Valley homebuilders revive stalled projects

PHOENIX -- New home construction has been down in the Valley during the recession, but that is changing as builders are buying land at bargain prices and starting to build.

Lenders, who are eager to get bad construction loans off their books, are selling unfinished communities to builders for half the original price of the land.

Scottsdale land broker Jill Lewis said there are good deals.

"You have a subdivision that basically was stalled -- you have all the streets in, everything, basically a finished pad that you can construct a home on."

Lewis said builders will use the cheap land to build new homes that will sell for half what they did four years ago.

"They will actually construct some homes in some locations, just to keep their doors open, anticipating that further on down the line is when they'll start to make their margins, start to improve their earnings and things of that nature."

About 48 communities have reopened for sale, most of them in the southeast Valley.

"A lot of these pieces of property have actually been picked up for less than the cost of improvements," Lewis said, noting the streets and sewer lines already exist.

"If you're going to get less than the cost of improvements, then the land ostensibly is free," she said.

Mortgage expert Dean Wegner said, however, that now is the wrong time to be building new homes because the Valley already has too many homes for sale.

"Currently, Maricopa County's overbuilt by about 50,000 homes," Wegner said. "This includes too many homes that are for sale and also the vacant homes that are setting there, which is called the shadow inventory. There's about 45,000 homes on the market right now."

Wegner said fewer people can buy new homes because it's harder to qualify for a mortgage.

"You have to prove your income, you have to have a down payment, you have to have at least a 620 FICO score. Unfortunately, the buyer pool has shrunk. They (lenders) have made it extremely difficult for people to get loans these days."

Wegner believes incentives, like zero-down mortgages, would help turn the housing market around.

"Maybe a zero down or a lower FICO score or some type of reward program where people are vested in their house. The best performing home loan on the market is a VA loan and that is a zero-down loan. Yet, they pay the best. that is because the veterans earn those homes.

Alex Villacorta with Clear Capital said foreclosures are still a problem in the Valley, representing 40 percent of all homes sold.

"That was actually down from its high in the first part of 2009 when it was around 65 percent. So it's certainly turning downward, but to have almost half the sales in a region be foreclosed-bank owned sales is pretty dramatic."

Phoenix and Tucson are at the top of the list of lowest-performing major markets in terms of home prices, Villacorta said.

The short-term outlook for the Valley's housing market is not bright, he said.

"It certainly looks like momentum's starting to shift toward the down side. So, we do expect prices to fall in the Phoenix area, pretty much for the rest of the year and through the winter months, hopefully with a fresh outlook for 2011."

Tucson is the only market in the nation worse off than Phoenix in terms of home price gains, according to Villacorta.