Land a hot commodity in Tucson as new home prices approach $500K

As existing homeowners cling to their low mortgage rates, homebuilders are getting renewed attention.

New home sales in April were down 6%, compared to April 2022, but it was the first time this year the decline was in single digits.

Meanwhile, the average new home price is again approaching the $500,000 mark in the Tucson market.

Existing home sales, on the other hand, are down 38.7% through April, compared to the same time period last year.

“It would take a rather compelling reason for a current low interest rate mortgage homeowner to decide to sell into a high interest rate marketplace,” local housing analyst Jim Daniel said. “The Tucson resale market continues to underperform due to the lack of new listings, mortgage rates and the complete disappearance of institutional buyers.”

Institutional buyers such as OpenDoor and OfferPad, that were offering quick cash for homes during the pandemic, have pulled out of most markets when the price of resale homes began to fall.

In turn, more homebuyers, including many people moving into the Tucson area, are looking at new houses.

And homebuilders are once again shopping for land.

“We are seeing the first new land deals in about nine months,” said land broker Will White, with Land Advisors Organization. “It is a race for 2025 at this point — it takes about two years to buy the lots, build them and get the new community open for sale.”

Meritage Homes is leading the market for permits and sales.

In the 12 months ending April 2023, the builder sold 622 new homes and pulled 348 permits to build more.

“We are cautiously optimistic because we have to watch affordability,” said Jeff Grobstein, Meritage’s division president for Tucson. “But we are keeping pedal to the metal.”

The builder’s most active communities are Rancho Marana, near Interstate 10 and Marana Road; Houghton Reserve, near Houghton Road and Broadway, and Entrada del Pueblo in Sahuarita.

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Homebuilding permit activity is recovering as builders work through move-in ready inventory, with incentives such as interest rate buydown programs – the price of which is keeping new home prices from going down.

The average new home price in the Tucson area surpassed $500,000 in January, then dropped to $477,413 in February but rose in March and April to the current $487,045.

The National Association of Realtors predicts the national housing market will remain tight.

“While 2022 may be remembered as a year of housing volatility, 2023 will likely become a year of long-lost normalcy returning to the market,” the association said.

Some analysts predict a flattening of prices that will begin to increase as mortgage rates stabilize.

But, the Tucson area could be faring better with economic news unseen in other markets, said Daniel, with R.L. Brown Reports.

“This perspective is driven by the foundation of increased economic and population growth coupled with the current shortage of housing supply overall and the fact that the slowdown in permit activity over the last several months has all but eliminated the imbalance between new-home production and new home closings,” he said.

Homebuilders looking to buy land are echoing that sentiment.

“Optimism in housing is generated by demand factors (and) right now Tucson has more industrial buildings going up then there has been in decades,” White said. “Drive around and see the large-scale industrial being built and you can’t help but be optimistic.”

The challenge, he said, is affordability.

“I don’t see how we solve that in the foreseeable future.”