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After ‘worst year ever’ new home sales show slight improvement in January

Six years ago, it was common for buyers to wait in front of new home sales offices to see who would win the privilege of purchasing one of the several lots the builder had selected to release for sale that day.

It was the height of the boom, and builders could barely keep up with the demand. In 2005, there were 65,000 new home starts in Maricopa and Pinal counties, says Spencer Kamps, vice president of legislative affairs for the Home Builders Association of Central Arizona (HBACA). A “start” is defined as when construction begins on a home. It is not counted as sold until a buyer actually takes possession, because there are often several months between the start and end of construction.

In 2011 — an unrecognizable real estate world from 2005 — there were 7,200 new home starts. But sales are up slightly, which real estate industry experts view with guarded optimism.

“We haven’t continued the downturn. Generally speaking, we’re bouncing around the bottom of the decline,” Kamps says.

During January 2011, there were approximately 330 new homes sold, representing only 5 percent of overall housing sales for the month. In January 2012, new home sales increased to about 500 or 6 percent of the housing market, according to an Arizona State University report on the condition of the local real estate market.

“Developers are anticipating a mild recovery in 2012 from their worst ever year for sales volume in 2011,” the report says.

January 2012 was a great month for home sellers, says Carl Mulac, owner of AV Homes, Inc. with offices in Arizona and Florida.

“In Phoenix, (January) was the best month since 2007. It has started to come back even though it’s nowhere near the levels of ’05 and ’06,” says Mulac, who is also a HBACA board member.

Real estate activity in general in Arizona is rebounding, with all home sales up 8 percent compared to this time in 2011, according to a report authored by Michael Orr, director of the Center for Real Estate Theory and Practice at the Arizona State University W. P. Carey School of Business.

In the resale market, Orr credits investors with helping to bid up prices of homes, which helped the overall market appreciate by about 4 percent. But generally speaking, investors aren’t as active in the new home market because there are no distressed properties for buyers to bid on and prices of new homes are generally higher than resale homes.

The median price of a resale home is about $120,000 while the median price of a new home is approximately $209,000.

In order to remain competitive, builders have lowered prices, laid off workers, and held up plans to build future subdivisions.

“There hasn’t been much land development in the last couple of years because there are a lot of finished lots on the ground,” Mulac says.

Sources say new home prices are extremely competitive as builders do whatever they can to get buyers into sale models to buy up the large backlog of improved lots left over from the housing bubble.

“We‘re trying to lower our prices as much as possible,” Kamps says. “It’s supply and demand. When demand goes down you lower prices to attract demand.”

New home builders have been selling homes at a loss just to keep the doors open, waiting for the economy to improve. “It’s not the best business model,” Kamps says.

Mulac adds that many builders have gone out of business and the rest have become very lean and efficient. In addition, he says as homes have decreased in price during the past five years, so has the cost of construction.

But he expects costs will begin to increase with demand as suppliers try to recoup losses from the bust. He’s concerned that a spike in inflation — perhaps from high oil prices — could cause construction costs to exceed home selling prices, which would hamper a recovery.

“That’s one of my biggest concerns,” Mulac says.

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