Phoenix Homebuilders No Longer ‘Fishing With Dynamite’
The Arizona Republic interviews a homebuilder in the Phoenix area. “Fulton Homes started in the East Valley, but it is developing property around the Phoenix area. Doug Fulton, president, talked with The Arizona Republic about home building in the Valley and where he sees it going.”
“Q: How do you see the market now? A: This is just a small correction that needed to happen. The velocity (of sales), the appreciation of the homes, was not sustainable. Last year was a complete anomaly. It’s not normal. You can’t compare last year to anything.”
“Q: We’re at record prices. Have prices gone too high? A: That’s where it needs to be compared to not just Phoenix, because we were undervalued to begin with..We caught up to where we needed to be. I think it’s very healthy. It’s a good thing. Last year was scary.”
“Q: In what way? A: My analogy of sales in the Phoenix market area in 2005 is ‘fishing with dynamite.’ When the fish, being the customers, floated to the surface, they were still begging to get in the boat. We had a bunch of order takers. That’s all you needed. There were people standing in line begging to give you their money.”
“Q: Why is that? Supposedly, the home builders weeded out all the investors. A: Not until probably August, September of ‘05. We were creating our own feeding frenzy. People were standing in line because of the increases. If you slowed down your increases, it slowed down sales. Tell me that isn’t scary. The key wasn’t so much the overall price as much as the increasing price. Some people thought the price increases would never stop.”
“Q: Have investors caused permanent damage to the Phoenix market? A: No, I think we caught it in time. There was more sustained damage in Las Vegas than there was here. We learned from their mistakes.”
“Q: You don’t think prices have spun out of control? A: No, I don’t think it’s going to correct more than 10 percent from where we are today.”
“Q: How could builders overshoot on the most basic thing: their price? A: Pure greed. Not only that, but you can get an overzealous sales manager. These guys get paid on commissions and division presidents get paid on units closed.”
“Q: Are investors mainly out of the Phoenix market? A: No, the investors are still here. The unsophisticated speculator is gone. I’m still buying property.”
“Q: We’re at record prices. Have prices gone too high? A: That’s where it needs to be compared to not just Phoenix, because we were undervalued to begin with..We caught up to where we needed to be.”
Sounds like he read the academic treatise by Professors Smith and Smith.
“Q: Have investors caused permanent damage to the Phoenix market? A: No, I think we caught it in time. There was more sustained damage in Las Vegas than there was here. We learned from their mistakes.”
HE IS FULL OF IT… THERE HAS NO DOUBT BEEN MAJOR PERMANENT DAMAGE TO THE PHX METRO HOME MARKET.
“I think we caught it in time.” When will the BS end? So then he is part of the solution because he “caught it in time” and put a stop to it? This guy is so full of crap it isn’t even funny.
“Caught up” to what?!! Oh, I see, now they’re like all the “other” places where less than 10% can actually afford a home. Yep, that’s right where you needed to be! So glad you “caught up”!
“We caught up to where we needed to be. I think it’s very healthy. It’s a good thing.”
“IT’S A GOOD THING..”
What the @#$#%^! This guy has been watching too many re-runs of Martha Stewart.
“Last year was a complete anomaly. It’s not normal. You can’t compare last year to anything.”
Apparently you could compare 2005 to 2004, but not 2006.
well said …feepness
But that was for public consumption…those without memories.
If every metro goes on trumpeting that they were undervalued… Who was overvalued???
Seems they all went up together so where is the basis of their “value”?
“Q: In what way? A: My analogy of sales in the Phoenix market area in 2005 is ‘fishing with dynamite.”
My analogy of Phoenix real estate sales from 2006-2010 is fishing by draining the swamp.
…or lighting the dynamite and then forgetting to throw it…
“beep..beep”
Hey Mad Tiger…
Your technique is going to reveal all the SUCKERS and bottom feeder fish too.
There was more sustained damage in Las Vegas than there was here.
People like to say that, but I don’t think this guy is aware of what happened in Las Vegas. As far as I know, Fulton Homes is not building in Las Vegas. I don’t think he knows what is going on here.
