Like the distressed housing stock, finished lots in the most desirable areas already have been scooped up.

Any reasonably priced lot hitting the market receives multiple competitive offers. Pretty much all that's left for developers is infill in places such as Gilbert and Chandler, as they increasingly resemble the Valley's core.

Active subdivisions (those still under development or not built out) have dropped to 330 from 12,500 seven years ago. Of these, more than a quarter have fewer than 10 units left. This has made undeveloped land very valuable — the closer to the center of the metro area the better.

"Almost all of our construction costs have gone up dramatically over the last year and a half," says Buddy Satterfield, president of Shea Homes. "Land prices have gone beyond where they were at the peak. You have construction prices back to where they were, but retail home prices aren't where they were at the peak. So things are a bit out of whack."

The desire for undeveloped land has made it a seller's market, and in response, builders are dialing back their ambitions a notch. You won't find them building starter homes, either. Most are concentrating on $300,000 houses.

"Three years ago, you could buy land in Gilbert and Chandler for about $60,000 to $80,000 an acre. Now that same land is selling for $225,000 to $300,000 an acre," says Jeremy McArthur, who started McArthur Land Company 31/2 years ago after directing land acquisitions for Richmond American and Centex Homes.

"There aren't enough lots to build homes on for the demand that's out there. So [builders] are actually trying to sell fewer homes than they could to kind of slow down the pace," he says. "They don't want to eat through all their lots in six months and then be outbid out there. They need to even it out over time."

Material shortages, such as lack of drywall, have developed as supply chains get stretched after years on the couch. This has driven prices higher and slowed building.

Ditto the lack of quality labor. Between tougher immigration laws driving off cheap undocumented Latino workers and the number of skilled tradesmen who went bankrupt or left the state during the recession, the shortage is acute enough that workers routinely get poached.

"There are guys who will just walk on a job site and ask, 'Hey, I'll give you $200 today to come work with me,'" says Brad Wermes of Alchemy Creations and Contracting, who worked his way up from grunt to building superintendent for a couple of local builders before striking out on his own five years ago.

"In 2006, jack-of-all-trades/master-of-a-few [workers] would make $18 to $20 an hour because there were so many of them around," Wermes says. "Now, these guys are making $25 to $30. You [have trouble finding them], and when you do, you have to pay them well enough to keep them on tap."


With severe shortages in new builds and the number of distressed/foreclosed homes, the only way for the stock of available homes to increase is for more people to put their houses on the market.

The increase in home values has helped significantly, and what was a limited supply has grown over the past three months.

Homebuying here slows for the summer until the heat drops below 100 degrees. So sellers are putting their homes on the market with renewed vigor as the number of listings has increased by a percentage in the double digits each of the past two months.

It's taken the Valley from a 21/2-month supply of homes (based on historical buying levels) to a 41/2-month supply (just short of the 41/2- to six-month supply considered ideal for a balanced market). Active listings now are up 29 percent since the same time last year.

But the story isn't so much about the increased supply as about the suddenly diminished demand, which has fallen 10 percent to 12 percent in consecutive months.

"Since July, each month has gotten softer. So we're now in a position where we're heading back to a balanced market," says ASU's Orr. "If it carries on like this next month, we'll reach balance, and if it carries on past that, we'll have a market that favors buyers instead of sellers.

"Prices still [are] rising," he continues, "but the upward pressure disappears once we get to a balanced market."

No one's really sure exactly what happened.

Orr thinks homebuyers might be spooked by the rapid rise in interest rates (the 30-year fixed rate mortgage is up nearly a full percent in less than six months) and increased home prices. He notes that there's been a steep fall-off in consumer confidence exacerbated by events in Washington.

And it's not only us. California reported its second straight month of falling housing demand after a long stretch of growth.

It could be that sellers are trying to push the market too much, and buyers are reacting by holding fast to their wallets. It's also natural for buyers to become choosier as their choices increase. Suddenly, they aren't competing against multiple other buyers and can make their decisions more leisurely.

Or maybe sales have slowed because owner-occupants newly on the market are waiting to see what they can get for their houses before they commit to buying their next homes.

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20 comments
ConcernedCitizenAZ
ConcernedCitizenAZ topcommenter

Is this the housing you mean? Private corporation prison "beds" are increasing by the thousands. $50,000,000 mortgage foreclosure money swiped for this and / or a new Super Max Prison, Arizona does not need.

