×

Phoenix's “Martini” Homes

I'm standing inside a custom built 8,000 square foot home in Paradise Valley, Arizona. The massive house, sitting on more than an acre, was built two years ago in this prestigious area of Phoenix.

It's never been lived in.

home_sales5.jpg
AP

Originally priced at $5 million, the home is now listed at just under $4 million.

Be patient. I think there's more room to fall.

Phoenix has an estimated 80,000 empty structures, according to the Urban Land Institute.

The MLS lists only about half that, meaning the remainder must be the suspected "shadow inventory" which banks are holding back from the market for now.

One realtor calls them "martini" houses, because you can see right through the front windows into the back yard when empty.

Yet I found builders here putting up new homes. Why?

"The worst is behind us," says John Graham, President and CEO of Sunbelt Holdings, a developer which has sold all of its residential lots to builders. Sunbelt is now in the market for more land "in the right place for the right price", and Graham even bought back some of the same lots he sold at the peak. "We bought the land back for less than 50 percent of what we sold it for the first time."

Graham says in 2005, there were 60,000 permits pulled to build new homes. That fell to 8,500 last year. While some say even 8,500 is still too much, Graham says some home buyers want the guarantee that comes with a new home. Land, labor, and materials are now so cheap that new home prices can compete with foreclosures.

"Foreclosures are selling at a much higher pace, a much faster pace," says Steve Olson, a realtor with Coldwell Banker, though prices are still falling in the suburban neighborhood where we met. He was joined there by Bruce Baker, a former custom home contractor who's now flipping houses. "It's not as easy as it sounds," says Baker, standing inside a foreclosed home he bought at auction for $205,000 and just sold for $250,000. He says a lot of other flippers have moved in, bidding up prices, and he thinks the momentum will only last another 18 months. When I asked him why banks don't just fix up and sell the homes themselves, he answered, "The banks have no clue what they're doing, which is probably why we're in this mess in the first place."

At least homes in this price range are selling.

Up in Paradise Valley, it's pretty slow. "We've hit the bottom and we're going to move along laterally," says Nancy Nashban of Sotheby's. She and her partner, Linda Miller, predict 45 percent more distressed properties at the high end will hit the market in the next six months. Short sales remain a nightmare that can last eight months. "There's no standardization in the industry," says Miller. "You have Bank of America and Wells Fargo, and they treat you completely differently." On the bright side, some of the empty mansions are renting. "I've never done a rental in 33 years," says Nashban. "I've done ten this year."

The two women taught me a new word: commissionectomy. That's when buyers and/or sellers try to trim a realtor's commission to near zero. Nashban and Miller say they don't run into that problem often. Their biggest frustration is clients who can't decide if now is the right time to buy. Nashban got off the phone this week with one client--a well-known actor--who can't pull the trigger.

"They all have issues," Nashban laments. "I could write a book about issues."

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com