Part of the reason that I started this website was to help bring more transparency to our neighborhood real estate market. In doing so, I sometimes have to argue against the general consensus and point out things in the market that are of concern.
I’m sure that you have noticed the recent surge in construction throughout the Arcadia neighborhood. The old ranch homes are being torn down to make way for 4,000-8,000 sq.ft. spec homes. While the new development of homes is great for overall neighborhood value, prices have begun to hit a level that in my opinion is unhealthy and unsustainable.
Lot value in many areas has shot up 30% in the past year due to all of the speculative building that is taking place. The average half acre lot in Arcadia Proper is now worth around $900-950k for lot value alone. There are so many new builders in the area that it is hard to keep track of them all.
The problem with this high flying, gun slinging mentality is that most of these speculative builders are grossly overpaying for the lots. A good builder will make their money on the buy side of the transaction so that they can hold their position even if the market hits a rough patch. When all of these random builders (half of which I have never heard of) are relying on $475-500+ per square foot on the sell side to turn a profit, what happens when mortgage rates go higher and the buyers don’t have as much leverage?
Buyers in Arcadia are currently willing to pay a little bit of a premium because they are borrowing money at historically low rates. When these rates rise, the same mortgage may become a few thousand dollars a month more expensive. In turn, buyers will not be as aggressive as before. With the Federal Reserve looking to make a rate hike early in 2015, I would suspect rates go higher, sooner rather than later. This will pinch the builder’s margins and will wash many of them out.
Another problem with these spec builders is that the only thing they are after is the profit. In order to maximize their profit, many of the builders are going to the two story model to cram in as much square footage as possible. This tactic is really damaging to our neighborhood aesthetic. To create even more profitability many will also resort to lower quality materials and less qualified labor to get the job done. In the end, many buyers will be left with an inferior product that is glorified as a $500 per sq.ft. luxury home if they do not have a knowledgeable agent to help them see quality issues.
If you would like to talk more about the current market conditions or need help finding a home, please contact me at (602)-561-0445.