Time for a reality check by the PR and marketing people promoting Arizona to naive prospects.

Cuzitsthere
Cuzitsthere

The market has actually already turned. Mr Orr was just too kind to point that out. Inventory is going up very hard and demand has dropped far below the usual seasonality (its always slowest in Q4). Sellers getting greedy hasn't helped. If I am a buyer I would be waiting a bit. I expect prices to start adjusting downwards due to lack of demand or at best going sideways. There is very little demand right now. The change has been very similar to late 2008.

TheRegular
TheRegular

I definitely take issue with Arizona State University's W.P. Carey School of Business', Michael Orr. The neighborhood I bought into in 2011 has a few houses available in the $125k range and it is far from a slum. Check out the South Mountain area of Phoenix, east of 24th Street. Their are some nice neighborhoods with conscientious, hardworking homeowners and considerate renters, that would put some Scottsdale neighborhoods to shame.

afdhm
afdhm

These bastards are back. Can't they leave the wise, older property owners alone?

royalphoenix
royalphoenix

My property taxes dropped 50% from 2006-2013. My 5/1 arm signed in Mar. of 04 @ 4.4% has been below 2.9% for the last 2 years. No complaints from me. peace

John Blevins
John Blevins

OVER RATED, And IF you watch that dumb-ass show that is more hype and crap with the Doug guy in it,Property Wars, STAY AWAY AND STEER CLEAR OF THEM, DO NO BUSINESS WITH THEM As far as I am concerned THEY RIPPED ME AND MY FAMILY OFF.

Camille Stodgell
Camille Stodgell

Hell yeah, That's because 90 Percent of the homes being sold in the past 5 years were FORECLOSURES.....Banks would not work with homeowners so they LOST their homes......Just ask WELLS FARGO. They top # 1 for that...

Brennan Johnson
Brennan Johnson

Sheeple!!! Well now that the media outlets in this town are posting positive news about the market the market has taken off. The market didn't need to tank as far as it did, but with all the negative news back in 08-09 telling the sheeple to run the market had no chance.

Nicholas Gonzalez
Nicholas Gonzalez

Housing should be affordable. And should never get back to how high homes were before the bubble burst.

Eliott Kroll
Eliott Kroll

All tied to QE. If you remember rates reacting to the word, 'taper' a few months ago, that should give you some idea of what's to come.

bluebassin
bluebassin

Up 35% in one year? Where have I heard that before? Oh yeah, right before the last big crash. 

How is this NOT a bubble again?

ConcernedCitizenAZ
ConcernedCitizenAZ topcommenter

@Camille Stodgell  While investors swiped those homes at rock bottom prices, to begin the cycle all over again.  Withholding mortgage foreclosure money to the homeowners it was intended for, has been shameful Arizona.

BrainyTreesWhipDevil
BrainyTreesWhipDevil

It is affordable, to anyone that isn't making minimum wage.  People making below average incomes should be living in rentals.

marcy
marcy

@Nicholas Gonzalez 

Planes should be affordable and the price of gas should never go back to how high it was.

If you can't afford to buy a house or a helicopter, rent.

royalphoenix
royalphoenix

@bluebassin The bubble was caused by over aggressive lenders and buyers who bought the line "real estate never goes down." I don't think the mortgage companies do liar loans anymore. peace

marcy
marcy

@bluebassin 

Why is it not a bubble?  Because prices are now back to more normal levels from deeply depressed levels and aren't anywhere near the bubbly peaks of 2005/6 and remain below the cost of new construction in most areas.

Sorry to hear you, like most people, missed one of the greatest home buying opportunities of a lifetime.


BrainyTreesWhipDevil
BrainyTreesWhipDevil

@ConcernedCitizenAZ

Tough luck for those that paid too much and wouldn't make their monthly payments.  Don't pay your loan, lose your home.


Nobody swiped anything, you and your fellow deadbeats just stopped paying and got the boot as a result.

bluebassin
bluebassin

@marcy 
 

Used house salesman like you said this same thing before the last market crash also. How many California investors do you work for?

marcy
marcy

@bluebassin @marcy 

I was singing the same tune in 2009+ when I was telling people not to listen to people like you who were saying houses were a terrible investment and prices would never go up again.

I work for myself honey and I was buying while you were hiding under the bed.   The typical rent I get is about double what the mortgage payment is on the houses I bought.  So I have been getting massively positive cash flow for 4+ years and appreciation.



 
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