Land Forecast

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The future of the Phoenix Area’s land and housing market was the subject of a forum recently held by the Land Advisors Organization. Greg Vogel, CEO and founder of the Land Advisors Organization, will discuss the forecast.

Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. Head of the department of public safety today appeared before a hearing of the state's legislature child protective services oversight committee. DPS director Robert Halliday briefed the committee on the agency's look into how and why CPS failed to investigate thousands of child abuse reports. Halliday says increasingly complex nature of the investigation. He did say that when completed the DPS investigation will go directly to the department of economic security which oversees child protective services. DES director Clarence Carter vowed to release the findings to the public within hours. The committee heard from the head of the governor's review team which reported one-sixth of the cases initially ignored were investigated after a subsequent report on that particular case was taken. The future of the Phoenix area's land and housing market was subject much a forum held by the land advisors organization. Greg Vogel is the CEO and founder and is here to discuss where the land and housing markets have been and where they are likely to go. Good to see you again. We'll start with generalities. What's the forecast for the Phoenix area?

Greg Vogel: Up. We are surely seeing great appreciation in housing prices but no increase in building activity. The precursor was filling the empty space, in this time single family homes had such a vacancy. Now that that's filling we're seeing single family building again.

Ted Simons: At the event, you said we were at an inflexion point. What does that mean?

Greg Vogel: Well and inflexion point, We're coming out of what was really horrible times and everyone still has that clear in their memory. The fact is now we're filling the space, beginning to see rents rise like apartments going up 4% a year, we are seeing those pressures build. The single family side we built over a hundred thousand, too many homes in the past cycle so we had to get through that. That's an inflexion of high occupancy and demand coming back. A lot of that is related to job and population growth resuming.

Ted Simons: I was going to ask, we'll get back to the land and housing in particular, but the economy in general, how does that impact what you do and what you see?

Greg Vogel: It's everything. As we look to huge loss in jobs we had, to some degree maybe an exodus of population, zeroed out in any sense, births are down. We had lots of issues related to retail sales tax, government related receipts. So many issues confounding us all at once and slowly each is becoming less of an issue. Now just government is the drag on the economy.

Ted Simons: Talk about government being a drag on the economy and how many different ways. I would imagine at the very least the government bickering over debt limbs and shutdown doesn't inspire confidence in folks.

Greg Vogel: It doesn't. Clearly we have a seasonal business and Phoenix especially as it relates to housing sales. Summer is generally slow. What ended up happening this go round we got through the summer lull and immediately government shut down. That has since consumer confidence crashed. We extended the summer lull and here we are into the holiday season and people stop shopping for houses then too. We had a bad second and third quarters as it relates to traffic in subdivisions. It's down. Better than in the worst of the depression but we hit this bump in the road. We're optimistic about this spring.

Ted Simons: What does the bump in the road do to real momentum?

Greg Vogel: Well, as it relates to real momentum, we saw building permits decrease. There was supposed to be a bump this year that was somewhat significant. Instead the second half of the year just has petered out. That's one of the factors. Surely those building permits are a precursor to a construction of a home to the final closing of the home to the filling the home with residents and all the things that follow.

Ted Simons: Permits falling a little bit, construction following suit.

Greg Vogel: Just a bit. It's leveled off. We have not seen a drop-off just permits not doing exceedingly well as we expected they would this year. The inflexion point, we expect this upcoming year to be different.

Ted Simons: Let's talk about this upcoming year, 2014. New home market. What did we see, what are we looking at?

Greg Vogel: In 2013, there were expectations we would see a larger acceleration in permits. Much of the building was focused in the southeast valley. Again, the precursor was all of the purchases that builders made were very focused in the southeast valley, Gilbert, Chandler and Mesa. That has spread to other parts of the valley where we're seeing transportation, jobs and other forms of demand for land as it relates to the population flows.

Ted Simons: In 21014 are we going to see southeast valley or is northwest valley going to push ahead?

Greg Vogel: What we had seen in the cycle was the first to go early 2009, that was the bell rang to buy lots in the southeast valley. Wasn't far after the Peoria, the infill area of Peoria. The south and west have been hot markets, now that has spread. Goodyear is coming on very strong. We are seeing it move outward.

Ted Simons: As far as inventory are we going to see it increase some or have we burned through everything? Talk about inventory. We kept hearing so much about we got too much, then we haven't got enough. Where are we here?

Greg Vogel: Well, you saw it in the inventory of homes first. You had Mike Orr, I saw him on a number of times last week what a great amount of data he has, what we saw was a shortage of homes due to buyer demand, not necessarily occupancy. Now we're running into the phase where occupancy is the issue. We have high occupancy, so we're not so worried about investors holding houses but seeing the fact that they are full and was required when a new person or family comes is a new home. That's truly a factor. Same for multi-family. It's much more tied to employment trends so jobs equal apartments quickly. The overall population growth relates to single family need for additional homes.

Ted Simons: Are investors selling their accumulated lots?