It is my belief the shake-out in speculation buying in Las Vegas happened in November of 2004, when Pulte-Del Webb dropped the price of new homes in Solera, creating miniature ghost towns, and leaving so many flippers holding the bag. That’s more than a year ago, and nothing much has happened since then.
The idea that we are going to fall after Phoenix, and fall harder, is mistaken, IMO. We already fell. The damage, such as it was, has already been done.
We’ll see…
Your dreaming if you think that your fall is over.
But when Pamela Anderson falls from her recent big CONDO purchase, she’ll bounce back
Maybe you forgot already, but Ben just posted an article a couple of days back saying LV land prices were off by 47% thanks to friendly BLM reminders that there is no shortage of land in the Nevada desert. But I guess that has nothing to do with the price of real estate investment properties…
The 47% drop in land prices was an anomaly, as half the acreage sold last quarter was one large BLM parcel. With no roads, utilities, or infrastructure, the per-acre price was below the average value of land in the city. The prior run-up in land prices was also anomalous because a one-acre parcel on the strip can sell for $20 million and skew the average upward. These numbers are not meaningful.
I should not have to explain this. It should be obvious. It was even referenced in the article.
LVlandl
You might want to actually read that article a little more closely this time…
If what you said were correct, what was the point of the headline -daNile? I believe the jounralist made an “appleas to apples” comparison in two areas one was down (-47%) in the Centennial area and the (-35%) in the blue Daimond area?
That’s right Las Vegas Landlord…
They just aren’t making wide expanses of desert sand (as far as the eye can see) anymore. Better buy it up before it dries up. Just don’t ask me for any investment money…
LV Landlord - You keep me laughing. I will know when we are at the bottom of this down-cycle when you finally throw in the towel.
How is the Bakersfield market doing these days?
Inventory is through the roof, up 250% YOY. Sales down 25% YOY. And Notices of Default at 8 year highs.
Looks like 1-2 years and there will be some serious pain here (maybe sooner, but these things seem to last much longer than people think). However, Pulte, KB, etc.. keep on building with no end in sight. Not sure who is gonna buy all these homes as the investors have left are market. Once the builders stop they will send all their employees packing and the all the RE related jobs will be gone.
If I were to give the state of California an enema, I’d stick it in Bakersfield.
YES, B-FIELD IS THE LARGE INTESTINE OF CALI
I guess the local Chamber of Commerce needs to work on our city image?!??!
Well if Bakersfield ain’t the a$$ end of the unverse it shure is within fartin’ distance. But remember to flush twice as it is a long way to Fresno.
Indeed. Since all my properties are occupied and all my rents are collected for April, I do not expect to be throwing any towels in, any time soon.
Did you pay your rent yet this month?
LOL. No I own my home and have a very low 7 figure net worth. I did it with hard work , living below my means and perserverance and NOT by speculating and being a slum lord!
what is the eviction process like in LV ?
Is that a serious question? The eviction process in Las Vegas heavily favors the landlord. It takes about 2 weeks from start to finish. I’ve only had to do 2 evictions in 5 years, and I’ve never even appeared in court. The Las Vegas Justice Court simply rubber-stamped the eviction order, and the constable conducted the lock-out the next day. The constable also handles all the notices. It’s also very cheap — around $200 for the whole thing.
info is here: http://www.co.clark.nv.us/justicecourt_lv/evdetailland.htm
He’ll know soon enoug
even if he lies and doesn’t tell us about it, or more likely, just disappears, sort of like RE King and Homeowner MA.
LOL
mo Money …that must explain why rents are 1/2 of the average mortgage payment / everything skewed to londlords…
i was surprised it took two weeks… we used to just lock them renter out with a notice “pay rent or we will sell possessions inside..
But of course, when the wind blows, you must know when to holdem and when to fooldem…right Lv Land.?
BTW - I do respect your opinions, however, I disagree with 99% of what you say. I enjoy the banter and am not trying to be meanspirited.
