The Sullivan Group Market Observer
| Join Us At Our Upcoming Speaking Engagements |
| Sullivan Seminars: Save The Date With spring fast approaching, be sure to mark your calendars for the Spring Seminar Series. Four Seasons Las Vegas May 22, 2007 The Westin South Coast Plaza May 23, 2007 Hilton La Jolla Torrey Pines May 24, 2007 San Ramon To Be Determined Hyatt Sacramento To Be Determined Sullivan Seminars are brought to you by: Jeffrey DeMure + Associates  Countrywide Home Loans  Troxler  See what past attendees are saying about the Sullivan Seminars: "Voice of reason through historical market outlook." - Gwen Carrington, Pardee Homes "Very insightful. Provides information that is bottom line-oriented, actionable." - Para Anderson, KB Home |
| Click here to learn more about the Sullivan Seminars |
| Gothic 2007 Summit Tim Sullivan Valencia Hyatt April 20, 2007 |
 |
| Homebuilding's Premier Conference & Tradeshow Leader to Leader Forum Tim Sullivan, Moderator May 29 and May 30, 2007 Gold Nugget Awards Tim Sullivan, Master of Ceremonies May 31, 2007  Building for Boomers & Beyond: 50+ Housing Symposium Housing for Boomers in a Changing World Denver Tim Sullivan |
As a housing market that got hit hard during the most recent downturn, I thought it would be worth exploring what it's going to take for Phoenix to bounce back – and how the city's overall economy will play a significant role in the housing market's health.
What we do know about Phoenix real estate is that there has been a correction – and that 2006 will be remembered as much for its changing tides as 2005 will be known for its booming market. But what does this all say for 2007?
The 2007 Mantra
Standing inventory, a builder's asset during a hot market, is now a liability in the correction. At the end of the third quarter of 2005, existing home inventory was at approximately 20,000 units, compared to the end of the third quarter of 2006 when existing home inventory was over 48,000 units. So the goal in 2007 is simple: inventory reduction. If builders can put an emphasis on selling off their inventory moving forward, then we should reach more normalized levels of 30,000 in the third quarter of 2007.
Second to inventory control is what savvy builders will do from an operations standpoint. As Steven Hilton of Meritage Homes puts it, "We builders have to act like we are broke." In other words, it's time to think frugally. Whether that's re-pricing land, reducing overhead or renegotiating with trade and financial partners, the objective is to dissect your operations with a keen eye on cost control.
The result of 2006's rocky road has not only forced builders to reduce standing inventory and to look at their business through a microscope, but it has also created a fundamental shift in sales and marketing efforts. In fact, in a market where sales are hard to come by, buyers reign supreme. Once they are identified, builders need to capture them – which, as everyone knows, is not an easy feat in today's market.
But with the right mix of customer service, targeted marketing and exceptional product, it's still possible. From creating a beautiful setting for buyers to experience the homes in to an empathetic sales process to interesting and relevant advertising, enhancing the home buying adventure altogether will allow your community to stand out from the crowd. This means that your sales and marketing team must be skilled at making a customer feel important, as well as learned in the art of follow up.
With the actual product you're selling, the challenge becomes: how do you make it shine? One rule of thumb is concentrating on building better places, including homes with enhanced elevation, and communities with more engaging neighborhoods that speak to a buyer's lifestyle and proclivities. When pricing your product, letting go of the past is also a must. Incentives may have been big in 2006 and peak pricing may have been the norm in 2005, but the strategy for 2007 is getting away from incentives and unrealistic pricing and rather, pricing homes accurately. Although prices will be down from yesteryear's numbers, the prices presented the first time to buyers will be the accurate ones – and that brings us one step closer to market normalcy.
The Silver Lining
Growth is the keyword for Phoenix in 2007. Population growth alone – one of the most important factors contributing to overall economic health and subsequent housing market growth – was expected to increase 2.6 percent by the end of 2006, translating to a total population gain of nearly 102,000 people, with no end in sight. For the foreseeable future, Phoenix will be adding approximately 110,000 residents per year.
Then there is the economic outlook. Statistics show that the Phoenix MSA created nearly 92,000 jobs from the third quarter of 2005 to the third quarter of 2006, with another 60,000 jobs expected in 2007. What's promising for the real estate market is that the Phoenix area continues to be an attractive location for businesses to relocate to. Indeed, AAA just announced it was moving a customer service center and formation technology center there, while the Phoenix metro area is already home to the back-office and technical operations for Google, eBay and Monster.
But the best part? As long as builders keep prices at bay, alleviate their inventory burden and build to realistic demand, during the latter part of 2007, we'll start to see the light at the end of the tunnel.
Volume 6
If you don't want to receive The Market Observer, please unsubscribe below.
Standing inventory, a builder's asset during a hot market, is now a liability in the correction.
- Tim Sullivan
The New Pace of the Affordable Housing Movement
Builder And Developer Magazine
By Tim Sullivan
Click here to see why getting involved in affordable housing could be a sure bet to getting approved
Visit our web site
