Tang Realty Commentary

D.R. Horton CEO yesterday is quoted as saying that that the housing market is "going to suck, all 12 months of the calendar year." Phoenix area MLS residential listings are creeping back up above 47,000, near the peak reached last year before dropping to near 40,000 at the end of the year. Land brokers report virtually no activity in the investment land market, and I've heard of millions in earnest money being forfeited on investment land deals in the Valley. The good news is that the stage is being set for some sensible land investments down the road, although we've neither seen nor heard of anything that makes much sense yet.

Visited Casa Grande recently and saw some very impressive development underway. Trammell Crow's industrial project at the intersection of I-8 and I-10 is well underway and will be around 500K SF under roof in its first phase. It is gigantic! Also, the Casa Grande regional mall at I-10 and Florence is under construction with completion, I believe, scheduled for the end of the year. It should be similar to the Yuma Palms Regional Mall, which is flourishing in Yuma. The Villago master planned community at Pinal & McCartney is also well underway. I am bullish on Casa Grande's prospects medium term, although current land prices are too high for me.

The Arizona Republic recently reported on the huge traffic problems emerging in the San Tang/Johnson Ranch area. Since I haven't been there recently, I went yesterday to see firsthand just how bad it is. It is as bad as reported! Traffic was backed up considerably at the Hunt Highway/Ellsworth intersection even at 1:30 p.m.; there is no light and the roads are torn up. With development underway on Del Webb's Anthem at Merrill Ranch and on a new Super-WalMart, traffic in the area will inevitably get much worse. No viable, near-term transportation solution is evident. It seems to me that demand for housing in that area should cool, while demand for housing in other parts of Pinal with better transportation systems should heat up. Casa Grande would appear to be the area most benefited.

Phoenix to Tucson Road Trip: The I-10 corridor between Tucson and Phoenix, in Pinal County, is starting to take off. Pulte recently acquired 1,000 acres in south Pinal County to build about 4,000 homes in an area known as Red Rock, on I-10 about 13 miles north of Marana. Sales are expected next summer. I didn't see any evidence of earth movement while driving through the area yesterday.

On the other hand, Diamond Ventures/Fulton Homes 1,600-acre Villago Development, in north Casa Grande, is underway with serious development activity underway. Grading, infrastructure and road work are all plainly visible from McCartney Road.

I visited Robson Ranch, off I-10 on Jimmie Kerr Blvd east of Casa Grande, and was very impressed with the scope and quality of the project. The golf course and club house are starting to take shape and models are already open. At 4 p.m. Sunday, there seemed to be a good number of potential homebuyers strolling through the models. Robson Ranch and its companion development EJR Ranch encompass 6,000 acres. It was easily the most impressive development activity that I saw in this area.

Retail development in the West Valley is frenzied. Every other day it seems, a new announcement is made for another major shopping project along the I-10 corridor in the West Valley. In Buckeye, three power centers have been announced in the past few weeks (one at Sundance, one at Verrado and one on Jack Rabbit). Goodyear and Avondale are also extremely active with new commercial projects and project expansions. While I'm biased due to our holdings in the area, my thought is that the Litchfield and I-10 interchange in Goodyear will be the center of all commercial activity in the West Valley for at least the next decade.

Check out this article: "Officials shut land sales south of Tonopah" Arizona Republic on some action in the Tonopah market. Is this market completely nuts?

Consider these points observed in just the last 24 hours:

*The Republic reports that the June median sales price on metro Phoenix homes is up almost 43% over a year ago!

*A friend tells me he is considering going into a Tonopah land deal at $18,000 per acre even though he knows next to nothing about land investment; I educate him on the difference between recourse and nonrecourse debt, which he was unfamiliar with!

*A friend tells me he thinks he can sell his AJ/Gold Canyon land for $250K/acre if he splits his property into smaller lots!

*A friend tells me she has closed (money in the bank) on a resale of land in Pinal County for $35K/acre cash, which she bought less than a year ago for $5K/acre!

Caution is a very rare commodity in the Valley real estate market these days.