'Tis the Season

Implications: When Mr. Corkery wrote this article more than 2 weeks ago, the reality is few land sales were occurring in Phoenix.  His timing was off: several thousand lots and option agreements are now being signed, as builder's rush to remove lots from their balance sheets prior to year-end.

Analysis:

Arizona real estate professionals were scratching their heads when the subject article was published more than two weeks ago.  Citing only two recent land / lot sales in metro Phoenix, Mr. Corkery declared “the market also is beginning to see a phenomenon that at first glance would seem to contradict these other trends [falling pricings and accumulating glut]: land sales.”  In other words, despite challenging and still deteriorating market conditions, buyers are purchasing land.

Belfiore Real Estate Consulting (“BREC”) phone lines lit up with calls from investors, builders, and lenders wondering what and where these “hot land sales” were occurring.  The reality is, few sales were actually occurring at the time.  Mr. Corkery, it seems, was either misinformed or had different opinions on what constitutes “hot land sales”.   Today, though, just two weeks after the article, deals are being made.  Builders looking to remove stale lots from their books by year-end are selling out at highly discounted prices.  “Distressed” sales in emerging market areas are now occurring.  BREC research suggests most of the distressed lots in outlying areas range from $300 to $450 per front foot.  Several transactions will have builder personnel working hard through year-end.   Buyers tend to be investor groups with a “buy and hold” strategy; they plan to purchase the lots and hold onto them until the residential market recovers and builders again need lots in which to build upon.  Since lots are being purchased at such highly discounted prices, competition among lot sellers, investors believe, will likely be limited to those holding finished lots (rather than developers selling developing raw land and selling new lots).  Site improvement costs will make raw land development unprofitable because builders should be able to purchase investor lots at lower prices.    A significant number of investor “buy and hold” transactions occurring during the next few months would have a positive effect on market conditions.  Fewer lots would translate into fewer community choices for buyers.  Fewer community choices, provided home demand remains similar to current levels, would mean more home sales for active projects.  Absorption rates per community would increase.   Notably, not all lot buyers are investors.  Entrepreneur Greg Hancock closed on highly discounted lots in Maricopa late last month.  Mr. Hancock is expected to soon enter the market as a home builder with a distinct advantage over his competition: finished lot costs well below actively selling competition.   The land market is now heating up.  The Wall Street Journal may want to consider republishing Mr. Corkery’s article.