Posted on Jun | 2016
By Hank Amos
CEO & Designated Broker
While it is a great time for those looking to build their dream home to find a suitable lot to put it on in Metro Tucson, land for major homebuilders seeking to construct large subdivisions seems to be in short supply.
In the custom lot arena, it is an extreme buyers’ market in most areas of Metro Tucson, with inventory up and prices down.
While the median list price during May for home lots in Tucson was around $100,000, the median sales price was less than half that amount, at around $43,000. So far in 2016, about 6 percent of property sales have been bank owned or short sales, which pulls median and average prices lower.
The cost of custom lots has actually dropped this year in some very popular residential areas of Metro Tucson, such as the Northwest Side, including parts of Oro Valley and Marana. However, there are also several pockets of local territory where home lots have increased, such as the eastern half of the Catalina Foothills, East Side areas in the Tanque Verde Valley, and on the West Side next to the Tucson Mountains.
Few land acquisitions by major home builders were made in the last year, leaving those builders reliant on shrinking land inventories in Vail, Sahuarita and along the Tangerine Corridor in Marana and Oro Valley. Many people living in Pima County believe there are huge amounts of land around Tucson available for private development, but most of that is actually owned by various government entities, be they state, local, federal, tribal or military.
Current sales of both existing homes and new homes have increased year to date over 2015. New home permits in metro Tucson are up 25 percent from last year; while new home sales have increased by 20 percent. Although those increases are significant, it is important to remember that the homebuilding and real estate markets have not recovered fully from the Great Recession of 2008, so these increases are modest in context and overdue. One of the factors holding back the recovery of the Tucson homebuilding industry is that new homes cannot be built and sold profitably at prices being offered and sold within the existing home market. In other words, home builders can’t compete with the prices being offered for existing homes.
Existing home sales and the prices paid for them must increase substantially before there can be dramatic increases in homebuilding. It also isn’t likely home builders will make large land and utility investments without the promise of substantial near-term sales at profitable prices. The following statistics help explain the competitive price advantage existing homes enjoy over newly-constructed ones:
Homebuilders simply can’t compete on a price basis with the bulk of existing homes currently on the market priced below $250,000, which is the vast majority of homes sold in the Tucson area.
According to the University of Arizona’s Map Dashboard, in 2015 metro Tucson had the 10th lowest median home price when compared to 12 similar-sized cities across the western U.S. In fact, only El Paso and Albuquerque were lower.
Map Dashboard reported Tucson’s 2015 median sales price at $182,900, which is a level that was 20.2 percent below the national median and 16.8 percent less than Phoenix.
Some interesting builder purchases for the first half of the year are:
Generally speaking, there have been 50 land transactions this year according to CoStar with a total dollar volume of $41,434,049. That represents approximately 452 acres or $19,689,120 square feet. The average sales price was $920,757. Of that, 17 transactions were over a million dollars, representing $22,000,000.
In regards to Commercial Land Sales, notable transactions include:
Commercial Land prices really have a wide disparity in pricing all dependent on location. Premium corners can fetch $25.00 to $30.00 per square foot. Industrial Land prices also vary, but in a much closer range from generally $1.50 to $3.00 per square foot, again depending on location.
Home and land prices not only reflect supply and demand in the housing and real estate markets, but the general economic health of a community as well. Although Tucson has benefited from a good deal of positive economic news in recent months, there is no denying that it has been a slow bounce back from the Great Recession of 2008 and local government leaders must endorse and implement economic and regulatory policies that create jobs and encourage greater economic opportunity.