4S Ranch Update

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Submitted by SD Realtor on February 11, 2007 - 9:05pm

This is scary indeed.

Was up at 4S today showing a very nice couple some homes. They knew the area very well. We visited Pienza, Silhouette, Evergreen, and one other, it has a Jane in it, Sarah Jane or something like that. The traffic at every sales office was heavy... not brisk, not well done... heavy. Furthermore these developments are now squeezing things by only offering 6-8 homes in the current phase, (which by the way will not be completed until late q3/early q4 timeframe). I had not been to any of the sales offices in 4S since October and they were virtually empty. Similarly the couple I was with also had been in the sales offices a few months back and they two were surprised at the traffic.

Please understand, this post is meant as a simple data point, for one day out of the year. I am not saying there are not alot of foreclosures, nor am I trying to convince anyone to buy now, or tell us how much you do or do not like 4S. I am just saying that it was very very busy today. Most of the buyers seemed to be families or young couples looking to buy a home to start a family.

The salespeople I spoke to each said that the traffic has been like this the past few weeks. The incentives are all down to 20k if you used the preferred lenders. (at least at these 4 developments)

Submitted by nestingcouple on February 12, 2007 - 8:47pm.

My observations on 4S ranch (and think why the traffic is much heavier than last 2 months):

--- the builders are releasing much fewer units than they would have done in the past. Only about 8 units per builder per release, which artificially lower the suppler. It's interesting to see whether the builder would make more profit by releasing more units with lower prices, or fewer houses with relatively higher prices;

--- at this point of time, it's hard to image that there are any flippers in the market buying. Therefore, I believe most of the buyers are in good financial shape to buy and ride out the possible down market. And most of these now buyers may have waited for quite a while, and decide not to wait any longer for various reasons: family, wife, quality of life, a good deal. There are a few quite neighbors in the luxury apartment community where I currently live just bought and moved out, one told me that the rental offices will require 2 months of rent penalty for breaking lease cause there are quite a few are breaking them and moving out because they bought.

--- I computed the $ per square feet numbers, now $/sqrt of new houses in 4S reached the level in Jan 2004, which is about $218/sq ft, still much higher than that in 2002/2003, but way below 2005 (> $300/sqft).

personally I think if one can wait, there is no loss/risk in doing that, may get better deals near the end of this year since builders will give incentives near the end of a year for reporting reason (that's what I told at the end of last year, correct this if it's misleading because the builders were giving great incentives at the end of last year only because of the down market,not because of the time of the year).

Submitted by cowboy on February 13, 2007 - 12:05am.

I must say that I did not like 4S Ranch one bit. Del Sure much better.

Submitted by sdcellar on February 13, 2007 - 11:03am.

Whoa, whoa. You go away for a weekend and it gets turned into not speaking up?

I've been visiting new developments for over a year now and I am neither surprised or disappointed at the amount of traffic cruising through the models. I (fairly) obviously didn't visit any this weekend, but I've been within the last couple of weeks.

I will definitely say traffic is up, but that's compared to the last quarter of 2006. Traffic (to me) still seems down from this time last year and I saw heavy traffic at both 4S and Del Sur for good parts of last year. And to that I say so what? Here are the important things to note.

Traffic does not equal sales. I see some people taking what SDR posted and thinking that increases in traffic translates into sales. This is, of course, not necessarily the case. It's all about conversions to sales and if this were direct mail, it would be a campaign that's not doing very well. Sending 2 gabillion pieces instead of a gabillion pieces might help, but you still don't really have a product that people are just dying to buy and at some point it's the law of diminishing returns.

Most of the builders have standing inventory right now. Plain and simple, they have houses people could move in tomorrow and they're still not selling them. Yes, they sell some, but they always will. And this is at a time when they're controlling the heck out of inventory.

I always tell my wife that you can sell anything if the price is right. Simple market dynamics, right? The builders get this and have definitely adjusted prices accordingly. Pienzas are the exact same houses Fieldstone sold 18 months ago for $100K more. Another 4S development that just closed out called Garden Walk sold relatively well throughout 2006 because they lowered their prices ahead of the market. What I've seen is that the price reductions help for a little bit, then it stalls, and then the cycle repeats. I have seen nothing to make me think otherwise yet.

Also, make no mistake that simply having a bunch of relatively new developments come on-line (as 4S does right now) boosts traffic all by itself. It's fun to look at model homes and it works so much better when there are a bunch of new ones all right together.

Finally, yes, in general, inventory is flat and sales are up a bit, but don't kid yourself that even just 17K homes for sale isn't a lot compared to the last several years and we still don't know that it's not going to pick up. Again, my feeling is that some of this sentiment (i.e. market recovery) will actually contribute to the inventory picking back up.

Submitted by unbiasedobserver on February 13, 2007 - 12:50pm.

Guys, even if there is increased new home traffic, remember the cancellation rates are astronomical, just this morning KB said theirs is running 48%! There are some select buyers who are scared that they may miss "the bottom", but give them some time to think over their decision and they are backing out en masse. I really won't be scared that this thing is over until 1) subprime lenders stop imploding 2) cancellation rates seriously decrease 3) builders stop stampeding out of land contracts 4) foreclosures stop exploding. I don't foresee any of these happening for at least 2-4 years.

Submitted by JJGittes on February 13, 2007 - 3:41pm.

I went to 4s and Del Sur today and looked at neighborhoods between $650k and 800k. Most of the houses in that range were of the long rectangular variety, often with the garages off an alley in the back. Kind of similar to Bressi, now that I think of it. The lots must have been 4000-5000sf max. The total mello roos plus tax rates ranged from 1.4-1.7 in 4s, to 1.9% in Del Sur. All in all, once you factor in options, landscaping, patios, window blinds/drapes and add on to all of it the mello roos and the HOA fees, it is all still really friggin expensive. And neither of those communities are exactly located steps to the sand. Actually, it was pretty windswept out there today, it reminded me of High Plains Drifter with Clint E.

On the plus side, the schools looked nice and new...

Submitted by Duck on February 13, 2007 - 4:28pm.

If you read KB's SEC filings you would note that their cancellation rates and in general their business in the Southeast (Florida) is what is hurting them the most. The healthiest market for KB is the West where standing inventory is well below all their other markets.

Submitted by PD on February 13, 2007 - 4:50pm.

Duck, do have an iron in the fire?

Submitted by no_such_reality on February 13, 2007 - 5:01pm.

I toured the KB homes in the Gilbert area of Phoenix Superbowl weekend. The homes ranged from modest to McMansions. Traffic was heavy, sales were slow. In all developments, the smallest cheapest plans were the ones that were selling.

Yes, the bottom was being sold out due to limited number but the larger units weren't moving. We're talking $20,000 base price difference and not moving.

Submitted by JWM in SD on February 13, 2007 - 5:24pm.

Duck,

You're driving with your rearview mirror man.

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