Back on the subject of land prices…
http://www.inbusinesslasvegas.com/2006/03/31/realestate.html
There are a couple reasons for the sharp declines in appreciation during the fourth quarter 2005, Gordon said.
The numbers include the November 2005 Bureau of Land Management (BLM) auction in which 2,675 acres were sold for $639 million to the Olympia Group. That large sale, which consisted of raw land without any improvements, brought the overall average down. Exclusive of that sale, the valley wide price per acre was $578,000 an acre, an 11 percent increase over the previous year.
Look, I’m not saying estate is not over-priced, or that it will not fall. I’m only saying that I see no evidence that it is falling right now. Fair value is whatever the buyer agrees to pay and the seller agrees to accept. Fair value in Las Vegas has been holding steady, within a few thousand dollars, for quite a while now. It may change next month or next year, but at this moment, things are pretty much standing still. To say otherwise is to be looking at trees and missing the forest.
Things are falling in the Reno/Carson City area. In my neghboorhood the asking price on houses was 300-350K last summer, now there are some people asking $375, same asking $325, and more and more under the 300K mark.
Comment by crispy&cole
“BTW - I do respect your opinions, however, I disagree with 99% of what you say. I enjoy the banter and am not trying to be meanspirited.”
I THINK LV Landlord has a little SADO MASOCHIST leanings… as he seems to thrive on all of these blog beatings. You gotta love him for being on a BLOG that pretty much is diametrically opposed to what bull$h!t he is spewing… but then again, it takes all kinds to make the world go around, so let’s keep beating on him
Yeah, you can tell how self-confident LV is from the fact that he/she spends alot of his/her time trolling bubble blogs. I know if I had a property management business I would do that too. As a matter of fact I heard somewhere that 99% of all over-leveraged land barons spend 87% of their time trying to convince 22% of the bearish real estate people in the world that prices will stay up permanently sky high.
“Look, I’m not saying estate is not over-priced, or that it will not fall. I’m only saying that I see no evidence that it is falling right now.”
LV Landlord–this pretty much echoes the area I’m tracking on the San Francisco Peninsula. Prices have declined a little since last year but houses continue to sell quickly. There are a lot of stresses on the market. But I have yet to observe firsthand much in the way of concrete indications of a bubble.
Yep, my rent is paid, just 2 hours ago. My landlord had to come look at the floor, there was some damage from the dishwasher leaking (under the floor). We get a new dishwasher & floor it seems.
Karen..way to go! a few more replacements and it will be time to buy.
I deal with stuff like this constantly. It’s just part of the business. I have a plumber installing a water heater in a condo today.
When you own a house, you probably get a major problem like this about once per year. When you own a dozen houses, it seems like you get a major problem about once per month.
The worst one I ever had was mold remediation. One little leak behind a wall, 6 little mushrooms in a closet, and next thing I know I’m facing yellow “do not cross” tape and EPA guys in hazmat suits. Jeez.
no mold here in PHX… too dry
no mold here in PHX… too dry
Hey SB BUBBLEBELIEVER ,
Your right …..LVLANDLORD has sado masochist leanings.
Housing Wizard…
OK, I guess we’ll all keep flogging LV Landlord…
Remember- “What happens in Las Vegas, stays in Las Vegas”
What about Nicholas Cage — did you see “Leaving Las Vegas?” Oh right — he wanted to leave, but circumstances kept him stuck there…
“THE WHOLE YEAR INN” to “THE HOLE YOU’RE IN”
how appropriate
2004 was the shakeout? You consider the 2005 appreciation normal? The idea that somehow southern California and Arizona will crash while Las Vegas escapes is pure fantasy. You are whistling past the graveyard.
What!!!! no quote from RL Brown in this article.
The big spin is ON! Compare numbers to 2004/ 2003 etc.. LOL. This guy is a joke. Massive inventory increases and declining sales and he thinks 10% is the max downside. I have saved the article and will write him a nice letter in a few months!
ARIZONA AND FLORIDA HAVE THE WORST EXCESS INVENTORY PROBLEM I HAVE EVER SEEN. THAT DOES NOT PLAY OUT TO ONLY A 10% CORRECTION. I”M BETTING A 30% TO 40% CORRECTION AND THEN SOME.
