Northeast Phoenix Woes: No Market for Desert Ridge?

Implications: The limited demand within Northeast Phoenix should come as no surprise to the State.  The deceleration in home sales has created a surplus of finished and planned lots.  Despite current market conditions, BREC anticipates the market area continuing to hold value better than most Valley submarkets this year.  Land and lot demand, though, should trail a pickup in sales- which isn’t expected until sometime next year.

Analysis: State land auctions have become tougher sales during the last 30 months, even in Valley areas considered to be among the most desirable.  State land commissioner Mark Winkleman laments in the subject article about how difficult sales have become in the Desert Ridge area (Belfiore Real Estate Consulting submarket: Northeast Phoenix) since early last year.  Last year, Toll Brothers purchased an 81-acre state land parcel for $19.7 Million.  

Northeast Phoenix has held up better than most Phoenix metro area submarkets.  While new home offering prices in Northeast Phoenix dropped 8.1% last year, the submarket ranked among the better performers in value loss.  Move-up buyers seeking close proximity to Scottsdale (at a discount to North Scottsdale prices), quality amenities, shopping, and good schools held submarket prices up relative to other submarket areas.  The average metro area submarket lost 14.0% last year.                                                 

Demand for new homes has slumped in Northeast Phoenix, particularly during the last 9 to 12 months.  Last year, Pulte’s new Fireside at Desert Ridge opened, driving an average of 53 buyer parties to visit each subdivision per week in April of 2007.  Since, average traffic has plummeted.  In December, weekly buyer traffic stood at 12 per week (a drop of 77%).  BREC will collect Northeast Phoenix traffic figures again next week for its May edition of KnowledgeBase Current and Future Market Conditions Insights.  

The lack of demand for new homes has pushed homebuilders to reconsider state land purchases.  Meritage Homes and Toll Brothers, both publicly-traded builders that have purchased state land in recent years, are trying to renegotiate their auction purchases (as pointed out in the subject article).  Meritage has been trying to sell some of its parcels to builders, but has reportedly not been willing to drop lot prices significantly enough to attract buyers.  Gray Development Company recently missed an infrastructure payment on a piece of land it purchased in 2004 and subsequently received an extension to pay.  

The limited demand within Northeast Phoenix should come as no surprise to the State.  The deceleration in home sales has created a surplus of finished and planned lots.  Despite current market conditions, BREC anticipates the market area continuing to hold value better than most Valley submarkets this year.  Land and lot demand, though, should trail a pickup in sales- which isn’t expected until sometime next year.