The Valley Partnership, a group of who’s who in the development in Arizona, met at the end of September to talk about what homebuilders are facing in a growing market. In fact, everything is growing- interest rates, prices from suppliers and factors affecting affordability. The panel, composed of Greg Abrams, vice president of PulteGroup, John Nagel, senior vice president of SilverFern Companies, Carl Perrone, executive vice president of Brookfield Residential and Jeremy Ramsdell, vice president of Ashton Woods, share their thoughts and concerns with an at capacity crowd.
Affordability
“Affordability is at a tipping point,” said Ramsdell. “I’m concerned about the next couple of years for Phoenix. Less people are moving to Phoenix and net migration is slowing- barely beating out those who move out of the Valley. Are we borrowing from the future?”
Abrams asked, “how do we get buyers qualified with high interest rates?” Although he tempered this with, “options like California make Phoenix seem affordable. It’s a scale and a percentage of what you earn.”
Nagel agreed. “Prices go up because of supply and price increases…how do we maintain affordability? This is a primary driver and will be a key to future growth.”
Perrone said that “we (Brookfield Properties) got creative on bridging the affordability gap with buy downs and financing options. Retail supply is down year-over-year. In the lower price points, they can qualify only with these finance options.” Perrone pointed out that people are spending 40% and more. “Will our kids be able to buy a home?”
According to all the builders, affordability is smacking them and their buyers in the face with supplier increases, concrete and lumber specifically, high demand in the market and of course, interest rates.
Water and other resources
The builders agreed that water and its perception is important to growth in the Phoenix metro area. They all felt that educating the general public was important to encourage continued growth.
Nagel said, “water and its perception of it is a problem. Also, power with all these manufacturing centers coming into the Valley. All these manufacturing centers are coming into the Valley which takes from other resources.”
“There is so much misinformation on the water situation,” Abrams said. “We created talking points to address it with buyers and the home office.”
“Water is complicated and being able to explain it is very important,” said Ramsdell.
Labor shortage
“Reality is laborers are scrambling to find higher paying jobs, choosing an air-conditioned warehouse as opposed to working in the sun,” said Perrone.
Nagel agreed. “Labor is a problem because the next generation is not showing up to replace the boomers who are retiring,” he said.
Abrams finds that this is their biggest challenge. “Labor is being sucked up by multifamily housing, commercial and industrial work. Finding a solution to the resource problem is our biggest challenge and showing people how great this industry is.” He added, “we need to keep the team engaged.”
“Talent is moving to other markets in all trades and labor availability is a major challenge,” said Ramsdell.
And yet, there is good news
“We like to leverage our design center with new builds,” said Abrams. “Specs are 70% of our market right now. Buyers are adjusting their expectations on what they can afford.”
Ramsdell added, “Consumers have settled into the fact that interest rates are here to stay and they are getting off the fence and looking at inventory available, due to low supply in the
market. There is interest in homes closed within 60 days and to get their rate before they increase even more. Interest is shifting for the spec model or at least a mix.”
Perrone thinks this is a good time for public builders, like Brookfield Properties.
Cycle times are improving. Ramsdell and Perrone both agreed that backlogs are being cleaned up and are about over. “We are seeing reductions in cycle times,” said Ramsdell. “We can build a house in five or six months now.”
“The backlogs are being cleaned up and now we are now working on interest rates,” said Perrone.”
“Stock performance in public builders is doing great right now. Everything is in sync- materials, development and buyers…competing for capital with other divisions nationally has them looking at job growth, economy, etc. They are bullish on Phoenix. The great economic engine separates us from other markets.”