As the difference between new home and existing home prices narrow, more homebuyers are turning to new construction and creating a spike in demand.
New home permits for the first three quarters of the year are up 25% in the Tucson market, compared to the same timeframe in 2023 and more than 2,700 new homes have sold so far this year versus about 2,500 last year at this time.
Meanwhile, the number of resale homes on the market continues to fall.
This dynamic means that there is no expectation of housing prices cooling in the Tucson market soon, if ever.
“The likelihood of continued price increases for new housing is a sold bet,” said local housing analyst Jim Daniel, with R.L. Brown Reports.
Completed homes are for sale inside of Roadrunner Estates, the new D.R. Horton subdivision on Tucson’s southwest side.
In September alone, four homebuilders bought 440 lots with recorded prices of $29 million and the price difference between new and existing home sales is now a little more than $55,000.
By comparison, in 2019 the difference in new and resale home prices was well above $100,000.
The average price for an existing home locally is $403,809 versus $456,245 for the average new home.
Higher interest rates are considered the main factor for existing homeowners to stay put, but the relaxed regulations around adding accessory dwelling units, or casitas, has allowed some homeowners to add additional space and hang onto their coveted 4% interest rate, analysts say.
And while lower mortgage rates might help with a homebuyer’s monthly payment, the cost of supplies and labor have not gone down for homebuilders.
“The cost to build is set,” Daniel said. “It would take a tremendous change in energy costs and fuel costs to impact that price.”
Homebuilders are building spec homes, allowing buyers to move in without waiting for construction to finish, said Cathy Wolfson, president of the Tucson Association of Realtors.
Keeping up with demand
Cathy Wolfson, president of the Tucson Association of Realtors, said homebuilders are working closely with real estate agents to market new home developments.
“Homebuilders keep us updated about inventory changes, as well as their pricing and incentive packages,” she said. “They also keep us informed about upcoming projects on the horizon (and) are constructing spec homes, allowing buyers to move in without waiting for construction to finish.”
Buyers are looking for move-in ready homes with amenities and are willing to accept a smaller home and be flexible about where they live.
“I have a feeling more resale inventory will become available,” said Wolfson, who has been a Realtor for 35 years. “Homeowners have enjoyed the benefit of low interest rates from a few years ago, but with market values not rising like they were, people will eventually sell for various reasons— having children, marriages, job relocation, divorces, or even life events like death.”
The majority of new home construction is happening on the outskirts of the city, where large parcels of land are available.
“Activity will continue to push out, Red Rock, for example, is going to be more active going forward,” Daniel said of the former cattle ranch just north of the Pima-Pinal County line.
He said if local governments want more housing, they will have to negotiate opening up more state land.
“That’s where the growth is going to have to come from.”
Among the top-selling subdivisions so far this year are Saguaro Bloom, north of Twin Peaks Road and west of Interstate 10; Colina de Anza, north of Cortaro Farms Road and east of I-10; Entrada del Pueblo in Sahuarita; La Estancia, near Wilmot Road and I-10; and Hanson Ridge, near I-10 and Colossal Cave Road.