I believe you are right. Florida inventory has blown threw the roof. When I see a place like Fort Myers with so much inventory and so high prices I believe your 30 to 40% correction a bit conservative!
60% to 80%, from an ol’ expert in Arizona.
Yep ….could go that high.
Today alone approximately 500 new SFR listings came onto the MLS in Phoenix.
In 1 friggen day !!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I’ve posted these inventory numbers before, for the 85086 zip code (North Phoenix) which has the Anthem and Tramonto developments. The daily inventory increases are amazing to observe, and had a substantial upswing again over the past weekend. Here’s how it looks since 2 Feb:
02 Feb - 644
14 Feb - 704
28 Feb - 730
09 Mar - 742
13 Mar - 791 (Whoa!)
22 Mar - 830
30 Mar - 865
03 Mar - 902 (Wow!)
That’s a 40% increase in just the 2 months I’ve been trackiing this area. How much longer until literaly every other house is for sale? I think the deep pocket Californians that ran the prices up in Phoenix are gone and there are no greater fools left to pay the crazy high prices to live in the 114 degree temps that are coming in a few months!
Ooops, the last number is for 03 Apr (not Mar).
“Q: How do you see the market now? A: This is just a small correction that needed to happen. The velocity (of sales), the appreciation of the homes, was not sustainable. Last year was a complete anomaly. It’s not normal. You can’t compare last year to anything.”
Economic history shows that insanely unsustainable rates of appreciation have typically segued into hard crashes. But we know that it is different this time — small correction, soft landing, gradual leaking of air from the balloon, etc.
Gstucco..he is a builder not a historian….infact he provblavly never took any histroy classes. Let alone “READ” economic history….
” When the fish, being the customers, floated to the surface, they were still begging to get in the boat.”
Still ROTFLMAO, good thing I wasn’t drinking coffee or it’d have been all over the keyboard.
I don’t think I want to go hunting with this guy.
Sounds worse than hunting with the VP…
I just love being thought of as a fish taking the bait ,begging for more .Were all a bunch of fish falling for the lure ,(get rich quick,don’t be priced out of the market). I think this is a good example of how alot of home builders might think of the public.
I think they’re called Suckers. Scrape, Rape and leave the mess for the locals. Look for a hefty emergency tax or bond issue to build infrastructure, roads, schools etc. etc. etc. Builders? Long gone..
Any PRUDENT local would make them bond those infrastructure improvements up front….I know they would in my local…
actually, the reference to fishing w/dynamite is surprisingly spot-on. Anyone can do it (sell). The fish are dead (suicide loans). Leaves an area barren (no worries about the future cause there ain’t one). And if you push your luck, ya end up splattered over the water.
there’s always the “drowning in a sea of debt”… analogy, too.
Underwater, belly up, gulping air, flipping aimlessly…
brings to mind the short story “moonface” that was in the back of my high school copy of jack london’s sea wolf. guy hates his neighbor whos always smiling, neighbor likes to go dynamite fishing, guy buys neighbor a dog, dog fetches and retrieves dynamite, neighbor blown to bits, guy smiles…
Did this guy property last year? It sounds like (according to him) that the unsophisticated speculators were buying last year. If he did buy last year, then he is part of that belittled group.
If he knew the true definition of investor, is he actually buying cashflow positive rentals? Sounds like he is among the speculators (unsophicated or not).
Out at the Peak,
I was scrolling down to see if anyone else caught that. There were so many “bravado” and downright stupid comments from Mr. Fulton I was hoping this “winner” wouldn’t get lost in the shuffle. Tell me, is there a right way to slide down a bannister full of razor blades and land in a bowl of battery acid? Seems to me the smart money (if you want to call it that) bailed! Liquidity is a coward. Then with his “I’m still buying” it sounded more like desperate damage control than anything?
THIS IS IT IN A NUTSHELL: The key wasn’t so much the overall price as much as the increasing price.
