A construction worker measures a window as he works on a new home at the Olson Homes Garden Walk development in Hayward, Calif.
A construction worker measures a window as he works on a new home at the Olson Homes Garden Walk development in Hayward, Calif. - 


Tess Vigeland: You know those mortgage rates I mentioned earlier? Well apparently they're not enough to lure potential home buyers into the market. The government says sales of new homes fell 33 percent from April to May. Of course, April's figures got a boost from the much-hyped end of the federal tax credit. But signs of a housing comeback are decidedly mixed. So what's with all the construction going on around Phoenix?

KJZZ's Peter O'Dowd has our report.

Peter O'Dowd: Finding cheap houses around here is sort of like finding beer at a baseball stadium. Last month about 6,000 new foreclosures flooded the Phoenix market. But Sindi Dipomazio didn't bother looking at any of them. She and her husband went straight for a brand new house. And that made me ask the question, what were you thinking?

SINDI DIPOMAZIO: I guess we took a risk, but we thought maybe now would be the opportune time to do it, because we could only go up from here.

I met Dipomazio and her two young children in a community called Fulton Ranch. The developers started it just before the financial crisis hit. Then in 2009, the owner, Fulton Homes, went bankrupt. Prices in this neighborhood fell as much as 35 percent, which meant Dipomazio's house was a steal.

DIPOMAZIO: It ended up working out for us. I think it was just fate. We ended up in the right place.

Sindi and her husband moved in October. They paid $360,000 for the four-bedroom house. Records show a similar foreclosure in the area would be around $55,000 cheaper today. But this neighborhood has water falls and bridges and man-made lakes. Sindi says it's a great place to raise two kids. Still, moving here was a little odd at first because, well, no one else lived nearby. It was...

DIPOMAZIO: Quiet. It was like we were out on our own like in a country house, but it was nice. It was a different feel for a while.

Since then she says the neighborhood has slowly filled in. She and her husband were able to customize with their own floors and other upgrades. Some home buyers like the Dipomazio's want to buy a new house from the get go. But there's another reason why people avoid buying foreclosures even if they are cheaper.

JACKIE LONDO: Oh, you'd walk in and everything was filthy dirty rotten. Every thing was broken.

It's been a long year of house shopping for Jackie Londo.

LONDO: There was going to be so much repair you had to and as a single woman, I had to do it myself.

Londo had contracts on two short-sales fall through. In that time, she says she toured at least 100 aesthetically challenged houses, each with a different ailment. Missing cabinets. Stolen stoves.

LONDO: It just like, I can't live in this. I just can't do it. So I'd go onto the next one and the next one, and each one was just like that. It was just horror.

At this point, Londo says she was beyond discouraged. And then one day in March she drove by a new subdivision called Nicholas Point in a Phoenix suburb.

LONDO: I went with my realtor that day and said let's just try it. I can just be told I can't afford it.

Nicholas Point was almost empty. Londo didn't know it yet, but she had found it in the midst of a mini-resurgence for developers. Analysts predict local builders this year will seek 13,000 new-home permits in the Phoenix area. That's a 50 percent jump compared to a year ago. Londo's builder, Meritage Homes, is among those trying to catch up. And they're courting buyers just like Londo. The company offered her a great deal -- $200,000 for a home that would be ready in 30 days.

LONDO: I could afford it. I just stood there and I couldn't believe it.

Best of all, everything was sparkly new.

LONDO: There was not one glitch. It was the easiest thing, I think, I've ever done.

Because there are so many foreclosures in the Phoenix area, new homes sales make up just a fraction of the market's activity. But developers are still building. I spoke to Dennis Webb. He's VP at Fulton Homes, which built Sindi Dipomazio's house. And I asked him what he's thinking. He says in this part of the country, people still like to buy new.

DENNIS WEBB: You have to remember, new homes have been tough, we're on year five now. So there's a large demand.

And large incentives for buyers, too. Webb says Fulton Homes is offering more affordable products with cheap interest rates. And even through unemployment is through the roof, and people are still losing their houses, Webb says there is another reason why developers are building.

WEBB: Because they have the land. They have the plans in place. And we've set up our pricing so were not making a ton of money, but we're not losing money. This is what we do.

Fulton Homes is still in bankruptcy but Webb says the company is making money. Builders like him say they're confident the number of foreclosures will continue to decline, those properties will be slowly mopped up, and new home prices will stabilize. For now, they say it feels like the industry is emerging from the weeds. Sounds like it, too.

In Phoenix, I'm Peter O'Dowd for Marketplace Money.