Tucson’s housing market experienced record increases in both permitting and prices this year, pushing the median new-home price above $300,000 for the first time in the local market.
Rising home prices, coupled with higher interest rates translates into a $200 per month loss of buying power, said Ginger Kneup, a local housing analyst.
And, the Federal Reserve has indicated two more rates hikes should be anticipated in 2018 while homebuilders face the challenge of keeping homes affordable.
“Homebuilders are reporting tremendous upward pressure on pricing from a materials and labor standpoint,” said Kneup, owner of Bright Future real Estate Research. “These concerns… ensure that the median home prices will continue to flirt with record levels in the coming months.”
The current production inventory is just under 3,000 lots — about an 18-month supply.
It’s not just new home prices that are rising, the cost of resale homes is also climbing.
Since the beginning of the year, the median sales price of a home has gone from $200,000 to $216,500, said Ginny Huffman, president of the Tucson Association of Realtors’ board of directors.
Long Realty Tucson and Southern Arizona Housing Report calls it a seller’s market.
“It’s a tough scenario for buyers because the lack of inventory means some homes are getting 3, 4, and 5 offers,” Huffman said.
Challenges for real estate agents is to keep sellers from getting carried away with asking prices.
“They’re trying to keep sellers educated so as not to create an inflated market,” Huffman said. “When we have a seller’s market we still have to be realistic and not repeat the mistakes of the early 2000s with inflated prices.”
She said some infill projects could benefit from public-private partnerships to move production along.
“No one can control the hard costs with the price of concrete and steel increasing daily and the labor shortage,” Huffman said. “But we could reduce the costs of permitting and electric, gas and water lines to help keep home prices down.”
Despite the challenges, homebuilders remain confident, said David Godlewski, president of the Southern Arizona Home Builders Association.
“They are actively looking for land for new communities,” he said. “There are, however, underlying factors that are working against the market hitting on all cylinders. We’re still challenged by issues like increased mortgage rates, labor shortages, increased regulatory costs and rising material costs which have jumped significantly in recent months.
“All things considered, builders believe things are headed in the right direction, but it’s going to be a grind.”