February 2010
New Homes: The Historical
Picture
An over-supply situation became
undeniable when our market exceeded the historical record for specs in January
2006, and it has continued in that mode for about three years. Since then the New Home subdivision count has
moved back into a more typical range. This article provides you with a
historical perspective of the New home market so that you can view the current
market in the big picture.
Seven-Year Subdivision
Count
The first two years of the seven-year
graph below shows a normal ebb and flow of active subs; the count climbs in
late spring, when builders are preparing for the summer when sales are
typically higher, and declines a little in late summer. In 2004 and 2005 the active sub count dropped
dramatically with the investor/speculator boom, when new subdivisions could not
be brought on-line as fast as active subdivisions were selling out. The lowest count was 482 active subs in May
2005.
The sharp increase in the number of
subdivisions from June 2005 through September 2006 can be attributed to
builders ramping up to fill the inventory gap created in the months prior and
then overshooting the mark because of significant changes in demand. After a few months or relative stability,
demand fell off further, and the count climbed again. Since the end of 2007 the subdivision count
has been declining on a regular basis.
That market contraction has now reached the bottom.
UIS defines an active subdivision as one accepting contracts
from qualified buyers. The subdivision
count data we report comes from the Ultimate New Homes
(UNH) database, which covers the entire Phoenix metro market area and
approximates the area covered by the Arizona Regional Multiple Listing Service
(ARMLS). Ultimate New Homes covers all of Maricopa County (74%
of UNH subs) and significant portions of Pinal County (23% of UNH
subs) as well as a few location outside of these counties (primarily
in Yavapai County) (3% of UNH subs).
Six-Year Spec Count
The Ultimate
Information System (UIS) spec count is made up of the individual properties
that each subdivision chooses to report to be included in the UIS system for
ARMLS affiliates. The degree of completeness varies from builder to
builder and from one subdivision to another.
We believe our 2006, 2007 and 2008 count was on the conservative side, as
many subdivisions do not report their total spec quantity to us.
We have compiled comprehensive spec
data only back through October 2004.
Prior to that our data is more spotty, but we know that the highest historical
spec count was 2,400 in May 2003. Even
with this partial data, a pattern is readily apparent. The spec count maintained a normal level
throughout 2004, and fell sharply in 2005 during the speculation boom when
supply was unable to keep up with demand.
For a year after August 2005 the spec count climbed rapidly and then
remained at an extremely elevated level for 24 months. In the first half of the last year the spec
count has fell by about 30% but for the last six months has leveled off.
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