1st Issue of November 2006

 

New Homes: The Five-Year Picture

 

The current over supply situation became undeniable when our market exceeded the historical record for specs eight months ago (2,400 specs reported the week of January 15th).  This article provides you with a historical perspective and a glimpse of the bigger picture of the new homes market than the Current New Homes Market article. 

 

Five-Year Subdivision Count

The following five-year graph shows a normal ebb and flow of active subs; the count climbs in late spring, when builders are presumably 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 plans for coming subdivisions could not be acted upon as fast as active subdivisions were selling out.  The lowest count was 482 active subs in May 2005.  Compare that with the current count of 980 active subs and you can see that the active sub count has more than doubled in the past year and a half!

 

We define 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). 

 

For more on the UNH Database, please see the Current New Homes Market article in this issue.

 

Five-Year Spec Count

The UIS spec count is made up of the individual properties that each subdivision chooses to report to us to be included in our system for ARMLS affiliates.  The degree of completion will vary from builder to builder and from one subdivision to another.  We believe our current count is on the conservative side, as some subdivisions do not report their total specs to us.

 

We only have comprehensive spec data going back through October 2004.  Prior to that our data is spottier, 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.  Spec counts maintained a modest level through 2004, and bottomed out in 2005 during the real estate boom when supply struggled to keep up with demand.  Since October of last year, however, the spec count climbed steadily.  Only in the past month has it fallen off, but it is still almost ten times what it was at the lowest point in June 2005 and twice the number of anytime prior to 2006.

 

Five-Year Builder Count

Again, here we are lacking complete five-year data, but a pattern is still visible.  We have the highest historical builder count in March 2003 (159 builders), and a slow decline of builders since then.  The builder count started rising again in June 2005, and is now back up to 139.

 

Commentary

The subdivision and spec counts and graphs clearly illustrate that the Phoenix metro area new homes market is in uncharted territory and has been for several months.  Confirming this is the fact that many builders are taking extraordinary measures to increase sales in order to reduce spec inventory, including offering huge buyer incentives and unprecedented RealtorŪ co-broke rates. 

 

It is our belief that we will not see what would be considered a normal market until the spec count has been reduced to about 2,500 and the subdivision count is back in the range of 800.  However, even when these levels are reached the resale inventory must be considered. Therefore, we conclude that we are still many months away from a balanced market.

 

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