Greg Vogel: Yes. Investors had acquired heavily in the beginning of 2008 right through the end of 2010. They bought up to 25, 27 thousand finished lots. It was a good amount of the distressed inventory. This are now the holder of only 21 thousand, lots and are beginning to sell those to the builders but many are in the fringe areas of Buckeye, Casa Grande, those areas are just beginning to bubble but those investors will be selling in the next 12 to 24 months.

Ted Simons: I keep hearing mortgage rates may be ticking up here. Does that impact reduced affordability, if so, how so?

Greg Vogel: Mortgage rates absolutely do affect affordability. No question. At the same time increased interest rates also relate to the fact that the economy is doing better, that we're creating jobs. We're hopeful that those go in tandem. If you look over 30 years interest rates and building permits, there's not a correlation. So we're not seeing a fall-off in building permits or sale of a new single family home due to interest rates on the move.

Ted Simons: You talked about this earlier regarding population increases and it seems like in migration is picking up, also a lot of folks 55 plus moving to Arizona. What does that mean for land and housing?

Greg Vogel: As we look to the active adults buyer and what they are interested in, across the past few decades eight to 12% of single family building permits in the Phoenix metro area have been inside age restricted communities. There's a largest sum of active adults who don't want to live there so they are settling here also. Because of the baby boom and this bulge of population many believe we'll continue to see migration from colder climates. Wheelchairs and Walkers don't do well on ice. We saw a lot of bad weather as we see bad weather, the phones ring at Robeson communities and Shea homes trilogy and Sun City festival and other projects. We begin to see that activity pick up as the weather is bad and the other big factor is the fact that we're seeing a lot of people coming out from under water. They also have much improved stock portfolios. That helps drive mobility.

Ted Simons: Conversely we got the baby boomers over here, the younger crowd coming in. It seemed like at the event I thought I heard conflicting information. A lot of young folks are not interested in buying home now or in the foreseeable future. Others say, oh, no, they are there, just give them the opportunity.

Greg Vogel: I said one thing is we could fix the housing market by just taking all of that stuff down the hall and moving it out front and tell them to go find someplace. That could help. But clearly we are a different demographic in terms of psychologically than we had when we were younger, so they are staying at home longer, finding that as a safe haven to the bad economy. As it relates to where they will go first, will it be an apartment rather than getting married, having a child and buying a home right away, that was the old trend, I think we have a different way we live today and it's delaying that home purchase decision. Also fresh in their minds, these young 20 something they had six, seven years ago remembering a calamity of homes lost, friends, families displaced so maybe that's fresh in their minds too. But recent survey of first time wanna-bee home buyers 82% felt it was a good investment to buy a home. That's different than six years ago.

Ted Simons: And yet where do they want to buy the home? So many young people don't want to drive. They want to be near mass transit, urban environment, mass transit yet most new homes judging from our conversation you're looking at the fringe here. How do you work that dymanic?

Greg Vogel: So if you look at the housing starts that occurred in the past year, 87% were outside the Beltways, outside the 101, the 202. If you look at the Beltways, almost a figure 8, only 13% of sling family housing starts were inside that Beltway. If you look at multi-family about 90% of them were inside the Beltway, so I think we'll continue to find multi-family will find its way in the for rent side and the younger generation may prefer to rent first. I think we'll continue to build up but that becomes unaffordable and that becomes very hard to buy a condo at $300 a square foot because that's what it becomes.

Ted Simons: Infill development in general, though, momentum there as well?

Greg Vogel: Absolutely. It won't satisfy the demand that we have for housing. When we get back to 20 to 30 thousand, housing starts it's very difficult to accommodate that on three and ten acres at a time.

Ted Simons: It seemed like momentum was the key word at the event and for the most part people were optimistic. A few concerns, but there was thought that 2014 was going to be move through that. From where you sit and what you hear from boots on the ground, what's happening out there? Again, I ask, the momentum is it real or wishful thinking?

Greg Vogel: It's real. I will tell you we came up with that theme prior to the summer. We were beginning to look back and say, wow, was there really momentum? I mentioned apartments relatively full, rents increasing. Car sales way up. As it relates to the sling family side we expect we would do 16 to 18 thousand, permits this year. Mentioned some of the excuses maybe why not but again, the occupancy rising, demand is there. Areas lagging would be office, still relatively vacant; I'll turn that around to the positive. There's still afford office space for incoming employers. Big boxes are relatively full. There's been some building but industrial has hit a pretty good site. Retail is lagging. Tourism is improving. There's lots of areas where there is momentum but clearly we're at what we believe an inflexion point. The other thing is amount of land sales are up 30% year over year. That's way up from the doldrums, land sales went from 10 billion to 400 million, 10 billion in 2005 to million in 2008. So 96% drop. We're now approaches. 1.8 billion in total land trade for this market, and that's a precursor as I see it to building coming too.

Ted Simons: Great information. Thanks so much for joining us.

Greg Vogel: Ted, thank you very much.

Greg Vogel:CEO and Founder, Land Advisors Organization;

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