up with that unquenchable thirst, as some prospective buyers camp outside sales trailers for a chance to purchase a lot.
Reed Porter, president of Chandler-based Trend Homes and Classic Communities, said there’s waiting lists at all three of his condominium properties under construction in Gilbert, including Park Place Village at Cooper and Guadalupe; Arbor Walk on Gilbert south of Guadalupe and The Gardens at Recker and Ray Roads.
Porter said that it’s important to balance the eagerness of his customers to occupy a new home with his firm’s ability to have them ready for occupancy within a palatable time frame, which is about six to nine months from construction start.
"We can only build so many homes each month and that’s what we’re releasing," Porter said.
Porter said he’s actively pursuing new projects and has numerous developments coming on line within the next year. All in Gilbert, they are targeted to cost less than $200,000, including 756 homes in Power Ranch and a gated, pedestrian-friendly 940-unit condominium complex on 80 acres along Val Vista south of Williams Field.
Porter has also just bought 160 acres of land from the Cooley family to construct 800 homes in a development that would feature three swimming pools and several parks at Warner and Recker roads in close proximity to a proposed school and an LDS church.
"Gilbert has terrific schools and everything’s new in Gilbert. It’s a good location for a lot of people and when the Santan Freeway is complete in 2007, it will put our new communities in an even better location," Porter said.
And while Porter acknowledged the Valley’s tight labor market, Craig Steele, president and CEO of Schuck and Sons Construction, said his company has taken drastic measures to find and hire qualified carpenters.
The firm has standing classified advertisements in various publications and installed a 20-foot hiring banner outside its Phoenix office to attract applicants.
"Housing starts have increased over the last year and the labor pool’s just not getting any bigger. We work all over the state and it’s not just a problem in the Valley," Steele said.
"I’ve got the same problem that Schuck has," said Bill Roush, vice president of sales for Alliance Building Products. "I’ve got to turn work away because I don’t have the people to do it. It’s incredible."
Roush’s company installs windows in new and existing homes. This year, sales are up $8 million for the Valley division of the California-based firm which last year had total annual sales of $50 million.
And Roush said he’s working hard to keep his crew of certified window installers, as 50-cent-an-hour increases and $1,500 signing bonuses are being offered by his competitors.
While Schuck and Sons will build more than 5,000 singlefamily houses this year, the Valley’s tight labor market is affecting Steele’s ability to build on those numbers.
"We’re turning away work because we can’t man it. We’d love to do it, but if we can’t perform up to our level, we’d rather not do it," Steele said.
DEMAND FOR SUPPLIES
If it’s not labor, it’s the cost of supplies that’s adding to the frenetic real estate craze and putting upward pressure on prices.
The cost of 1,000 board feet of composite lumber — a standard unit in the construction industry — is at a record high and costs $467 compared to $382 last year. An average house needs about 40,000 board feet of lumber, so that adds significantly the cost, Steele said.
Even if it’s nailed together and actually available, a buyer lucky enough to find a newly built house may not be out of the woods just yet, Sans Souci warns.
A home buyer must also deal with a lender, who traditionally will only finance the appraisal amount of a home. That means that a buyer must also come up with that extra $10,000 to $15,000 created from the heat of the Valley’s real estate craze themselves.
"It’s a tightrope walk thing. It’s buyer beware — it’s everybody beware," Sans Souci said.
Pollack predicts that housing prices will continue to climb until interest rates rise, newly built housing stock becomes available more quickly or investors get out of the market.
"Speculators anticipate a 10 to 20 percent rate of return every year as far as the eye can see and that will not happen. To get housing prices to slow wouldn’t take very much, but until those things happen, there’s going to be continued upwards pressure," Pollack said.