Valley developers cooling their heels as market cools

With home sales still languishing, Valley developers are holding off on building thousands of houses — focusing instead on purging excess inventory and reevaluating the market.

Plans for an estimated 3,000 to 5,000 homes have either been postponed or scrapped — and that’s a conservative estimate, said John Fioramonti with research firm Hanley Wood Market Intelligence.

“Most of these people have already written off 2007,” and are waiting to see what will happen in 2008, he said.

Scottsdale-based Montalbano Homes decided to delay an 1,800-home development in the Queen Creek area until mid-2008. The Copperton Trail project was originally scheduled to open later this year.

“It’s really a function of supply and demand at the end of the day,” said Jon Baer, Montalbano’s vice president of sales and marketing. “We’re no different than any business out there.”

The supply of homes spiked, while demand remained fairly constant, Baer said.

Montalbano already has a Queen Creek project called Estates at Skyline Ranch. That development still has 14 completed but unsold, or speculative, homes to offload.

Starting another project in the same area would have the company competing with itself, risking price erosion, he said.

Builders postponing projects is part of the real estate cycle, Hanley Wood’s Fioramonti said.

Some builders are sitting on land they’ve already bought and putting off construction until the inventory of speculative homes is sold off. Others are walking away from options to buy properties.

It’s happening mainly in outlying areas, such as Maricopa, Coolidge and the far West Valley, Fioramonti said.

Walking away from escrows or options on property can be a big financial hit for builders.

For national, publicly traded companies, holding onto properties that aren’t producing income can negatively impact financial statements for stockholders, he said.

That’s been made worse by recent sales figures that have fallen far below projections, he said.

“They’d rather lose the $150,000 or $200,000 they had in options rather than carry a larger inventory,” Fioramonti said. “That’s been happening across the country.”

Builders are no longer rushing to install utilities and other infrastructure, market analyst RL Brown said.

“(They’re) waiting for the market to show some additional signs of recovery,” he said.

Some industry observers say the market could pick up later this year or early 2008, while others say 2009 is more realistic in light of the subprime market’s downturn.

Builders have been taking out an increasing number of new home permits in the past four months, but sales are still down, Brown said. A major factor in the new home market’s recovery will be sales of existing homes, he said. That’s because many new buyers can’t close deals until they sell their old homes.

Meanwhile, some builders are moving forward with projects.

Canada-based Mattamy Homes is about to break ground on two subdivisions — totalling nearly 250 homes — in the Queen Creek area as part of its expansion into Arizona.

“There’s still demand for new homes at the right price and the right program,” said Mark McHone, president of the company’s Phoenix division.