Photographs by Michael Friberg for Bloomberg Businessweek
Eastmark (left) is scheduled to open this summer. The Phoenix suburb of Gilbert (right)
At the sales office for a new development southeast of Phoenix called Waters at Ocotillo, the PulteGroup (PHM) representative says she’s too busy to talk. It’s a Monday afternoon. One customer is signing a contract in her office, she explains, and another is due soon. The model for Pulte’s Yucca home is open, though. The price starts at $392,990. It’s two stories and 2,688 square feet, designed for four bedrooms and three cars. It’s stucco—as is nearly every home in every subdivision in Phoenix—high-ceilinged, and energy-efficient. The model is completely furnished, with fake iPods, iPads, and family photos. There’s a real foosball table and Whitney Houston’s Greatest Love of All streams through built-in speakers. The Yucca is part of what homebuilder Pulte calls the Cactus line; there’s also the Majesty line, which is bigger and has courtyards.
The 28-acre subdivision is one of 309 developments in the metropolitan Phoenix area with new homes for sale. It opened in December 2012, with 96 lots, and Pulte has been releasing them in batches: 16 are already under contract, and the company is raising prices. One buyer, Marc Victor, a lawyer, lost out on a home the first time. Potential buyers can bid on premium lots, and he was outbid. In the second round he offered $156,500 for a lot listed at $120,000. He’s hoping workers start pouring the foundation soon.
Pulte is the largest homebuilder in the U.S. by market value and, like most builders, had a very good year. Its revenue was $4.8 billion in 2012, with a profit of $206 million. That’s well below the $1.4 billion it earned in 2005 but far above its $2.3 billion loss in 2007. Last year, Pulte was the best-performing stock in the Standard & Poor’s 500-stock index, nearly tripling in value. Its rivals, among them Lennar (LEN), Toll Brothers (TOL), and D.R. Horton (DHI), all were profitable, too. In December builders broke ground on more houses than expected. Tri Pointe Homes (TPH) went public in January, the first homebuilder to do so since 2004, and in February Taylor Morrison said it was doubling the amount it aims to raise in its planned IPO. “The management teams at the homebuilders are thrilled,” says Ivy Zelman, who runs her own real estate research firm and is one of the IPO’s lead underwriters.
Photograph by Michael Friberg for Bloomberg Businessweek A Taylor Morrison development in Chandler, a suburb of Phoenix
Metropolitan Phoenix sprawls across the Sonoran Desert, some 2,000 square miles of stucco subdivisions and new highways stretching beyond land protected by the government or reserved for American Indians. At the height of Phoenix’s excess, in 2005, homebuilders were constructing 4,000 homes a month, bulldozing one acre of land every hour. By 2008 the city was the epicenter of the country’s housing market crisis. Prices rose more precipitously and fell faster than most anywhere else. It was among the most overbuilt of the overbuilt sand cities, optimistic right up until the collapse. Home values fell by 55 percent from 2006 to 2011.
Today the city finds itself in a more encouraging situation, one that’s becoming more common around the U.S. Housing prices in metropolitan Phoenix climbed 22.9 percent in 2012, the highest in the nation, according to research firm CoreLogic. Homebuilders are rushing to buy land for new subdivisions or resume construction in ones they had abandoned.
Phoenix’s nascent boom has many causes. The city has long counted on jobs to lure home buyers: The population of the Valley of the Sun has nearly doubled since 1990 and is now close to 4.3 million. Job growth was 3 percent last year, almost twice the national rate. There’s another reason prices are going up: Inventory is low. During the bust, foreclosures went on the market quickly, and eventually prices fell enough that investors with cash came in. They turned many homes into rentals, which meant fewer for sale. Meanwhile, underwater owners are hoping for prices to rise before they sell.
The housing market in Phoenix presaged and magnified the collapse in real estate. Now its recovery could reveal much about the prospects for a nationwide turnaround. Mortgage rates are low everywhere. In many places, so too is inventory. Home prices increased in 88 percent of metropolitan areas around the country in the last three months of 2012, including Las Vegas, Miami, and even Detroit, according to the National Association of Realtors.
“Phoenix is the most advanced market,” says Stan Humphries, the chief economist at real estate website Zillow (Z). “It was one of the first to go into recession, and one of the first to emerge from recession. Phoenix has been a lab where we’ve gotten to see the effects of a high foreclosure rate and high negative equity,” which is when homeowners owe more on their mortgage than their houses are worth.