This was and is the crux of the Ponzi Scheme that was spread world wide.He should receive some sort of medal for being so forthright.And the fact that you have priced about 90% out of the market is the real reason that the game can’t continue and not the rise in mortgage rates.
My thought exactly. Once people stop investing because the rate of appreciation has slowed/stopped, people are buying to live, or buying to invest (and get positive cash flow).
As people hear of 1) prices NOT going up anymore and 2) friends going BK because of their adjustable mortgages, they will only buy if they can get fixed rate financing with a reasonable payment per month (relative to a rental).
Rental Watch,
Precisely why markets across the nation have STAGNATED. Investors realize that there is no more easy money, and the prudent buyer just looking “for a place to live” have caught on that the market has tanked… and are sitting on the sidelines waiting for the bubble to burst.
Amazing that such a Q & A session wouldn’t include the word “inventory”.
INVENTORY :That’s the word used in the new home business. I know this because I use to sell new homes in the early 70″s. I’m retired now so I can say what I want and I don’t have to worry about someone firing me .
There is also the growing “inventory” of national stories that are highlighting the housing bubble crisis.
This in turn creates more “inventory” of buyers sitting on the sidelines, waiting for prices to come down, which…
also creates more “inventory” of scared sh!tless flippers that are dumping their holdings, hoping to score one last FOOL.
Not to mention the “inventory” of banks that are tightening their lending standards, and…
the “inventory” of FB’rs that are just realizing that their A.R.M. just ticked up a notch… which leads to the
“inventory” of toys (i.e. SUV’s, boats, etc) that go on the market to pay the extra amount on the monthly mortgage
and…
LOL . You didn’t mention the “INVENTORY” of loans that are going to default .
ha ha. yeah, I was getting tired writing that one… so I left the “and…” for others to continue the rant. Thanks.
Anyone got any links to stories of lenders tightening their standards yet?…..looks like the Chinese are starting to push….
Housing Tracker shows Phx inventory up again at the first of the month near 21K. But TUC for some reason has inventory down a little. Hope it’s a blip as I an looking at the north Tucson area.
We just celebrated the arrival of Phx inventory up to the 40K stratosphere. But I am sure you have better info…
I doubt it, I just got my info here. I expect maybe there are different size areas?
http://www.benengebreth.org/housingtracker/location/Arizona/Phoenix
No way. The MLS is over flowing with listings like the toilet in Doug Fultons house. SFR is at 34,693. Total is 40k+.
I wish someone would drive around FL and AZ with a video camera so I could watch all the pretty Realtor signs go past. Wee! That’s some good clean fun and very relaxing for those who didn’t buy with kamikaze financing. I could watch that stuff for hours, I betcha I could.
FOR HEDGEFUNDANALYST:
Happy days are here again for credit strategies? Ya think we’ll be seeing a few more of these while the market is friendly?
http://biz.yahoo.com/ap/060403/ciena_notes.html?.v=1
“Q: Are investors mainly out of the Phoenix market? A: No, the investors are still here. The unsophisticated speculator is gone. I’m still buying property.”
Still buying property???? So…he’s sophisticated???
Dude, WTF?
How do these guys keep a straight face??? Are there photos with this article???
These stories are getting more hilarious by the day.
Catherine
Do you know what the total number of houses that are in the Phoenix area. What percentage is the 40K that is on the market?
No, I don’t know…someone here did post numbers recently, maybe they’ll see this and post it again. But…40K is emormous. What is interesting is that the inventory is up some 127% in SIX MONTHS. That is the shocking math to me.
LVLandlord - Are you positive cash flow with all your properties?
Not individually, but taken together, yes. Some properties were mortgaged more than once to buy other properties, so it’s difficult to say which ones are positive. But add up all the rents and subtract all the payments and expenses, average it over a year, and it comes out positive. Meanwhile, the tenants are whittling down my loan balances.
I expect in 10 years or so, I can retire from my day job.
When did you buy?
Most properties were bought within the past 3 years. I haven’t bought anything since last summer.
