After two years of straining in residential real estate, home builders who operate in the Phoenix metro have shifted into pursuit of finished lots, hopeful to capitalize on current conditions. Subsequent to the disposition of land during the days of the subprime mortgage fallout, home builders are anxious to take advantage of opportunistic land acquisitions.

What this means is that Phoenix might serve as a boom-bust-recovery beacon for how once-torrid markets claw back from their doldrums. Unsustainably high appreciation followed by a cathartic correction creates opportunity for those who can strike fast.

New-home closings in metro Phoenix picked up in the last months of 2009, and resale home closings continue to post strong sequential gains. Annual new-home closings are down 48 percent from levels a year ago, but up by almost 25 percent, sequentially. Of active listings, 14 percent are real estate-owned properties (REOs). There are 5,700 active REO listings and 4,100 pending sales, or a 1.9-months' supply, which demonstrates that homes are selling as quickly as they are being listed. Last year at the same time there were more than 14,000 active REOs.

Since the peak in 2005-2006, home builders have begun to sell finished lots at or below the cost of improvements. Home builders, developers, and investors have uncovered a potential gold mine in the high-growth areas that feature favorable demographics, strong job centers, and a surplus of available lots.

Profitable finished lot acquisition is an intricate balance between timing and value. Lots located in well-placed submarkets that were previously turned over to financial institutions are being sought after by investors and home builders who anticipate reaping profits.

PHOENIX RISING: Lot transactions have accelerated given today's pricing. Public builders have focused on acquiring in the Northwest Valley and Southeast Valley while investors have staked out positions in the Southwest Valley.

Metro Phoenix contains approximately 66,000 finished lots. In the past year, almost 11,000 finished lots have changed hands in more than 100 transactions. Finished lot-to-home price ratios range from 13 percent to 15 percent. In a normalized market, this ranges from 22 percent to 25 percent.

Public builders seeking to buy land in future infill/high-growth areas have focused on the desirable Northwest Valley and Southeast Valley, which represent 11 percent and 30 percent of all lots changing hands and fetch an average of $582 and $537 per front foot, respectively.

The Southwest Valley submarket claims the lion's share of finished lot transactions for 2009, reporting 45 percent (5,000 lots) of all lots sold in almost 80 transactions, with an average front foot cost of $295. The surplus of finished lots can be attributed to anticipated high growth resulting in overplanning. Many of these lower-priced lots are located in areas where active home builders are not seeking to build. However, investors remain hopeful as supply and demand begin to wane in the Northwest Valley and Southeast Valley.

As builders, investors, and developers have been relatively dormant from a buying standpoint, we are seeing positive indicators of increased activity in finished lot sales and appreciation, hopefully signaling near future stability. We remain cautiously optimistic for a stabilizing market in the not so distant future.

Greg Vogel is founder and CEO of Land Advisors Organization, a nationwide land brokerage firm. He may be reached at

Learn more about markets featured in this article: Phoenix, AZ.