Pittman: Speculators abandon local housing market
by David Pittman on May. 24, 2006, under Local
Greed is out and fear is in when it comes to Tucson’s housing market.
The psychology of the market has changed significantly from a year ago, when speculators and investors, primarily from California, descended on Arizona like locusts, buying up homes and flipping them to score instant profit.
Fear didn’t exist in the market then, only greed.
Times have changed.
Real estate speculators and investors have headed east into New Mexico and Texas. Others have shifted their investments to commodities such as copper, gold and oil and are now riding that crest.
The formerly white-hot Tucson real estate market has cooled so much that one builder, KB Home, recently laid off 17 workers in its Tucson division, about 8 percent of its work force.
“The positions eliminated were added during the rapid growth in the housing market during the last year,” said John Brown, a KB Home spokesman. “We needed to adjust our staffing levels to a more normal market.”
The job cuts at KB were made across the board, hitting both field and office personnel.
Brown said the company had projected it would sell about 1,300 homes during the current fiscal year, which ends in November. KB now projects it will sell just 1,140, about 60 fewer than its all-time high, sold in fiscal 2005.
“What we are seeing is that after several years of record-setting growth, the market is correcting itself,” Brown said. “This is an orderly, moderate kind of correction.”
But don’t cry for KB Home. The company has a backlog of 900 houses sold that still must be built, which is a healthy position to be in.
There have been no layoffs at Canoa Homes, but the president of the company, John Shorbe, said the market has slowed.
“It’s gone from insane to just crazy,” he said. “It’s not like the bottom has dropped out. I’ve spoken to several heads of home-building companies, and we all say 2005 was the best year we ever had, and we never want to go through it again. It was a real strain.”
Shorbe said the slowing market means wait times for those purchasing new homes are falling.
“We’ve been happy to see the market slow because we could build out our backlog,” he said. “It was taking us up to seven months to build a production house, which we were building in three months as little as three years ago.”
Shorbe said there was a shortage of construction workers during last year’s boom.
“Tucson doesn’t have a labor pool. We don’t even have a labor puddle,” he said. “Subcontractors could not handle the loads they were handling. Some of the subs are finally starting to pull their heads up and see a little daylight.”
John Strobeck, publisher of The Southern Arizona Housing Market Letter and owner of Bright Future Business Consulting, said competition among a growing number of home builders is stiff and growing stiffer. He said that will bring more incentives pitched at buyers, creative financing getting more creative and things such as lot premiums becoming negotiable.
“It sounds like the days before 2005,” Strobeck said. “Back to the future.”
Marshall Vest, a University of Arizona economist, agreed that Tucson’s housing market has cooled off considerably.
“Things are slowing down for sure,” he said. “The number of houses sold are coming off their peaks, and prices are leveling off. The median price of homes in Tucson has been steady for about six months.”
While Tucson’s housing market is cooling, the market in Phoenix is in the deep freeze. KB Homes and Fulton Homes have each laid off workers in the Valley of the Sun, where the inventory of unsold homes is piling up.
Vest said housing prices in Phoenix, which was hit even harder than Tucson by last year’s speculative fever, are tumbling. He said median home prices in the capital city have fallen from a high of $350,000 to about $300,000.
Earlier this month, the National Association of Home Builders said its index for new-home sales dipped to its lowest level since 1995. The trade group predicts new-home sales will drop 12 percent this year. U.S. Commerce Department data for April showed that housing starts fell for the third straight month.
“The frenzy is gone,” Vest said. “The scramble to buy and get in on the action is gone. Investors and speculators have retreated from the market. What that means is, the market is returning to normal.”
