Phoenix, AZ – Traffic Deteriorates as Prices Fall Further
Equity Research
November 1, 2007
Homebuilders & Building Products
Daniel Oppenheim, CFA 212.847.5733
“Prices are too high relative to income levels for the area; excess inventory in the form of builder specs, foreclosures, preforeclosures, bank owned properties, and short sales are pressuring prices.”
Phoenix, AZ – Traffic Deteriorates as Prices Fall Further
(35,740 single-family permits in 2006, 4th largest market in the country)
Traffic unchanged at weak levels – “I’ve never seen it so slow.”
One agent commented that “buyers are seeing continuing significant declines in prices and are waiting for pricing to stabilize.” Several others said their last handful of contracts have all fallen through due to last minute changes in lending requirements. In a worrisome sign, more agents noted deterioration in the local economy given its reliance on construction, which has the potential to prolong the downturn. Price declines seemed to accelerate in October, as our price index fell to 8.2 from 11.7 in September (readings below 50 point to lower home prices over the past 30 days). Agents noted sharp price reductions from homebuilders, and said tougher appraisals are forcing existing sellers to readjust their expectations to more realistic levels.
Appraisers toughen up, forcing sellers to be more realistic.
Several agents saw appraisals coming in 10-20% below contract prices. Meanwhile, little progress has been made on the inventory side despite price reductions, as our home listings index showed further deterioration in October. Our inventory index came in at 20.7 from 17.6 in September, with any reading below 50 indicating rising inventory levels. This should continue to pressure home prices in the coming months. “More foreclosures are entering the market causing prices to drop MDC and Standard Pacific have the largest exposure to Phoenix, contracting approximately 19% of total unit sales in the area, followed by Meritage (18%), Pulte (16%), D.R. Horton (11%) and Toll (10%).
* further.”
MDC Holdings, Standard Pacific, Meritage, Pulte Homes, D.R. Horton and Toll Brothers have the greatest exposure.
Lack of Confidence Keeps Traffic Low as Buyers Wait For Signs of Price Stabilization
