Source: Phoenix Business Journal | Angela Gonzales
Demand for luxury homes skyrocketed during the Covid-19 pandemic, leaving few empty lots for homebuilders who want to capitalize on the hot market in the Valley’s wealthiest ZIP code.
That ZIP code — 85253 — primarily makes up the enclave of Paradise Valley in the northeast Valley known for its large lot sizes and where many celebrities and
The exclusive area is desirable for one simple reason, said luxury real estate agent Scott Grigg: "Quality of life."
What's driving demand for luxury (even ultra-luxury) houses to new heights? Home equity and stock equities, said Steven Hensley, advisory manager for Zonda housing market research firm.
"People in higher priced markets are able to put their home equity to work in areas such as Phoenix," he said. "We are seeing this across all pricing tiers, but it is very prominent in the luxury market today."
Some people are using their money from the stock market to purchase real estate, Hensley added.
"In some cases, this is to hedge against inflation and cash out of the stock market while values are high," he said. "You have these factors creating demand for luxury homes, but these shoppers are generally looking in a narrow location band. So ultimately location still matters, and the limited amount of luxury options is driving up prices in areas already desirable. This is what is occurring in areas such as Paradise Valley and Scottsdale. Both are known for a luxury, high-end lifestyle that wealthy households are seeking."
Hensley said he's noticing more activity in these luxury areas from speculative and semi-custom production homebuilders alike.
"There appears to be unmet demand in these areas," he said.
Between March 31, 2021, and April 1, 2022, the Valley's four wealthiest ZIP codes — all located in Paradise Valley and Scottsdale — had 735 land transactions totaling $614.13 million, compared with 744 transactions totaling $527.99 during the same period the previous year, according to research conducted by RL Brown Housing Reports.
The majority of those deals were in the 85262 ZIP code of north Scottsdale, with 475 land deals totaling $221.6 million between March 31, 2021, and April 1, 2022. That compares with 418 transactions totaling $143.36 million during the previous year.
Jim Daniel, president of RL Brown Housing Reports, said a majority of activity in that 85262 ZIP code is for custom home lots rather than production homes in that north Scottsdale/Rio Verde area.
The reason there were so many sales is that there just happens to be more lots available for sale in that area, he said.
"There is a pretty wide range of builders in the area with Lennar Homes, K Hovnanian, Shea Homes and Toll Brothers among larger builders," Daniel said. "Other builders with a luxury focus that are active include Rosewood Homes, Camelot Homes, Cullum Homes and Morgan Taylor Homes."
Scarcity of lots
Rod Cullum, founder of Cullum Homes, a Scottsdale-based custom homebuilder, speculated that there are only about 40 to 50 undeveloped lots in all of Paradise Valley.
"There are maybe five or six large parcels that could be subdivided down,” he said.
Cullum is under contract for one of those parcels and is working to replat that 10-acre parcel down to seven lots.
Otherwise, potential homebuyers can buy an older existing home and raze it or remodel the home, he said.
"Because of the age of the homes in Paradise Valley, there's quite a few more teardowns," he said. "A lot of these homes were built in the 1950s and 1960s in Paradise Valley. A lot of the lots were even five acres in Paradise Valley back when they first started developing."
When Paradise Valley incorporated, town officials adopted a one home per acre zoning requirement, he said.
"That's when people started splitting up land and taking larger parcels down to smaller parcels," Cullum said. "Because of the housing stock in Paradise Valley, there's many more teardowns as there are renovations."
Katrina Barrett, owner and broker for Paradise Valley-based Local Board Real Estate, has a 4.5-acre parcel listed in "Billionaire's Row" within Paradise Valley — where some of the region's most expensive homes sit on lots ranging between five acres to more than 20 acres.
Homes on "Billionaire's Row" can range up to 20,000 to 30,000 square feet of livable square footage. Most of them offer views of the entire Camelback Mountain — head to tail — which is the most iconic views that Paradise Valley boasts, said Scott Grigg, founder of The Grigg's Group.
"I personally refer to it as Arizona oceanfront," he said.