Large downpayments? 50% or more I suspect, otherwise, you are blowing smoke.
Or a Miller-Shaub graduate
Fixed rate loans or Adjustable ARMS/IO loans on your properties?
To be positive cash flow in this over priced market with rental prices so completely disconnected from mortgage payments and so many places flooding the market is fantastic. Congratulations!
So many anecdotal stories here in the Phoenix area of speculators who have bought in the last two years who can’t even get rent to cover 50% of their monthly mortgage payment, it’s scary. There was a brand new 3,200 sq ft place in Queen Creek (suburb) that I saw for $1000 per month. Can you say train wreck in slow motion?
Do you worry about the underlying economic fundamentals being completed disconnected from this RE run up? I read somewhere that in order for incomes to catch up with RE housing prices, either RE prices have to be completely stagnant for the next 17 years or prices have to correct (this might have been for Phoenix locally). Doesn’t that freak you out? The strong possibility that your properties could lose 40% plus in value in the next few years?
Interesting. Just out of curiosity, have you calculated how much worse/better off you’d be if you’d have taken all of the money you’ve invested in your houses (plus the equivalent cash value of your labor) and invested it in (say) the stock market?
Fulton is like a Wall Street dealer trying to calm investors as he unloads the boat before the dynamite blows. The fuse is lit but no one believes it will really blow…we’ll see. Everyone we have to remember it’s different this time.
Here’s the break-down for Maricopa county.
SFR: 26,328
Condo: 3,812
Multi-unit: 832
Lots: 3,640
Chris -
According to ziprealty.com, I am showing a total of 40,160 MLS listings for the entire Phoenix Metro area including Pinal County. Do you get your MLS numbers directly from MLS?
I think the 40K includes part of Pinal county (pretty much southeast Phx area), Anthem (a boatload of listings there!), west Phx, and a wider area than Phx proper.
I think the question AZgolfer was asking was how many actual houses there are in metro Phx…
Waiting, I am sure you all have it right. I just used the Housing Tracker link I posted above & don’t know why the huge difference?
I don’t know how to use ziprealty.com, do I just register? What I really want to track is the Tucson area especially 85739.
Any help or suggestions would be appreciated mucho!
Chris
OK, I got it zip does not do the Tucson area. I will continue to look around for TUC accurate info.
What I really want to track is the Tucson area especially 85739.
Chris, you could look directly on the MLS:
http://www.tarmls.com/
260 residential listings currently for 85739.
Where is 85739 in Tucson ???
North. A pal of mine bought in an area called Saddlebrooke & a couple of others are serious about it. I think the town is called Marina. My pal that bought got 10% off asking & I figure by fall there may be some real deals available as inventory is up, up , up.
I just want to check it out. I live in the PNW (pacific norhtwest) & am looking for some sun. I sold at the top for this area last summer & am renting for now.
rog56, Just a big thank you. I will bookmark & track.
Chris
I think the town is called Marina.
Marana, you mean?
Q: How do you see the market now?
A: This is just a small correction that needed to happen.
That statement by Doug Fulton put me in mind of a uncanny historic parallel
The scene the bridge of the RMS Titanic:
Passenger: “Captain, are you sure that hitting that iceberg won’t sink the ship ? !!!!”
Captain: “Don’t worry dear boy, the Titanic is unsinkable. She may settle down in the bow by 10 degrees, but I can assure you that your wife and children have no need to take to the lifeboats. Now run along now, there’s a good chap.”
Shortly after,
said Captian went to his cabin to change his britches…
No, I don’t think it’s going to correct more than 10 percent from where we are today.
Are his houses marketed with: “Don’t Buy Now!! ‘Cos it’ll be 10% cheaper soon!!!” ?
A housebuilder who publicly predicts a 10% fall is probably privately anticipating 20%.
I met with a homebuilder a little while ago–he (very candidly) is getting much more cautious with his new deals. He said in a nutshell, that when there is a housing correction, it always drops 20% from the peak (sometimes more, sometimes a bit less, depending on location). When they are looking at a new deal, they hit revenues by 20% as a robustness test.