Home building is on an upswing in Tucson, as buyers accept the reality of higher interest rates and existing homeowners continue hanging onto their low rates by staying put.
Permits for new homes were up almost 130% in the first part of the year, compared to the same time last year — 341 versus 784 this year.
The average new home price is now over $430,000, but holding steady and not soaring as prices are in some markets.
The resale market remains flat with an average sales price of $409,000.
The classic supply-demand scenario is putting pressure on the rental market, which is housing potential homebuyers longer as they wait for their opportunity to buy.
And a home purchase is likely to take up a higher percent of a resident’s income than before the pandemic.
At about 32%, the latest expense-to-wage ratio sits above the 28% level preferred by mortgage lenders and marks one the highest points over the past decade, according to a report from ATTOM, a national curator of real estate data.
Another contributing factor to home prices remaining high is built-for-rent communities, known as BFR, where developers buy swaths of land to build single family homes that are not for sale.
Currently in the Tucson area there are 16 of these BFR projects in the works that will total close to 2,500 homes exclusively for renters, data from local housing analyst R.L. Brown Reports shows.
Tucson’s rental market is housing potential homebuyers longer as they wait for their opportunity to buy.
“Housing prices are a function of the cost of labor and materials, the cost of land, the cost of financing, the cost of alternative housing, the profit desires of the builder-land developer-present owner-financing, and a myriad of other factors, including zoning and building restrictions,” said Jim Daniel, the report’s publisher.
He said the ability of homebuilders to simply reduce those prices is unrealistic.
“The strong demonstrated demand for housing in Tucson provides little incentive for cost or price reductions, or better said, without cost reductions, there is little or no incentive to reduce housing prices,” Daniel said.
Strong demand for new homes is coming from people relocating from markets where housing prices are much higher than they are in the Tucson area.
Job creation and climate will continue to drive new residents to the area.
To build less expensive homes, homebuilder concessions can include smaller homes that are closer to neighbors and limited amenities, such as resort-style pools, gyms and clubhouses.
“Builders who can effectively produce new housing priced in the $300,000 range will find solid demand in most geographic areas of the region,” Daniel said. “Builders who can produce new housing priced below that range and be competitive with the BFR products growing in favor in Tucson can expect a strong response for properly conceived products.”
Assistance programs aim to build homeownership
Housing affordability is on the radar of local and state government officials.
City of Tucson and Pima County programs offers rental and down payment assistance to residents and the Arizona Department of Housing recently rolled out a new program to increase homeownership called “Arizona is Home.”
The $13 million program consists of enhanced down payment assistance and mortgage interest rate relief to qualifying low-to-moderate income first-time homebuyers and will assist approximately 500 homebuyers statewide.
“As someone who has struggled to make mortgage payments myself, I know how owning a home can help build a strong financial foundation and anchor families to the communities they love,” Gov. Katie Hobbs said in announcing the initiative. “This new program will offer the freedom and independence that comes with homeownership that has been eluding many deserving Arizonans across the state.”
The housing department awarded grants to two home lending organizations, Chicanos Por La Causa and Trellis, to provide enhanced down payment assistance and mortgage interest rate relief to low- and moderate-income first-time homebuyers across the state.
In addition, the Arizona Industrial Development Authority has created a new loan product specifically targeted at first-time homebuyers in rural counties to provide down payment assistance and rate relief.
“Our mission at ADOH is to make homeownership available to the largest number of Arizonans possible and ensure no one is priced out of our state,” said ADOH Cabinet Executive Officer Joan Serviss. “This program will help lower- and middle-income Arizona, in both metro and rural areas, succeed in becoming homeowners for the first time.”
Details on qualifying for the program can be found at housing.az.gov/general-public/programs-for-homebuyers
“Arizonans love our state and want to build their lives here,” Hobbs said. “The ‘Arizona is Home’ program will bring homeownership to more people and provide assistance at a time when high home prices are keeping the American dream from too many.”
Home shoppers need to make more than $106,000 a year to comfortably afford an average home in the U.S., which Zillow said is 80% more than in January 2020.Now, hopeful buyers are using creative ways to try to make their way into homeownership. Rachel Bingham, who is looking for her first home in Colorado, has been in the market for three years. "I would love to buy a house but, you know, due to my income, I'm limited to a specific market or townhome," Bingham said. "Honestly, a townhome condo is kind of my budget and I have a great salary. I work in tech, but this is just kind of where this inflated economy has put me." The real estate marketing company Zillow said the monthly mortgage on a typical home is nearly double what it was in January of 2020, now around $2,200."So, you really have to be strategic in buying," said Rachel DiMatteo, a Realtor in Colorado. "As opposed to four years ago, maybe even 10 years ago, you can buy your first home and it's a lot easier. Today it's a lot harder, especially with the wages kind of just creeping up but not to exactly where they need to be."Mortgage rates have fluctuated since 2020, now around 6.9% for a 30-year-fixed, and that's a two-month high according to Freddie Mac.Meanwhile, home values have risen about 42% in that time. And Zillow reported household earnings have not kept up with the increasing cost of getting a home. The company said you need an income of around $106,500 to afford the mortgage on a typical home. So, how are first-time homebuyers doing it? Zillow said half of first-time homebuyers say they got at least part of their down payment as a gift or a loan from family or friends."Especially as a first-time homebuyer, you don't have to put 20% down," DiMatteo said. "You can have anywhere between 2%-5% down. Another thing you can do is ask the seller for help. So, you can say, 'Hey, I'm interested in this home and here's my offer and also we'd like to ask for some concessions to help for the down payment on the home.'"It also depends on where you live. Places like Pittsburgh, Cleveland and Memphis require less than six-figure incomes to comfortably afford a home.It'll take much more in the West in places like San Jose and San Francisco, it's somewhere between $330,000 to $450,000 a year.Realtors like DiMatteo said that buying a first home is still worth considering as they believe prices will continue to rise in the future. SEE MORE: As affordable housing remains a challenge, one community gets a boost
