Phoenix Home Building Companies Struggle With Difficult Market Conditions

Until the recent housing crisis, more homes were being erected in the Phoenix, AZ metropolitan area than anywhere else in the country. More home building companies had been concentrated in Phoenix than any other city in America. Now, over the course of this past year, Arizona has been one of the states hit hardest by the housing crisis. As the value of Phoenix-area homes plummets, so–seemingly–do the prospects of the many home building companies that have been working out of the city since the not-so-distant past of promising housing market conditions.

Indeed, many of the smaller home building companies operating out of Phoenix have been forced into bankruptcy. A few national home builders have declared Phoenix a loss, and moved on to less troubled markets. However, most of the home builders who’ve been working in Phoenix are staying in Phoenix. These home builders must now struggle to adjust to new, uncertain, less optimistic market conditions.

Phoenix real estate expert RL Brown told the press earlier today that the Phoenix area’s “home market is in transition, and we are probably only halfway through that transition.” Like the financial institutions who deal with home equity and real estate loans, homes builders must cope with the plummeting value of real estate.

Area home builders have to change their expectations as to the prices the homes they build will command, Brown explained. According to Brown, the average price of a house in the Phoenix metropolitan area will eventually–once the housing market finishes its transition–fall to about $195,000. This will return the average prices of Phoenix homes to what they were in 2003 and 2004.

In addition to plummeting home prices, Phoenix home builders are negatively affected by the credit crisis. Banks can no longer provide builders with adequate financing to purchase land.

Brown says that the Phoenix home building industry has begun to reorganize itself. For example, the aptly-named locally-based builder Trend Homes has been forced to file for Chapter 11 reorganization as early as the beginning of 2008. The company was bought by Najafi Cos, also operating out of Phoenix.

“Contracts are renegotiated, layoffs occur. Divisions are consolidated. Management change. Investigations into unlawful practices grow by the day,” Brown explained.

At the same time, says Brown, homes will continue to be sold, even in a difficult market.