How Phoenix Serves as the Nation’s Barometer

How Phoenix Serves as the Nation’s Barometer

Posted 08/06/2012

In what seems to be an ever-evolving story, real estate news headlines flood our feeds daily, presenting varied and sometimes conflicting perspectives. Fortunately for us, as a Weyerhauser Real Estate Company (WRECO) homebuilder, Maracay has access to some of the top experts in the field, who help us – and, consequently, our buyers — make sense of it all.  

Recently, WRECO President Peter Orser shared some interesting industry news with us following his attendance at two real estate events, offering a helpful look into both the local and national residential markets. He writes: “For me the biggest takeaway was a confirmation that across the board this industry is seeing the beginnings of a recovery– we are not out of the woods and our fragile state could be rocked by any major event, but today the sun is shining.” Sounds like good news to us!

Orser relayed a scenario in which prices are likely to go up faster and volumes slower than the general public may think. Interestingly, a shortage of finished lots in the most desired locations may be the culprit. During the recession, it did not make financial sense to build new lots and capital was not generally available. As a result of the necessary lead times, there is now a shortage. Compounding the predicament, most major markets are selling at rates beyond expectations — Phoenix, for example, is selling at twice last year’s volume. As a result, demand in Phoenix is actually exceeding the supply of buildable opportunities, resulting in price increases, overall.

As the first market to show such significant signs of recovery, Phoenix remains a leading indicator of buyer behavior for the rest of the nation. A survey of local builders affirms that both traffic and demand have remained steady throughout the summer. However, in some areas, builders are using price to slow sales. Here’s why:

  • Trade shortages cause delays: Significant trade shortages have challenged builders’ abilities to efficiently and effectively deliver homes, so many are slowing new sales as they try to catch up. Fortunately, with our sales on a steady rising pace, this has not been characteristic of our projects, overall.
  • Protecting limited lot supply: In many cases, builders have very few lots remaining in their top-selling communities and are reluctant to let them go, thus turning to price increases and limited-release strategies to slow sales. For us, acquiring land has been a top initiative.
  • Profits are impacted: Builders who sold aggressively during spring of this year face rising costs that will erode the profitability of upcoming closings.

Orser confirmed that the overall outlook for Phoenix and the nation at large is overwhelmingly more positive than it had been just one year ago. Being aware of the trend and ahead of the curve is all we can do to remain on the rising side of our local real estate market. So far, so good.