Profit Boost For Meritage Homes, But Arizona Home Orders Drop

July 24, 2014

Scottsdale-based Meritage Homes Corp. posted a 25 percent year-over-year jump in profit to about $35 million during the second quarter, but it wasn't necessarily because sales went gangbusters.

The profit boost happened largely because its home prices went up much faster than people were actually buying them. That was apparently a turn off for Phoenix-area buyers, who ordered about 28 percent fewer homes from Meritage than last year, according to Meritage's second-quarter earnings report released this week. That was by far the biggest drop of any place in which the company does business.

But Meritage, one of the biggest publicly traded home builders in the U.S., isn’t alone.

Home builders across the Valley sold 13 percent fewer homes over the last six months than a year ago, according to RL Brown Reports, a Scottsdale-based housing market research firm.

But despite falling sales numbers, builders still increased their prices. In June, the median new home price was up almost 10 percent year-over-year.

“Housing prices and housing affordability are really the key drivers to the new home market,” said Greg Burger, an analyst with RL Brown.

Burger said prices of new and existing homes weren’t that much different before the housing crash. But today, the typical Phoenix buyer will pay about $110,000 more for a new home than they would an existing home. And that’s a problem for builders when people’s incomes have been fairly flat in recent years.

“It’s pretty clear that that affects the affordability of the buyer to purchase a new home over a resale,” Burger said.

There are many reasons as to why builders have been raising prices so much, including rising costs of land, labor and building materials.

But Burger says the local housing needs jobs and population growth to get back to normal levels before all these things will balance out. And that, he said, is still a few years away.