President and Designated Broker
At the beginning of the year, we forecasted that the Land Market would be better than years past. This was due to a growing economy and a pro-business, pro-growth Trump agenda, fueled by last year’s addition of 5,300 jobs to Tucson and this year’s forecast of 7,100 jobs. That positive combination of national and local news propelled us to forecast a resurge in the Land Market both in sales and price increases.
At the mid-point of the year, this forecast is holding true. Consider the following:
- 2017 building permits year-to-date: 1,024, up 15.8%
- Residential home sales year-to-date: 6,250, up 11.5%
- Residential home prices year-to-date: $224,783 (average), up 4.6%
- Residential new home sales year-to-date: 732, up 12.3%
- Residential new home prices year-to-date: $335,697 (average). A Record! Up 17.9%
- Residential lot sales year-to-date: 224 sales, a 47% increase. Under contract 117, up 43%
- Residential lot inventory (months) year-to-date: 27.7 months, a 58.1% decrease
- Residential lot inventory (active listings) year-to-date: 1,466, a 10% decrease
- Residential lot prices year-to-date: $80,000 median, down 6%
According to CoStar, there were 39 transactions for the year through May totaling $17,488,468 for commercial and production housing land. The average sales price was $830,000 with a high of $3,500,000. Interesting to note was the sales price to asking price ratio of 95.46%. Another indication of just how strong the market is becoming.
As one can see, 2017 is shaping up to be a much-improved year from previous years and the forecast stands for the remainder of the year.
That said, the main issue affecting Tucson’s Land Market going forward is the lack of inventory for builders to purchase to meet the demand of new home sales. It is reaching a crisis point and what is evident is the downward trend the past few months for single-family building permits being pulled. Home builders are simply running out of lots in their subdivisions to build on. Nearly 40% of existing communities currently selling new homes have less than 30 lots remaining in inventory which is a less than one-year supply. This is compounded by the fact that developers during the decade old recession did not develop enough lots, because builders were not buying due to the crash of the housing market. Furthermore, this situation will worsen as developers are finding it increasingly difficult to rezone and/or plat in a timely manner as municipalities are taking longer to approve and new rules and regulations continue to pile on. It is taking forever…forever plus a year. Another setback as developments continue to push towards the outer areas of city limits is major infrastructure deficiencies, thus causing even longer delays. Finally, we are seeing that interior small land parcels have come into vogue for the first time in years in response to increasing consumer demand for in-town residential developments.
The upshot of all this – strong price increases due to lack of inventory. This year, lot prices for builders are up 10 percent to 15 percent in the Northwest and East Markets. Other areas not as much. The difference is due to areas in Tucson which are perceived by the buying public to be more “desirable”. However, all pricing for new homes will continue to rise (up 17.9%) as: A) lot prices increase, B) costs of labor and housing materials increase, C) inventory for new product shrinks as well as the inventory of the resale home market does (the old supply vs. demand).
Some of the larger, notable transactions this year for land:
- Northwest corner of Harrison Road and Old Spanish Trail for $1,250,000, 1.17 acres
- Southeast corner of Silverbell and Ina for $1,250,000, 2.30 acres to Circle K
- Cortaro north of Silverbell (ground lease) for $1,408,261, 0.70 acres. Auto Zone is the tenant.
- The Crossing at Sahuarita (Old Nogales Highway and Abrego Drive) for $3,500,000, 17.73 acres. New development, shopping center.
- 153 W. Sahuarita Road for $1,000,000, 0.73 acres to Smiths Food & Drug.
- Northwest corner of Tangerine & La Canada – Miller Ranch for $1,500,000, 8.60 acres. New location for Kevin Leman’s School.
- Thornydale Road north of Ina for $1,250,000, 5.95 acres. Medical use.
- Northwest corner of Valencia Road and South Camino de Oeste for $1,000,118, 1.40 acres to Circle K.
- Rancho Del Lago for $3,200,000, 30 acres (42 lots and a 71 lot parcel) to Meritage.
While the nation’s GDP grew only at 1.2 percent, the labor market is near full term. Thus far this year, Tucson added 250 positions from ADP and Hexagon Mining will add 120 jobs over five years. In addition, Accenture, the nation’s largest independent retirement and college savings services provider announced it will open an office in mid-2017 that could accommodate 170 associates. Rumors among us say there are more and bigger announcements to come. The positive jibe for Tucson regarding its prosperity and future continues to remain strong. Residential home sales are at levels not seen in years. Builder lot prices will increase in the double digits as lot inventory shrinks and new home product availability does, too. The strong resale home market (up 11.5%) will further deplete inventory, thus raising prices (up 4.6% already). The take away – if you are thinking of buying a home, now is the time before price increases really kick in along with rising interest rates. Tucson is on the upswing and so is its Land Market.