A potential homeowner could either buy the vacant parcel or pay $33.68 million to have a 16,844-square-foot home designed by award-winning architect CP Drewett built for them, which would make it the most expensive home for sale in Arizona, Barrett said.
"It is absolutely a space race for land right now," she said. "I have never seen land go faster or for higher prices."
For existing homes, Barrett said she is seeing endless demand for homes priced over $20 million.
"We have the buyers and not the supply," she said. "If the $33 million home was built today, it would already have sold. People want deliverable; turnkey; instant gratification; furnished if possible."
Cullum Homes is actively building luxury homes in one of the Valley's wealthiest ZIP codes — in the Village at Seven Desert Mountain in Scottsdale.
JIM POULIN | PHOENIX BUSINESS JOURNAL
Lot sells, and sells again
Speaking of demand, Grigg said he has sold one lot in Paradise Valley five times.
A 3-acre lot at 6750 N. 39th Place recently sold for $2.98 million to an out-of-state buyer a week after Grigg listed it. It was the highest price so far, selling for $980,000 when he first sold it in February 2014.
It's one of the few lots that has views of Camelback Mountain and the downtown Phoenix city lights, he said.
"You don't see that very often," he said. "Every time it comes back available, we've been able to sell it fairly quickly."
Grigg said it changed hands so many times over the past eight years because a lot can happen when someone is planning to build a home. Plus, he said, it takes a bit longer to build on a hillside.
"Some of these hillside lots can be up to a 4-year project," he said. "In four years, a lot of things can change for people."
In a recent record-setting deal, Walt Danley and Catherine Jacobson of Walt Danley Christie's International Real Estate in April sold a mansion in the Cameldale area of Paradise Valley for $21 million, which was the highest priced home sale in the town's history.
Demand vs. supply
Finding lots within the Valley's wealthiest ZIP codes can be tough for homebuilders new to the market, said Ryan Huffman, Arizona division president of Aliso Viejo, California-based Thomas James Homes Inc., which expanded to Phoenix last fall.
"We're actively looking in those ZIP codes based on the demand we're seeing as well as lack of supply," Huffman said. "We do expect to be building in those ZIP codes here in the short-term future."
Competition is fierce, he said.
This 3-acre lot at 6750 N. 39th Place in Paradise Valley sold for $2.98 million.
THE GRIGG'S GROUP
"It is difficult to find opportunity," he said. "Nevertheless, the opportunity is there and we're certainly going to find it. We'll be building in these ZIP codes as soon as we can."
Huffman said he was surprised to see a lot more inventory in the Paradise Valley ZIP code than the top three Scottsdale ZIP codes.
"There are 93 active homes in the MLS in 85253 right now," he said. "Twenty-one are new builds that are under construction that are active on MLS right now. Compare that to 85255, there are only four new custom builds. For somebody who wants a $5 million to $10 million home, there's a lot less inventory available."
Location is key asset
Cullum Homes is building in the top three wealthiest ZIP codes, Cullum said.
"In those three ZIP codes, they're all at the turning point where you have very few lots left," he said.
Cullum just finished building a 19-home community at Silverleaf in the 85255 ZIP code and is building 33 homes in the 85262 ZIP code at the 8,300-acre Desert Mountain.
Seven Desert Mountain is golf community built by Cullum Homes, including 33 home sites on the surrounding golf course.
He has about 15 lots left within Seven Desert Mountain, the newest community within Desert Mountain located near the seventh golf course.
Boasting seven golf courses, Desert Mountain has 2,389 total lots, with about 300 of those being vacant lots.
"About half of the existing vacant lots are now being held by homeowners to preserve their views," said Jack O'Keefe, a managing partner with Russ Lyon Sotheby's office at Desert Mountain.
Security and privacy are driving people to Desert Mountain, which is north of Cave Creek and Pima roads in north Scottsdale, he said.
"Location used to be our challenge, it's become a huge asset," he said. "Two years ago, the entry price point for a home was around $1 million. Now, it's closer to $2.5 million, with $3 million to $5 million becoming the norm."